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The U.S.-EU trade and investment relationship, what many call the "transatlantic economy," is a mut ually beneficial and globally significant relationship. It is not only the largest in the world, but also arguably the most important because of its sheer size (see Figure 1 ). At the same time, certain challenges remain in the relationship, and many stakeholders assert that it has not reached its full economic potential. To enhance trade disciplines and market access by addressing remaining transatlantic barriers to trade and investment, the United States and the European Union (EU) presently are negotiating a "mega-regional" free trade agreement (FTA). The potential agreement officially is referred to as the Transatlantic Trade and Investment Partnership (T-TIP). On March 20, 2013, the Obama Administration notified Congress of its intent to enter into T-TIP negotiations. The United States and EU, led respectively by the Office of the U.S. Trade Representative (USTR) and European Commission, commenced negotiations in July 2013. Both sides initially aimed to conclude the negotiations in two years, but have extended that goal a number of times. The timing is now uncertain given the complexity of the negotiations and the current U.S. focus on the proposed Trans-Pacific Partnership (TPP), among other factors. Twelve rounds of T-TIP negotiations have occurred to date. According to a U.S. statement at the conclusion of the 12 th round, based on "intensified engagement over the past few months," the United States and the EU "now have proposed text in the vast majority of the negotiating areas. And in many cases, we are already removing brackets and agreeing on wording." Congress has a direct interest in the T-TIP negotiations because it establishes overall U.S. trade negotiating objectives, which it updated in 2015 in Trade Promotion Authority (TPA) legislation ( P.L. 114-26 ), and would approve future implementing legislation for a final T-TIP to enter into force. T-TIP could be eligible to receive expedited legislative consideration under TPA if Congress determines that it advances U.S. trade negotiating objectives established in TPA and meets other statutory requirements. T-TIP also presents Congress with a range of possible issues that could be of oversight interest. This report provides: (1) context for the T-TIP negotiations; (2) analysis of possible trade and investment issues in the negotiations; and (3) discussion of issues for Congress. The U.S.-EU negotiations on T-TIP are not public. The information and analysis in this report on issues in the negotiations are based on publicly available information. Efforts to deepen the transatlantic relationship through trade and investment liberalization date back many years. For instance, in 1995, there was high-level interest on both sides in negotiating a "Transatlantic Free Trade Agreement" (TAFTA). Certain groups recommended the TAFTA as a complement to the North American Free Trade Agreement (NAFTA) and the Uruguay Round Agreements, which had led to the formation of the World Trade Organization (WTO). Others supported the idea, in part, to prevent Europe and the United States from drifting apart because they no longer faced a mutual Cold War enemy. Others expressed concern that TAFTA negotiations could signal a lack of U.S. and EU confidence in the newly-formed WTO multilateral trading system. Critics also questioned the feasibility of addressing politically difficult transatlantic issues, such as agricultural subsidies and regulatory practices. Although the two sides did not take up TAFTA negotiations at that time, the proposal has continued to re-emerge periodically. The Eurozone crisis, slowdown in the European economy, and slow U.S. economic recovery following the global economic crisis that began in 2008, along with increased competition from emerging markets, have renewed the interest of some Members of Congress, the Administration, private stakeholders, and others in reducing remaining U.S.-EU barriers to trade and investment as a way to boost transatlantic economic growth and jobs, a view supported by various studies. The negotiation of an FTA is particularly compelling for some policymakers as a possible "low-cost" or "deficit-free" tool for supporting economic goals. While broadly supportive, some also underscore the importance and difficulties of reaching agreement on long-standing areas of difference in transatlantic trade and investment relations (see discussion in subsequent sections). Others are skeptical of U.S. trade negotiations and express specific concerns about the impact of a potential T-TIP, for example, on certain sectors of the U.S. economy that are import-sensitive or on governments' ability to protect health, environmental, and labor interests. While trade liberalization can lead to economy-wide gains, the costs can be highly concentrated on particular groups or economic sectors, including those in "import-sensitive" sectors of the U.S. economy. The decision to launch the T-TIP negotiations followed recommendations of the U.S.-EU High-Level Working Group (HLWG) on Jobs and Growth. Established by U.S. and EU leaders during the November 2011 U.S.-EU Summit Meeting under the auspices of the Transatlantic Economic Council (TEC), the HLWG was tasked with identifying ways to increase transatlantic trade and investment to support jobs, economic growth, and international competitiveness. On February 11, 2013, the HLWG issued a final report to the U.S. and EU leadership recommending that the two sides launch negotiations on a comprehensive bilateral trade and investment agreement, referred to by both sides now as T-TIP. Based on the HWLG's recommendations, U.S. and EU leaders undertook the relevant procedures to launch the T-TIP negotiations (see text box ). The HLWG concluded that "a comprehensive agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues, and contributes to the development of global rules would provide the most significant mutual benefit of the various options ... considered." It recommended that the negotiations aim to achieve "ambitious" outcomes in three broad areas: 1. elimination or reduction of market access barriers for trade in goods, services, and investment; 2. enhanced compatibility of regulations and standards; and 3. cooperation for developing rules on global issues of common concern in areas such as intellectual property rights, the environment and labor, as well as in other globally relevant trade-related areas (e.g., state-owned enterprises, localization barriers to trade, trade facilitation, raw materials and energy, small- and medium-sized enterprises, and transparency). The HLWG's final report did not specifically mention agriculture as a negotiating topic, but the negotiations include discussion on agricultural issues. U.S. participation in T-TIP may contribute to several goals of U.S. trade policy. First, a successful T-TIP could support overall U.S. trade policy objectives to open markets and advance rules-based trade and investment liberalization. The United States negotiates free trade agreements (FTAs) bilaterally with other countries, regionally or plurilaterally with a larger group of countries, and multilaterally through the World Trade Organization (WTO). To date, 14 U.S. FTAs with 20 countries have entered into force, most recently with Colombia, Panama, Peru, and South Korea. In February 2016, the United States and 11 other Asia-Pacific countries signed the Trans-Pacific Partnership (TPP) FTA agreement. The United States also is engaged in other international trade negotiations, both multilaterally in the WTO and plurilaterally within and around the WTO, including on international trade in services and environmental goods. T-TIP also provides the United States with an opportunity to make its "comprehensive and high standard" FTA model more dominant in world trade. Globally, countries have notified over 400 regional trade agreements to the WTO, with nearly 300 in force. A U.S.-style FTA covers substantially all trade in goods, services, and agriculture, and aims to reduce and eliminate tariff and non-tariff barriers to trade and investment. Typical of the U.S. approach, a potential T-TIP could build on prior U.S. FTAs, including the recent U.S.-South Korea FTA and the proposed TPP to pursue greater market access and enhanced rules and disciplines. In contrast to the United States, many trade agreements by other countries are not considered to be as "comprehensive and high standard" as U.S. FTAs. For example, some EU trade agreements have provided for limited liberalization of services and less market access for sensitive agricultural products. The content of EU trade agreements also has varied depending on the economic level of the trading partner. While EU FTAs may be becoming more comprehensive, even in their current form, they are viewed as more comprehensive than those of some other countries, such as China. Additionally, T-TIP provides an opportunity for the United States and the EU to cooperate on trade issues of mutual interest that could lead to new globally-relevant disciplines. Focal points of such cooperation could be issues either not currently, or fully, addressed in existing trade agreements, such as regulatory cooperation, state-owned enterprises (SOEs), and "forced" localization barriers to digital trade. In terms of TPP, President Obama has stated that the United States is "writing the rules for the global economy," and that without TPP, "competitors that don't share our values like China, will write the rules of the global economy." Some cast T-TIP as a similar opportunity for the United States and EU, with many common values and interests, to "write the rules" for the global economy together. Given the size of the transatlantic economic relationship, agreement between the United States and EU on key trade and investment issues could form the basis for the negotiation of future multilateral rules in the WTO. The United States and EU, which historically have led in setting international rules for global trade and investment, can significantly influence the rules of the global trading system when they work together. Others contend that mega-regional FTA negotiations detract from the focus on making progress at the multilateral level. T-TIP is significant for the U.S.-EU relationship in a number of ways. First, it is an opportunity for the United States and EU to strengthen their already extensive trade and economic relationship, including gaining strategic market access to each other's economies. The United States and the EU increasingly run the risk of being disadvantaged in each other's market in the absence of their own bilateral FTA and in light of the FTAs that each side has with other countries. For instance, shortly after Japan announced plans to join the TPP negotiations, the EU and Japan stated their intent to negotiate a bilateral FTA and launched negotiations in March 2013. In October 2013, the EU concluded the Comprehensive Economic and Trade Agreement (CETA) with Canada, another TPP negotiating party. More recently, in February 2015, a few months after TPP's conclusion, the EU and Vietnam announced the conclusion of a bilateral FTA. Second, the extensive and mature nature of the transatlantic economic relationship distinguishes these negotiations. T-TIP is a strategic opportunity for the United States and the EU to develop new or expanded globally-relevant rules (see earlier discussion). Yet, in certain areas, notably regulatory compatibility, long-standing U.S.-EU differences in approaches could constrain such efforts. Should the two sides reach consensus, they could bring to bear considerable influence in the global economy in these areas. Consensus may require each side to be more flexible than it has been in other FTA negotiations, which generally have been with countries of lower levels of development and economic clout. The comparable economic size of the two trading partners means that neither side can dominate the negotiations. Third, T-TIP could affect the U.S.-EU political relationship. On one hand, a successful T-TIP could reinforce the United States' commitment to Europe in general and especially to the EU's role as a critical U.S. partner in the international community. On the other hand, any outcome that falls short of a comprehensive and high-standard FTA could call into question the strength of the transatlantic relationship. Some Europe watchers have questioned the U.S. commitment to the transatlantic relationship in light of the Obama Administration's "rebalancing" toward the Asia-Pacific region. Some observers have raised concerns that the "rebalancing," combined with U.S. participation in the TPP negotiations, signifies a "pivot away" from Europe and key institutions, such as the North Atlantic Treaty Organization (NATO) and EU. Administration officials have rejected such claims, asserting that a U.S. focus on the Asia-Pacific is not at the expense of the transatlantic relationship. Some observers assert that TPP's conclusion and potential approval in Congress could renew political momentum for T-TIP. The potential economic benefits of T-TIP are expected to exceed the gains from prior U.S. FTAs, given the size and the advanced nature of the U.S. and EU economies. In 2014, the United States and EU produced nearly half of the world's gross domestic product (GDP) and collectively accounted for more than one-tenth of the total global population. By these measures, the economic area covered under the proposed T-TIP would far exceed that covered by existing U.S. FTAs, as well as the recently concluded TPP (see Table 1 ). The potential T-TIP would be the third largest U.S. FTA in terms of U.S. trade in goods, after the proposed TPP and NAFTA. In contrast, it would be the largest U.S. FTA in terms of U.S. trade in services. When combining both goods and services, it would be the third largest FTA, after the proposed TPP and the existing NAFTA (see Figure 2 ). Although the transatlantic services relationship is significant, the larger volume of U.S. trade in goods with TPP countries outweighs U.S.-EU trade in services. With respect to investment, T-TIP would far exceed existing U.S. FTAs and the proposed TPP. U.S.-EU direct investment is more than five times such investment between the United States and the NAFTA countries, and it is more than double such investment between the United States and the TPP countries (see Figure 3 ). Despite the growing role of China and other emerging markets in the global economy, as well as current U.S. and EU economic challenges, the United States and the EU (as a bloc) remain each other's largest trade and investment partners. Total U.S.-EU trade in goods and services amounted to $1.1 trillion in 2014, leading to an overall U.S. trade deficit of $92.9 billion with the EU (see Figure 3 ). U.S.-EU trade is heavily weighted toward trade in advanced products. The flows of merchandise trade, services trade, and income across the Atlantic, totaling $1.7 trillion in 2014, reflect an active, integrated, and dynamic economic relationship. With globalization, new patterns of production, based on complex cross-border value chains, are a major element of U.S.-EU economic ties. Intra-industry trade dominates the transatlantic relationship, i.e., trade in similar products exported across borders. Intra-firm trade ("related-party trade"), which is cross-border trade between multinational companies and their affiliates, is also prevalent. Intra-firm trade occurs, for example, when Volkswagen of Germany sends parts to Volkswagen of Tennessee and vice versa. In 2014, related-party trade accounted for about 60% of all U.S. imports of goods from the EU and about 32% of U.S. exports of goods to Europe. The importance of the U.S.-EU relationship is even greater from the foreign direct investment (FDI) perspective. The United States and EU are each other's largest investors, and FDI is a major driver of transatlantic trade. In 2014, the U.S. FDI in EU totaled $2.5 trillion (or about 51%) of total U.S. direct investment abroad. Conversely, EU companies accounted for $1.7 trillion (or about 59%) of direct investment in the United States. Thus, U.S. and EU investors collectively owned more than $4 trillion in stock of direct investment in each other's economy in 2014. These investments span manufacturing, banking, financial services, and other sectors. U.S. trade negotiations seek to reduce and eliminate tariff and nontariff barriers to trade and investment in goods, services, and agriculture. Issues discussed in the T-TIP negotiations to reduce these barriers can be grouped into three broad, overlapping categories: Market access: Market access for goods, services, and agriculture involves seeking new competitive export opportunities through reducing and eliminating tariff and nontariff barriers. It often forms the foundation of FTA negotiations. Some "traditional" market access issues may play a lesser role in T-TIP compared to other U.S. FTA negotiations. U.S. and EU tariffs are already quite low, though given the magnitude of the transatlantic relations, further elimination and reduction of tariffs could yield significant economic gains. Commitments in other areas, such as further opening of government procurement markets, could also lead to greater market access. Regulations and standards: Greater cooperation, convergence, and transparency in regulations and standards-setting processes could help to reduce transatlantic nontariff barriers to trade. Key sectors of interest include automobiles, chemicals, cosmetics, engineering, information and communications technology (ICT), medical devices, pesticides, pharmaceuticals, and textiles. Economic gains from greater regulatory cooperation, convergence, and transparency could be significant, and are widely regarded by stakeholders as a core component of T-TIP. At the same time, there is skepticism about whether a comprehensive transatlantic agreement on regulatory issues can be reached. Rules: Trade-related rules span areas such as intellectual property rights (IPR), investment, digital trade, trade facilitation, labor, the environment, localization barriers, and state-owned enterprises (SOEs). T-TIP negotiations on rules could build on those in WTO agreements. Many of these areas, while not addressed in the WTO, have become a standard part of U.S. and EU FTAs with other countries. The negotiations also could break new ground on other issues that are modestly treated, or not at all, in prior U.S. FTAs or multilateral agreements. The United States and EU generally are regarded as having more commonalities than differences in their approaches to these issues. For instance, both sides have strong commitments to protecting consumer health and safety through regulations and maintaining strong overall protections for investment, IPR, labor, and the environment. At the same time, certain areas—such as regulations related to the precautionary principle (such as for genetically modified organisms) or rules for cultural exceptions for the audiovisual sector and geographical indications—remain points of debate. To the extent that T-TIP is used to advance multilateral trade liberalization, debates about the impact of certain regulations, standards, and rules on third countries may be heightened. T-TIP remains in the early stages and the structure of a potential agreement is still evolving (see text box ). As with past U.S. FTAs, T-TIP aims to eliminate duties on bilateral trade in goods, with a goal of substantially eliminating tariffs upon entry into force of the potential agreement and a phase out of all but the most sensitive tariffs in a short time frame. At the same time, tariff issues may play a lesser role in the T-TIP negotiations because average U.S. and EU tariffs are already quite low, though higher for certain products of import-sensitive industries. Nevertheless, given the magnitude of the transatlantic economic relationship, further tariff elimination or reduction could yield to significant economic gains to both sides of the Atlantic (see text box ). Some observers have suggested negotiating tariff reductions only in T-TIP would yield significant gains. Others generally view tariffs as "low-hanging fruit" in the T-TIP, and argue that the two sides should work toward a more "robust" agreement that would eliminate other drags on the system, including regulatory and other market access issues. At present, EU and U.S. imports of each other's products are assessed at the most-favored-nation (MFN) or normal trade relations (NTR) rate. According to WTO statistics, the U.S. simple average applied tariff rate in 2014 was 3.5% ad valorem , in contrast to the EU rate of 5.3%. Although U.S. and applied tariff rates are relatively modest, tariffs are higher (known as "tariff peaks") in certain product import-sensitive categories such as dairy products, sugar and confectionery, beverages and tobacco, fish and fish products, and textiles and apparel (see the Appendix ). EU tariff peaks are similar to U.S. ones, except that EU tariffs on U.S. agricultural imports (simple average tariff of 13.7%; trade-weighted average of 8.6%) overall are much higher than U.S. tariffs on EU imports (4.7% simple average tariff rate; trade-weighted average of 2.1%). By one estimate, U.S. firms pay about $6.4 billion tariffs to the EU. The two sides have exchanged second tariff offers that reportedly cover 97% of tariff lines. Negotiators reportedly have not yet agreed to commitments on more import-sensitive sectors, such as in agriculture. Tariffs also play a significant role in intra-company trade for U.S. and EU firms. According to an estimate, in 2011, U.S. companies faced about $2.4 billion in duties on intra-firm imports from the EU. U.S.-based sectors that paid the most in terms of intra-firm import duties included automobiles, machinery, and chemicals. Given that much of U.S.-EU trade is conducted by multinational firms with affiliates on each side of the Atlantic, these are sometimes called "nuisance tariffs," because they are viewed as adding unnecessary costs to intra-firm trade. The services sector includes economic activities such as accounting, banking, insurance, retail, education, legal, transportation, e-commerce, express delivery, tourism, and telecommunications. Services represent a large and ever-widening range of economic activities and employment, and constitute nearly 70% of U.S. GDP. The products of services providers are generally intangible in nature, and deliver some form of human value-added endeavor, such as labor, training, research and development, or design support. The EU is an important services market for the United States, representing about one-third of annual U.S. services exports worldwide in 2014. The United States holds a services trade surplus with the EU, with exports of about $219 billion and imports of about $169 billion in 2014 (see Figure 4 ). The United Kingdom (UK) is both the largest EU destination for U.S. services exports and the largest EU source of U.S. services imports. The United States exported $64 billion in services to the UK in 2014, followed by Ireland ($40 billion), Germany ($28 billion), and France ($20 billion). Likewise, in 2014, U.S. imports of services from the UK totaled about $50 billion, followed by Germany ($33 billion), France ($17 billion), and Ireland ($15 billion). Firms that produce services are often discussed in contrast with manufacturers that produce tangible goods. However, a study linking 2008 data on international services trade with statistics on the operations of multinational companies (MNCs) showed that firms typically associated with the production or sales of goods are also among the largest importers and exporters of services. For example, manufacturing firms might export intellectual property that they hold in exchange for royalties and licensing fees and import or export design support, research and development, or product testing. This is especially important in terms of U.S.-EU services trade given the number of firms that operate on both sides of the Atlantic. The United States and EU are both signatories to the WTO's General Agreement on Trade in Services (GATS), a multilateral agreement setting rules removing trade barriers to international trade in services. The GATS consists of: (1) a main text containing general obligations and disciplines; (2) annexes containing rules for specific sectors; and (3) specific commitments of signatories to provide market access. The HLWG report recommended that U.S.-EU negotiations in services seek to achieve new market access "on a comprehensive basis" by dealing with long-standing barriers between the two; improve regulatory cooperation "where appropriate"; and include binding commitments to provide transparency, impartiality, and due process with regard to licensing and qualification requirements and procedures. In addition to T-TIP, the United States and the EU are negotiating services liberalization in a potential Trade in Services Agreement (TiSA). What follows is a discussion of certain issues in transatlantic services trade identified by both sides that are likely to be addressed in the T-TIP context. Financial services are an important component of the transatlantic economic relationship, and market access issues with respect to financial services are expected to be a part of the T-TIP negotiations. However, debate continues over whether the scope of regulatory issues discussed in the negotiations should include financial services. In light of reforms to the U.S. and EU financial systems currently underway in response to the global financial crisis of 2008-2009, questions have arisen about the coherence of the regulatory reforms and whether differences in regulations affect the competitiveness of domestic financial services firms. Certain Members of Congress, European officials, and business groups on both sides of the Atlantic have expressed support for including financial services regulatory issues in T-TIP. Some Members have called on the Administration to address regulatory discrepancies between the U.S. and EU financial systems in the negotiations, stating "[c]onfusion caused by inconsistent and conflicting regulations have already spilled over into the broader economy, reducing investment, creating higher compliance costs, lowering employment, and hindering economic growth." Other Members and stakeholders have expressed concern that the inclusion of financial services regulatory issues in the negotiations could lower financial regulatory standards, such as reducing consumer protections included in the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ). The United States and EU currently are discussing financial regulatory cooperation issues proposals in larger dialogues, such as the G-20 and the Financial Stability Board (FSB). Additionally, they are engaging in discussions bilaterally. For instance, on November 20, 2015, the U.S. Department of the Treasury and the Office of the U.S. Trade Representative notified Congress of the United States' intent to negotiate with the EU on prudential measures for reinsurance. U.S. Administration officials reportedly remain reluctant to include financial regulatory cooperation in the T-TIP negotiations, in part, because of concern that it may interfere with ongoing discussions. For instance, during his nomination hearing, U.S. Trade Representative Froman stated that, with respect to financial services, market access issues should be included in the negotiations, while regulatory issues should continue to be addressed in parallel alongside, but outside, the T-TIP negotiations. At the same time, they support discussing financial services market access in the negotiations. More recent USTR statements have echoed the same position. EU negotiators have asserted that divergences in financial rules should be addressed if T-TIP is to yield a meaningful outcome on financial services. They reportedly continue to link market access and regulatory cooperation issues in this sector. The treatment of the audiovisual services sector, particularly with respect to "cultural exceptions," has emerged as a controversial topic. Through cultural exceptions, countries provide special support to domestic industries they consider culturally sensitive, such as through broadcasting quotas, subsidies, and local content requirements. These measures can limit market access to such industries for foreigners. For example, France maintains cultural exceptions for its film and television industries. Led by France, some EU member states have called for the exclusion of the audiovisual services sector from the T-TIP negotiations. In its approval of the European Commission's "negotiating mandate," the Council of Ministers agreed that audiovisual services would not be covered in the mandate, but the European Commission could make additional recommendations that it be included in the mandate at a later time. The European Commission's subsequent position paper on T-TIP and culture and various statements have reiterated this position. While this decision may assuage certain EU member states' concerns about T-TIP, some observers contend that it could set a precedent for carving out other sensitive sectors from the negotiations. The treatment of services providers could be another area of focus in the T-TIP negotiations. One issue that the T-TIP could address is the licensing and certification of professional services providers. Appropriate credentials are required on both sides of the Atlantic in many fields such as medicine, insurance, education, and law. In the EU, such services are regulated by the member states, and, in the United States, at the state level. Thus, providing cross-border services could be challenging for services firms, because even if a services employee is qualified in one state or EU country, the certification may not be recognized elsewhere. Another issue that the T-TIP could address is the delivery of certain services through physically sending service providers across international borders. How the delivery of services in this manner (known as "Mode 4" in the GATS) is regulated is an evolving issue. Potential changes in Mode 4 could be made in streamlining the temporary movement of business personnel. However, the inclusion of Mode 4 services in trade agreements can be sensitive, in part because of issues of congressional jurisdiction. The temporary movement of business personnel across borders has emerged in recent trade negotiations, however, and may surface in the T-TIP. For example, the EU-Canada Comprehensive Economic and Trade Agreement (CETA) includes provisions intended to make it easier for firms to move certain business professionals between the EU and Canada, such as to deliver services, perform after-sales maintenance, and monitor service commitments. In addition, the current plurilateral Trade in Services Agreement (TiSA) negotiations include discussions of Mode 4 services. The Obama Administration's letter formally notifying Congress of the U.S. intent to enter into trade negotiations with the EU contained specific objectives for negotiations in electronic commerce and communication technology services, including "the development of appropriate provisions to facilitate the use of electronic commerce to support goods and services trade," and to "facilitate the movement of cross-border data flows." TPA includes specific negotiating objectives in digital trade in goods and services. The Internet is both a major delivery platform for trade and an important services sector. It also is an essential asset for businesses as a tool for internal organization (i.e., communicating with employees, receiving orders), external integration of business processes (i.e., supply chain management; invoicing), and conduct of business transactions worldwide. For example, a study of the online marketplace eBay Inc., proposed that Internet commerce is much more effective than offline channels at reducing international trade costs and overcoming traditional trade impediments; for example, distances between countries, exporting goods to foreign markets, differences in legal systems, and foreign language barriers. Online commerce also facilitates exports by small- and medium-sized businesses. For example, 97% of commercial sellers on eBay are engaged in selling overseas to one or more countries. The Internet has made it possible for financial firms to provide account information and transactions online, for electronic medical records to be sent across borders for analysis, and for rural communities to access real-time information on agricultural prices, to name only a few services delivery possibilities. T-TIP is expected to include commitments on commercial cross-border data flows. The opportunities that the Internet offers individuals and businesses to connect, share information, and exchange ideas is sometimes limited by national governments that seek to regulate the flow of data across borders. In some cases, the motivation of officials is viewed as legitimate—to regulate and curtail illegal behavior, such as identity theft, child pornography, and other illicit activities. Rule of law issues such as dispute settlement and contract enforcement have also become reasons for government concern as the Internet expands as a business platform. In other cases, motivations for the regulation of data flows can be questionable, particularly if the measures appear discriminatory. For instance, some countries have introduced measures that would compel some financial service providers to process data on-shore, or require online service providers to locate physical infrastructure (i.e., servers) within the country's borders—a type of localization barrier to trade. Others have proposed conditioning market access on the basis of where certain intellectual property has been developed or registered. Europe is the United States' largest trading partner overall, and this is also true in the digital trade sector. Data flows across the United States and the EU are the largest globally, approximately 55% larger than data flows between the United States and Asia, and 40% larger than data flows between the United States and Latin America. "Digitally-enabled services," such as in financial services, are prominent in the transatlantic trading relationship. U.S. information sector firms' direct investment firms in establishing and expanding their operations in Europe also shapes U.S.-EU digital trade. At the same time, U.S. firms identify certain remaining barriers to digital trade with the EU, such as data privacy and protection requirements (discussed below) and localization barriers (discussed separately further below). T-TIP is not expected to include data protection standards; although the EU is willing to discuss data flows in the T-TIP talks, EU officials have stated that they will not discuss changes to EU data protection standards. At the same time, developments in data protection may influence T-TIP's treatment of cross-border data flows. The United States and the EU differ in their approaches to data protection and data privacy. Many Europeans, including some European Parliament members and European data protection authorities, have concerns about the adequacy of U.S. privacy laws and the volume of U.S. data collection under intelligence and counterterrorism programs. The unauthorized disclosure of classified information related to National Security Agency (NSA) surveillance activity since June 2013 elevated such concerns. Subsequently, the United States and the EU established a high-level expert group to discuss ensuring issues, including implications for the privacy rights of EU citizens. EU officials have asserted that any potential measures agreed to in T-TIP must not undermine EU data protection standards. U.S. companies have expressed concern that the NSA disclosures could lead to European demands for restrictions on cross border data flows (e.g., requiring that servers be located in the EU for data privacy reasons) in T-TIP. Key developments in data protection are discussed below. The NSA leaks, along with claims that some U.S. Internet and telecommunications companies were involved in the reported NSA activities, renewed some European concerns about the "U.S.-EU Safe Harbor Agreement." Concluded in 2000, Safe Harbor was an agreement under which participating U.S. businesses self-certified to the U.S. Department of Commerce that they provide "adequate" privacy protection (i.e., comply with EU standards), as defined by the EU's Directive on Data Protection of October 1995. Safe Harbor allowed U.S. businesses with operations in the EU to transfer personal data to the United States in compliance with EU rules and regulations. Many U.S. businesses favored Safe Harbor as a way to, on one hand, make compliance requirements more streamlined and facilitate transatlantic data flows and, on the other hand, ensure EU-compliant data privacy protection. Over 4,000 U.S. companies were certified under the program. In the wake of the NSA disclosures, some European Parliament members called on the European Commission to suspend Safe Harbor. The commission recognized weaknesses in Safe Harbor but rejected suspending it to avoid hurting business interests. In November 2013, the commission issued recommendations to improve Safe Harbor and engaged with U.S. authorities to identify measures to improve the program and ameliorate concerns about U.S. government access to personal data transferred from the EU to U.S. companies . However, on October 6, 2015, the Court of Justice of the European Union (CJEU, which is also often commonly referred to as the European Court of Justice, or ECJ) issued a decision invalidating Safe Harbor. EU data protection authorities then announced their intent to start enforcing the decision, potentially blocking transatlantic data transfers, unless a new arrangement was in place by January 31, 2016. U.S. and EU businesses called for the issue to be resolved, expressing concern about the uncertainty they faced in transferring data for their business operations. Shortly after the deadline passed, on February 2, 2016, the United States and the EU agreed to a "EU-U.S. Privacy Shield" framework for data transfer intended to improve commercial oversight and enhance privacy protections for European personal data. On February 29, 2016, the United States and EU released a draft text of the framework agreement. The Privacy Shield framework, which, when implemented, will replace Safe Harbor, will include obligations on U.S. companies to self-certify (and annually re-certify) their compliance with the Privacy Shield's requirements. It will also include U.S. Government enforcement obligations on (particularly the Federal Trade Commission, the Department of Transportation, and the Department of Commerce), including ensuring that access to EU personal data for U.S. law enforcement and national security purposes will be subject to clear limitations and oversights. It also includes additional avenues to address data privacy concerns of EU citizens, including free, independent dispute resolutions provided by participating companies and a new ombudsman housed in the U.S. Department of State. The United States and the EU agreed to proactively monitor the implementation and enforcement of the new agreement. Separately, in the 114 th Congress, the Judicial Redress Act ( P.L. 114-126 ), which has been passed by the House and Senate and presented to the President, extends the core judicial redress provisions in the U.S. Privacy Act of 1974 to EU citizens. Although initially introduced to facilitate passage of a U.S.-EU accord to address data transfers in the law enforcement context (see below), some U.S. policymakers and industry experts hope that it will also help to ease at least some European concerns about commercial data transfers and U.S. government access to personal data, as well as bolster confidence in the new "Privacy Shield." Some experts point out that the scope of the judicial redress in the U.S. legislation is not exactly equivalent to what U.S. persons and residents enjoy under the Privacy Act, is relatively limited, and relates specifically to information transferred in a law enforcement context. Government procurement is the public purchase of goods and services for use in governmental activities. These activities include buying equipment, computers, paper, and supplies for employees; providing water treatment services; or building roads or buildings for the public. In the United States and EU, the government procurement market is the equivalent of about 15% - 20% of each of their respective GDPs. As such, further market access in the sector could be of significant benefit to both partners. The HLWG final report recommended that T-TIP aim to substantially improve access to government procurement opportunities at all levels of government. The United States and EU are parties to the WTO Agreement on Government Procurement (GPA), a plurilateral agreement that sets forth legally-binding rules and obligations concerning governing procurement. The GPA provides the 28 contracting parties with limited market access to some government entities (as specified in Appendix I of the GPA for each signatory); and to contracts worth more than a specified threshold value. Thus, not all government procurement opportunities are open to GPA partner countries. According to the USTR, gauging the current level of U.S. participation in the EU government procurement market is difficult because the EU does not keep statistics on government purchases of goods and services with the level of precision necessary. The USTR also states that an EU directive on procurement of utilities covering purchases in the water, energy, urban transport, and postal services discriminates against bids with less than 50% EU content that are not covered by an international or reciprocal bilateral agreement. In contract competitions conducted by EU member state governments, U.S. firms point to concerns ranging from the lack of transparency in contract awards to EU bias in government contract awards. In T-TIP, U.S. negotiators are seeking to expand market access opportunities in goods and services in the EU and EU member states' government procurement markets, and to ensure "fair, transparent, and predictable" rules for government procurement, as well as favorable, nondiscriminatory treatment for U.S. suppliers. EU negotiators assert that the T-TIP negotiations present an important opportunity to develop some bilateral "GPA-plus" elements that could inspire a multilateral GPA revision. EU firms reportedly would like more access to sub-central government (e.g., states) entities in the United States. They also point to U.S. laws such as the Berry Amendment (10 U.S.C. 2533a) that restrict government purchases of certain items to U.S. businesses for security reasons; and the Buy American Act (41 U.S.C. 8301ff), which provides a preference for American goods in government purchases, as among those that are potentially injurious to EU companies that want to bid for U.S. procurement contracts. Access to government procurement markets at the "sub-central" (i.e., state and city) level is also be an issue in the T-TIP negotiations. At the sub-central level, U.S. states can voluntarily agree to be subject to government procurement commitments in U.S. FTAs. In recent years, the number of U.S. states that have opted into government procurement agreements has declined. For example, 37 states acceded to the provisions of the WTO GPA in 1995, while 8 states signed on to the government procurement commitments in the most recent U.S. bilateral FTAs implemented in 2012 (those with Peru, Panama, and Colombia). Agricultural issues have been an active topic of debate—not only in the context of market access negotiations but mainly within regulatory and also intellectual property rights discussions within the T-TIP negotiations (see below). Negotiations on agricultural products may be viewed in the context of a series of long-standing, high-profile transatlantic trade disputes between the United States and EU, covering a range of trade issues. These include beef hormones, pathogen reduction treatment for poultry, regulations related to bovine spongiform encephalopathy (BSE, commonly known as mad cow disease), pesticide residues on foods, and the use of biotechnology (genetically modified organisms, or GMOs). Further complicating these negotiations are major underlying regulatory and administrative differences between the United States and EU in how each addresses these issues within their respective borders. Although not specifically mentioned in the HLWG final report or the official congressional notification, agriculture, in particular, is a sector in which the incompatibility of regulations, such as sanitary and phytosanitary (SPS) measures, has led to long, difficult, and high-profile transatlantic trade disputes. Agricultural issues are likely to be a topic for debate, both in the context of market access negotiations and regulatory discussions. The following EU-U.S. agriculture issues are among those that may be addressed in the T-TIP negotiations. The United States is among the world's largest net exporters of agricultural products, averaging more than $135 billion per year (2010-2014). The EU is a leading export market for U.S. agricultural exports, and is ranked as the fifth largest market for U.S. food and farm exports. However, in recent years, growth in U.S. agricultural exports to the EU has not kept pace with growth in trade to other U.S. markets, and imports from Europe currently exceed U.S. exports to the EU. In 2014, U.S. exports of agricultural products to the EU totaled $13 billion, while EU exports of agricultural products totaled $19 billion, resulting in a substantial trade deficit for the United States. This reverses the net trade surplus in U.S. agricultural exports during the early 1990s (see Figure 5 ). Major U.S. agricultural exports to the EU include tree nuts, soybeans, forest products, distilled spirits, vegetable oils, wine and beer, planting seeds and tobacco, and processed fruit and wheat. Major EU agricultural exports to the United States include wine and beer, essential oils, snack foods, processed fruits and vegetables, other vegetable oils, cheese, cocoa paste/butter, live animals, nursery products, and red meats. The U.S. Department of Agriculture (USDA) reports that the EU's average agricultural tariff is 30%, well above the average U.S. agricultural tariff of 12%. Other EU trading partners benefit from preferential tariff access to the EU, given that the EU has concluded free trade agreements with more than 30 countries with plans to negotiate agreements with a dozen more countries. This preferential access will provide other U.S. exporter competitors, such as Canada, an advantage over U.S. agricultural exporters. A study by USDA reports that removing tariffs and tariff-rate quotas under T-TIP could increase U.S. agricultural exports to the EU by an estimated $5.5 billion; EU exports to the United States are estimated to rise by $0.8 billion. High EU average tariffs on U.S. exports are further exacerbated by the EU's nontariff measures to U.S. agricultural products, such as food safety, animal or plant health issues and technical barriers to trade. USDA reports that such nontariff barriers contribute to delays in reviews of biotech products (creating barriers to U.S. exports of grain and oilseed products); prohibitions on the use of growth hormones in beef production and the use of certain antimicrobial and pathogen reduction treatments (creating barriers to U.S. meat and poultry exports); and burdensome and complex certification requirements (creating barriers to U.S. processed foods, animal products and dairy products). In addition to high EU tariffs, a report by the U.S. International Trade Commission (ITC) identified extensive EU regulations, as well as difficulty finding up-to-date information, among the primary concerns of U.S. businesses, particularly for processed foods. U.S. businesses also note concerns about the lack of a science-based focus in establishing SPS measures, difficulty meeting food safety standards and obtaining product certification, the lack of cohesive labeling requirements, and stringent testing requirements that often are applied inconsistently across EU member nations. USDA reports that the ad valorem equivalent (AVE) effects of non-tariff barriers to U.S. agricultural exports are estimated to range from 23% to 102%. USDA further estimates removing selected non-tariff barriers under T-TIP could increase U.S. agricultural exports to the EU by an estimated $4.1 billion (not including estimated export gains from the removal of other tariff barriers). EU exports to the United States are estimated to rise by $1.2 billion. Gains would be greatest to the U.S. livestock and produce industries. SPS measures are laws, regulations, standards, and procedures that governments employ as "necessary to protect human, animal or plant life or health" from the risks associated with the spread of pests, diseases, or disease-carrying and causing organisms, or from additives, toxins, or contaminants in food, beverages, or feedstuffs. Technical barriers to trade (TBTs) cover both food and non-food traded products. TBTs in agriculture include SPS measures, but also include other types of measures related to health and quality standards, testing, registration, and certification requirements, as well as packaging and labeling regulations. SPS/TBT measures regarding food safety and related public health protection are addressed in various multilateral trade agreements and are regularly notified to and debated within the WTO. International trade rules recognize the rights and obligations of governments to adopt and enforce such requirements. These rules are spelled out primarily in two WTO agreements: (1) the Agreement on Sanitary and Phytosanitary Measures, and (2) the Agreement on Technical Barriers to Trade. In general, under the agreements, WTO members agree to apply such measures, based on scientific evidence and information, only to the extent necessary to protect human, animal, or plant life and health; and to not arbitrarily or unjustifiably discriminate between WTO members where identical standards prevail. Member countries also are encouraged to observe established and recognized international standards. Improper use of SPS/TBT measures can create substantial, if not complete, barriers to trade when they are disguised protectionist barriers, are not supported by scientific evidence, or are otherwise unwarranted. Regarding SPS/TBT measures between the United States and the EU, major differences exist in how each applies these measures and also how each regulates food safety and related public health protection. Among other administrative and technical review differences, one major difference is the EU's application of the so-called precautionary principle , which remains central to the EU's risk management policy regarding food safety and animal and plant health. In the context of the WTO, the "precautionary principle" (or precautionary approach) allows a country to take protective action—including restricting trade of products or processes—if they believe that scientific evidence is inconclusive regarding their potential impacts on human health and the environment. These types of regulatory differences between the United States and EU have likely indirectly contributed to some long-standing trade disputes regarding SPS and TBT rules between the two trading blocs, including formal WTO disputes involving meat and poultry production and processing methods, such as the U.S. use of beef hormones and ractopamine, pathogen reduction and other treatment technologies, BSE-related regulations, and other plant processing regulations. Other SPS concerns between the United States and EU involve the use of agricultural biotechnology and pesticide regulations. Some Members of Congress hope that the T-TIP negotiations will resolve long-standing trade disputes regarding SPS rules between the two trading blocs, as well as enhance disciplines to address SPS issues and other nontariff barriers. Given such regulatory differences and also existing nontariff barriers between the United States and the EU, particularly regarding SPS matters, some are concerned about whether the T-TIP would be able to address such concerns, or whether the agreement might exclude agricultural products altogether. The final HLWG report recommends that the two trading partners negotiate provisions that go beyond both the SPS and TBT agreements, as part of "SPS-Plus" and "TBT-Plus." For "SPS Plus," these recommendations include "establishing an ongoing mechanism for improved dialogue and cooperation" and requiring that "each side's SPS measures be based on science and on international standards or scientific risk assessments, applied only to the extent necessary to protect human, animal, or plant life or health, and developed in a transparent manner, without undue delay." For "TBT-Plus," this includes "establishing an ongoing mechanism for improved dialogue and cooperation for addressing bilateral TBT issues," including the goals of "greater openness, transparency, and convergence in regulatory approaches and requirements and related standards-development processes ... , to reduce redundant and burdensome testing and certification requirements," among other changes. Many hope that an SPS-Plus and TBT-Plus approach might also provide for timelier SPS and TBT notification than that currently required by the WTO, along with some form of "rapid response mechanism" for resolving stoppages of agricultural products at the border, as well as other enforcement mechanisms or dispute settlement processes. Reportedly, the U.S. government is "proposing strong regulatory provisions that would build on [WTO] commitments and improve transparency and ensure that regulatory actions have a sound basis," and also result in improved regulatory coherence and cooperation (e.g., regarding regulations, best practices, and common acceptable standards). Various reports have further indicated that efforts by some U.S. and EU stakeholders to include a range of related policy issues as part of the T-TIP negotiations. These include efforts address the use of certain pesticides and chemicals, the use of antibiotics in animal production, and other agricultural applications, such as nanotechnology and animal cloning. For example, in September 2015, the European Parliament voted to ban the cloning of all farm animals and the sale of cloned livestock, their offspring, and products derived from them. Cloning for research purposes would be permitted. The EU's position on cloning is at odds with that of the United States. The U.S. Food and Drug Administration (FDA) has found no significant differences between healthy clones and non-cloned animals; FDA also regards the products from cloned animals to be as safe as that from non-clones. The United States and Brazil raised concerns about the EU's proposal at a WTO TBT Committee meeting in November 2015. Agricultural biotechnology refers primarily to the use of recombinant DNA techniques to genetically modify or bioengineer plants and animals so that they have certain desired characteristics. Most crops developed through recombinant DNA technology have been engineered to be tolerant of various herbicides or to be pest resistant by having a pesticide genetically engineered into the plant organism. U.S. soybean, cotton, and corn farmers have rapidly adopted genetically engineered (GE) varieties of these crops since their commercialization starting in 1996. Over the past few decades, GE varieties in the United States have increased. In recent years, USDA reports that U.S. farmers planted roughly 170 million acres of GE crops annually. Worldwide, 28 countries planted GE crops on an estimated 448 million acres in 2014. GE varieties now dominate soybean, cotton, and corn production in the United States, and they continue to expand rapidly in other countries. GE crops play a much more limited role in the EU; they currently are cultivated in Spain, Portugal, the Czech Republic, Slovakia, and Romania. GE crops account for about 1% of EU crop acreage. Also, several EU countries have banned the cultivation of GE crops in their territories or have specific rules on the trade of GE seeds. In general, EU officials have been cautious in allowing GE products to enter the EU market and all GE-derived food and feed must be labeled as such. The EU's regulatory framework regarding biotechnology generally is regarded as one of the most stringent systems worldwide. A series of regulations, directives, and recommendations govern the EU's handling of food and feed derived from GE. Some EU farm groups complain about bureaucratic delays in the regulatory process, particularly to gain approval to grow GE seed varieties. To date, very few GE varieties have been authorized (approved) by EU authorities for commercial cultivation. Many U.S. producer groups assert that U.S. agricultural exports to the EU have been limited by EU labeling and traceability regulations, and by lack of timelines and transparency in the EU process for admitting GE crops. In a dispute brought by the United States and other WTO members, a dispute settlement panel determined that the EU had maintained a de facto moratorium on GE products between 1999 and 2003. EU officials argue that the number of product approval requests is increasing, but some agricultural industry stakeholders assert that the time for processing (close to 3.5 years in the EU, in contrast to an average of 1.5 years in the United States) and the attendant backlog remain a major trade barrier. These stakeholders suggest that legally prescribed timelines, transparency, and risk assessment, among other things, could be established to address these issues. In January 2015, the European Parliament adopted new legislation to allow each member country to ban or approve GE crops in their respective country; proposals to implement these new directives were released in March 2015. Many in the United States oppose the EU's proposal and believe it lacks a scientific basis and should be withdrawn. As of October 2015, a reported 19 member states have requested to restrict GE cultivation. Several EU countries have signed a "joint declaration" calling for the development of a GE-free agricultural model in Europe. Other proposed efforts seeking to ban or restrict the use or sale of EU-approved GE products in Member territories have been rejected by the European Parliament. Geographical indications (GIs) are geographical names that act to protect the quality and reputation of a distinctive product originating in a certain region. The term is most often, although not exclusively, applied to wines, spirits, and agricultural products. Some food producers benefit from the use of GIs by giving certain foods recognition for their distinctiveness, differentiating them from other foods in the marketplace. In this manner, GIs can be commercially valuable. As intellectual property, GIs also may be eligible for relief from acts of infringement or unfair competition. The use of GIs also may protect consumers from deceptive or misleading labels. Examples of GIs include Parmesan cheese and Parma ham from the Parma region of Italy, Tuscan olive oil, Roquefort cheese, Champagne from the region of the same name in France, and Irish whiskey. Other examples are Darjeeling tea, Ceylon tea, Florida oranges, Idaho potatoes, Vidalia onions, Washington State apples, and Napa Valley wines. The use of GIs has become a contentious international trade issue, particularly for U.S. wine, cheese, and sausage makers. In general, some consider GIs to be protected intellectual property, while others consider them to be generic or semi-generic terms (see "Intellectual Property Rights" section for more information). Laws and regulations governing GIs differ markedly between the United States and EU, which further complicates this issue. Moreover, GIs are protected by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Under the TRIPS Agreement, both the United States and EU have committed to providing a minimum standard of protection for GIs (i.e., protecting GI products to avoid misleading the public and to prevent unfair competition) and an "enhanced level of protection" to wines and spirits that carry a geographical indication, subject to certain exceptions. In the EU, a series of regulations governing GIs was initiated in the early 1990s covering agricultural and food products, wine and spirits. Currently, more than 3,000 product names are registered and protected in the EU for foods, wine, and spirits originating in EU Member States and also in other countries. The EU regulations establish provisions regarding products from a defined geographical area, given linkages between the characteristics of products and their geographical origin. Under EU regulations, producers qualify for either a "protected geographical indication" (PGI); a "protected designation of origin" (PDO); or "Traditional Specialties Guaranteed" (TSG). Product registration markers for these three quality schemes are intended to help protect product names from misuse and imitation. Because of their commercial value, the protection of GIs is a major priority for the EU. In the United States, GIs are geared toward brands and trademarks, and protected under the U.S. Trademark Act. The U.S. Patent and Trademark Office (PTO) defines GIs as "indications that identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographic origin." According to the PTO, "geographical indications serve the same functions as trademarks, because like trademarks they are: source-identifiers, guarantees of quality, and valuable business interests." Establishing a product based on its geography can be complicated, either involving establishing a trademark or a brand name through an extensive advertising campaign. PTO does not have a special register for GIs in the United States. In the United States, many food manufacturers view the use of common or traditional names as generic terms, and view the EU's protection of its registered GIs as a way to monopolize the use of certain food and wine terms, and as a form of trade protectionism. The United States does not protect a geographic term that is considered "generic," being "so widely used that consumers view it as designating a category of all of the goods/services of the same type, rather than as a geographic origin." According to USTR, "The United States continues to have serious concerns with the EU's system for the protection of GIs, including with respect to its negative impact on the protection of trademark and market access for U.S. products that use generic names." Bilateral trade concerns arise when a product name recognized as a protected GI in Europe is considered a generic name in the United States. For example, in the United States, "feta" is considered the generic name for a type of cheese; however, it is protected as a GI in Europe. As such, feta cheese produced in the United States may not be exported for sale in the EU since only feta produced in countries or regions currently holding GI registrations may be sold commercially. Complicating this issue further are GI protections afforded to registered products in third country markets. This has become a concern for U.S. agricultural exporters following a series of recently concluded trade agreements between the EU and countries such as Canada, South Korea, South Africa, and other countries that are, in many cases, also major trading partners with the United States. Specifically, provisions in these agreements may provide full protection of GIs and not defer to a country's independent assessment of generic status for key product names. For example, recent agreements negotiated by the EU with Canada and with South Africa separately could reportedly recognize up to 200 EU GIs for milk and dairy products. Similar types of GI protections are reportedly also in other trade agreements between the EU and other countries, affecting a range of food products and wine. In addition to facing trade restrictions for U.S. products in the EU market, these protections also may limit the future sale of U.S. exported products bearing such names to these third countries, regardless of whether the United States may have been exporting such products carrying a generic name for years. The U.S. wine industry had considered some of its concerns regarding the use of traditional and semi-generic names, among other related bilateral trade concerns, to have been partly addressed following the existing agreement on wine in the 2006 U.S.-EU Agreement on Trade in Wine. However, recently some in the U.S. wine industry have become concerned given recent public comments by European trade groups indicating their desire to renegotiate some provisions. Recently concluded trade agreements between the EU and other third countries also have raised concerns among U.S. winemakers and could restrict U.S. exports to these countries of wines that use certain "semi-generic" or "traditional" terms. Some Members of Congress have long expressed their concerns about possible GI protections being debated as part of the T-TIP negotiations, as well as concerns regarding GI protections in other trade agreements that have been or are being negotiated by the EU with other countries. Many U.S. food producers are members of the Consortium for Common Food Names (CCFN), which aims to protect the right to use common food names as well as protect legitimate food-related GIs. However, some U.S. agricultural industry groups are trying to create a system similar to the EU GI system for U.S. agricultural producers. Specifically, the American Origin Products Association (AOPA) is seeking to protect American Origin Products (AOPs) in the marketplace from fraud and deceptive labeling, increase the value-added for all AOPs as a distinct food category, and create a national system to recognize AOPs through certification, among other goals. Regulatory non-tariff barriers relate to the standards, testing, and certification procedures that countries use to ensure high standards of health and safety, as well as protection of labor and the environment. TPA principal negotiating objectives on government regulatory practices include to: (1) achieve increased transparency and the opportunity for affected parties to participate in regulatory development; (2) require that [trading partners'] proposed regulations be built on sound science, cost benefit analysis, risk assessment, or other objective evidence; (3) establish consultative mechanisms and seek commitments to improve regulatory practices and coherence; (4) seek greater openness, transparency, and convergence of standards development process and enhance global cooperation on standards; and (5) promote regulatory compatibility through harmonization, equivalence, or mutual recognition of different regulations and standards, as well as encouraging the use of international and interoperable standards. On the EU side, the European Parliament's mandate for the T-TIP negotiations contains similar objectives: to ensure that the regulatory cooperation chapter promotes a transparent, effective, pro-competitive environment through the identification and prevention of potential future non-tariff barriers to trade ... to include cross-cutting disciplines on regulatory coherence and transparency for the development and implementation of efficient, cost-effective, and more compatible regulations for goods and services.... Potential economic gains from greater regulatory cooperation and compatibility could be significant for certain sectors (see text box ). The HLWG report acknowledged that a major portion of the benefits received from any potential U.S.-EU trade agreement would be realized through reducing costs in the regulatory arena. Estimates of these potential gains vary. A December 2009 study for the European Commission that weighed only the benefits of regulatory liberalization, estimated that if even 50% of U.S.-EU regulatory differences and other nontariff measures were aligned, the EU GDP could gain as much as 0.7% in 2018 (the time horizon of the study), representing an annual potential gain of $158 billion per year to the EU economy. The study estimated that U.S. gains would be slightly more modest, at 0.3%, or about $53 billion annually. At the same time, many stakeholders are skeptical about whether a comprehensive agreement on regulatory issues can be reached in the T-TIP. The United States and EU have had well-established channels and fora for exchanging views on these issues for some time. However, their long-standing differences in regulatory approaches, relating in part to divergent public preferences and values, have been stumbling blocks in previous transatlantic regulatory talks. According to some observers, all of the easier issues have already been resolved, and what are left to negotiate are the more difficult ones. However, supporters assert that breakthroughs may be possible in the context of a politically important FTA deal. A fundamental concern for both sides is to provide well-regulated market economies that provide a high level of consumer safety and welfare, maintain financial stability, and manifest concern for the environment. However, many economists assert that differing EU and U.S. approaches to regulation are a significant cause of reduced overall consumer welfare. For example, many multinational corporations cite different, and often duplicative, regulations on each side of the Atlantic as significant barriers to trade, due to the increased costs involved in modifying products to meet the different requirements of each regulatory regime. As mentioned above, some U.S. and EU regulatory differences relate to divergent public preferences and values. For example, many European consumers prefer "naturally produced" foods, while American consumers tend to be more accepting of products made by alternative forms of agricultural production (e.g., GMO foods). In addition, the United States and the EU also operate two different systems of risk management. In the United States, regulators tend to work cooperatively with industry—which leads them to engage in science-based, cost-benefit analysis, and be supportive of technological innovation. Farmers, industry, and many U.S. government officials favor this approach. In the EU, regulators support a more precautionary principle which often leads to more stringent risk regulation. When addressing regulations for existing products, industry representatives have proposed several methods, including: (1) promoting transparency in the development and implementation of regulations and regulatory practices; (2) providing for public stakeholder consultations when assessing the impact of regulatory changes; (3) reducing costs associated with unnecessary regulatory differences by working to eliminate them; and (4) seeking regulatory cooperation mechanisms to foster exchange of information and to develop joint standards for new products where appropriate. Proposed T-TIP language aims for regulatory cooperation in issues such as duplication in procedures, inconsistent product requirements, and double testing. Negotiators also are reportedly working on a set of shared "good regulatory practices," including informing counterparts early on in the process of any regulatory measure being developed which might have an impact on trade. U.S. and EU negotiators, regulators, and industry representatives reportedly have been actively involved in regulatory cooperation, and possibly enhanced convergence, in nine key sectors: automobiles, chemicals, pharmaceuticals, medical devices, cosmetics, textiles, information technology (ICT), engineering, and pesticides. Discussions relating to these sector-specific matters are reportedly advancing at different speeds, depending on the area of cooperation. Negotiators also are discussing "horizontal regulatory issues," or the legislative/regulatory systems that each side uses to ensure that proposed regulations undergo detailed impact assessments, and are instituted with transparency, due process, and stakeholder input. A particular challenge is finding ways for regulators to cooperate bilaterally, especially when crafting regulations and standards for new products (e.g., electric cars and nanotechnology). U.S. officials have expressed concern that the EU's methodology and institutional strategy regarding the development of regulatory standards, and its efforts to encourage governments around the world to adopt its approach, continues to represent a "strategic challenge" to the United States. The EU approach, as cited in a 2007 European Commission strategy paper, recommended that the EU "promote greater global regulatory convergence," by favoring the "adoption of European standards internationally through international organizations and bilateral agreements." One of the ways that the EU promotes European standards is through "New Approach Directives," that define "essential requirements related to health, safety, and environmental issues." EU standards bodies harmonize these standards by ensuring that new standards developed meet the "essential requirements" of the Directives. The EU promotes these standards internationally through: (1) its relationships with the EU international standards bodies; and (2) requiring the adoption of EU standards as a condition of providing assistance to, or affiliation with, other countries. These practices are of concern to U.S. stakeholders, who assert that U.S. entities are unable to directly participate or vote in the deliberative processes of EU standards-creating organizations, and are also limited in their ability to influence or comment on them. In addition, while other standards—for example, those endorsed by the American National Standards Institute (ANSI)—may be used to meet EU essential requirements, U.S. exporters report that the costs and uncertainty associated with demonstrating that alternative standards fulfill EU requirements can be prohibitive. Thus, U.S. producers assert that they feel compelled to use relevant EU standards when making products for the EU market. In addition, the international promotion of EU standards could harm U.S. producers in other country markets in which the EU also has ties. U.S. administering agencies, in contrast, are subject to considerable public input when proposing regulations and standards, in large part due to the requirements of the U.S. Administrative Procedures Act (APA), the Freedom of Information Act (FOIA), and the Government in the Sunshine Act; and many other laws, executive orders and bulletins that ensure that public input, transparency, and due process remain part of the regulatory process. Federal agencies must publish proposed rules and public comments, as well as the supporting justification and analysis for any promulgated final regulations. In addition, more standards development is private sector-driven, and private U.S. standards organizations, such as Underwriters Laboratories (UL) and American National Standards Institute (ANSI) also provide opportunities for all interested parties to participate in the standards development process. Traditional forms of transatlantic regulatory cooperation have included "horizontal" information exchanges/dialogues between regulators, Mutual Recognition Agreements (MRAs), and harmonization of regulatory standards. U.S. and EU regulators have been actively engaged in these information exchanges since 1998, when the T ransatlantic Economic Partnership (TEP) action plan called for both sides to identify and implement general government guidelines for effective regulatory cooperation. These efforts were reinforced during annual U.S.-EU summits beginning in 2004 with the first Roadmap for EU-U.S. Regulatory Cooperation and Transparency, and in a Common Understanding on Regulatory Principles and Best Practices in June 2011 . Arguably, EU-U.S. discussions are also strengthened by mutual participation in international regulatory fora on specific sectors, including the International Medical Devices Regulators Forum (IMDRF). Since 2005, U.S. and EU senior officials have also engaged in High-Level Regulatory Cooperation Forums designed to build effective mechanisms to promote better quality regulations and minimize regulatory divergences. The Transatlantic Economic Council (TEC), established in 2007, also actively engages in regulatory cooperation. These groups have made substantial progress in some former areas of contention; for example, signing a mutual recognition decision on U.S. and EU "trusted trader" programs, and advancing transatlantic collaboration on testing methods for electric vehicles and nanotechnology. However, many in the business community hold that more intensive transatlantic regulator-to-regulator cooperation efforts are needed to remove the regulatory barriers that stand in the way of expanding transatlantic trade, investment, and incomes. Mutual Recognition Arrangements (MRAs) are a stronger form of cooperation in which regulators agree to accept products or services from another jurisdiction under specified conditions, so that actors complying with the regulations in one jurisdiction will be considered to be in compliance with the rules in another jurisdiction. MRAs operate using "tested once" criteria, where product testing conducted in one market is considered to have been tested in both markets. In 1998, a transatlantic MRA was completed on testing and certification requirements for certain sectors, including telecommunications equipment, recreational craft, and medical devices. In 2011, the two sides concluded a transatlantic MRA on safety certification for civil aircraft (see text box ). Regulators and negotiators state that MRA negotiations are extremely time-consuming, and that leadership and guidance from policymakers are essential to the process. The strongest form of regulatory cooperation involves harmonization of standards or rules applied across jurisdictions. U.S. and EU negotiators appear to be most interested in seeking greater compatibility of standards for new and future technologies, such as electric cars and nanotechnology. At the conclusion of the 11 th T-TIP negotiating round, Assistant USTR Dan Mullaney reported that the nine sector negotiating teams had continued intensive discussions in their respective groups, and that U.S. negotiators had introduced textual proposals on regulatory coherence and technical barriers to trade. Chief EU negotiator Ignacio Bercero praised the progress made on regulatory compatibility and cooperation in the individual negotiating teams. The United States and EU (as a whole) have among the most open, business-friendly investment environments in the world, which have helped to facilitate high levels of transatlantic investment. Broadly speaking, the two sides share similar investment policy goals, seeking to reduce restrictions on foreign investment and protect investor rights, while balancing other policy interests. The United States negotiates investment commitments in FTAs on the basis of a U.S. "Model Bilateral Investment Treaty" ("Model BIT"). In addition to specific market access commitments, U.S. investment agreements typically include substantive protections for investors and investments enforceable by investor-state dispute settlement (ISDS) (see text box ). On the EU side, the negotiation of investment treaties—a competence previously shared by the European Commission and member states—is now the exclusive competence of the commission under its Common Commercial Policy through the Lisbon Treaty, which entered into force on December 1, 2009. The EU-Canada Comprehensive Economic and Trade Agreement (CETA), concluded in October 2013, is the first occasion for EU-wide rules on investment as part of a broad trade agreement. CETA includes investment rules on fair, equitable, and nondiscriminatory treatment; expropriation, including "indirect" expropriation; and ISDS on a post-establishment basis. However, the EU approach, particularly on ISDS, is evolving (see next section), and there are differences in views and approaches in other areas as well. According to the HLWG final report, the goal of transatlantic investment negotiations should include "investment liberalization and protection provisions based on the highest levels of liberalization and highest standards of protection that both sides have negotiated to date." The United States and EU also could use transatlantic investment commitments secured through T-TIP to shape global investment rules. In the absence of a comprehensive multilateral agreement on investment rules, transatlantic investment flows are governed by an "incomplete" network of bilateral investment treaties (BITs). The United States has over 40 BITs in force worldwide, including nine with EU members (Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania, and Slovakia); and two with EU candidates (Turkey and Albania). EU member states have around 1,300 active BITs with non-EU countries. At the same time, no BIT exists between the United States and the EU (as a whole), though the two partners have established several mechanisms over the years to negotiate on investment issues. A major area of debate in T-TIP is treatment of ISDS and the investor protections which ISDS aims to protect. The investor community argues that ISDS is critical for protecting investments in foreign markets, while some civil society groups contend that it can have a "chilling effect" on government regulatory measures for the public interest. Other contested issues include the transparency of ISDS proceedings, rules for arbitral qualifications and conduct, and the coherence of outcomes of ISDS cases. Given the already strong overall levels of U.S. and EU investor protections, some question T-TIP's need for ISDS. Others argue that such commitments would allow for common investor protections across the U.S.-EU relationship and have precedential value for future trade negotiations. The European Commission's T-TIP negotiating mandate from its member states includes ISDS. Yet, several EU countries, such as Germany and France, have pushed to exclude ISDS from the negotiations, in part based on concerns that ISDS would infringe on sovereign regulatory ability. Other EU members favor the inclusion of ISDS in T-TIP. A flashpoint in EU public debates has been certain high-profile ISDS cases, such as the investment treaty claim filed by Vattenfall, a Swedish energy company, against Germany after the latter initiated a phase-out of its nuclear power program. Other investment debates also have shaped the T-TIP debate, notably the ISDS claim brought in 2011 by a Philip Morris subsidiary under the Australia-Hong Kong BIT challenging Australia's plain packaging requirement for tobacco as an uncompensated expropriation and a violation of MST obligations. In December 2015, a tribunal ruled that it lacked jurisdiction to consider the claim. Attention may now shift to TransCanada's notice in January 2016 of its intent to challenge the Administration's Keystone XL pipeline decision under NAFTA Chapter 11's ISDS mechanism. In November 2015, the European Commission released its official initial proposal on investment in T-TIP. The proposal calls for creating a new public Investment Court System, including a standing body of judges to hear disputes and a standing appellate body, to replace the current ISDS model. The proposal is intended to address concerns raised by the Parliament and civil society about the traditional ISDS model, for example, with respect to its fairness, impartiality, and transparency. The release of the Investment Court System proposal followed, among other things, the European Parliament's July 2015 non-binding T-TIP resolution, which called for replacing ISDS with a new system to resolve investor-state disputes. U.S. government officials have expressed skepticism the proposal, favoring ISDS to protect investors while balancing other public policy interests. Businesses argue that the proposal will erode investor protections. For example, the U.S. Chamber of Commerce contends that it would narrow the scope of investment protections. Civil society groups say it does not resolve their concerns with the current ISDS system. The 12 th round of T-TIP negotiations marked the beginning of U.S.-EU discussions on the EU's Investment Court System proposal. The United States may closely monitor how the EU employs the Investment Court System proposal in its other trade negotiations. For example, the EU-Vietnam free trade agreement, published on February 1, 2016, includes the main provisions of the Investment Court System proposed by the EU. More recently, on February 29, 2016, the European Commission announced that the EU and Canada had agreed to include the main elements of the EU's new approach on investment in the finalized CETA text. Other investment issues that could also be of interest in T-TIP including the following. Nond iscriminatory Treatment: Through T-TIP, the United States and EU may seek to liberalize additional sectors for investment which currently are not subject to national treatment or MFN treatment. Although the United States is generally open to investment, foreign companies face U.S. restrictions on ownership in certain sectors such as aviation, communications, government contracting, maritime, mining, and natural resources—the underlying rationale often being to protect national security. The EU imposes restrictions on certain foreign investments, and individual member states sometimes maintain more stringent policies and practices, such as subjecting foreign investments to additional licensing requirements for approval in certain sectors. Other issues include entry conditions for investors—i.e., conditions under which foreign investors can establish a business in another country. Questions also may arise about issues related to maintaining an open investment environment while allowing for safeguards to protect other interests, such as national security and prudential exception provisions in investment agreements. Expropriation: Customary international law permits governments to expropriate (or take) private property under certain conditions. "Direct" expropriation occurs when an investment is nationalized or otherwise directly taken through formal transfer of title outright seizure. "Indirect" expropriation occurs when a government action, such as a regulatory decision, has the equivalent effect of direct expropriation without formal transfer of title or outright seizure. U.S. and European BITs generally provide foreign investors with prompt, adequate, and effective compensation for expropriation. However, there are debates about what constitutes indirect expropriation, to what extent compensation is required, and its coverage under ISDS. Such debates raise questions about the appropriate balance between protecting the rights of investors and the right of national governments to regulate in the public interest. Free Capital Transfers: The United States and EU seek the free flow of payments and investment-related capital movements, but one area of potential divergence is the extent to which investment rules should include safeguard provisions for capital controls. The international financial crisis that began in 2008 raised questions about the importance of allowing states to use capital controls to help prevent or mitigate financial difficulties, such as balance of payments problems. While supporters say that such flexibility is needed to avoid destabilizing financial situations, others argue that capital account liberalization promotes economic growth and that capital controls lead to inefficiencies. The protection and enforcement of IPR are key trade negotiating objectives for the United States and EU, due to the importance of IPR to innovation, economic growth, and competitiveness, and the potentially negative commercial, health and safety, and security consequences associated with counterfeiting and piracy. The United States and EU subscribe to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement"), and generally seek "TRIPS-plus" provisions in their FTA negotiations. However, the HLWG's findings suggest that it may be difficult for the United States and EU to reconcile differences on the IPR obligations that each side typically includes in its FTAs. The final report recommended that "both sides explore opportunities to address a limited number of significant IPR issues of interest to either side, without prejudice to the outcome." Some stakeholders question whether an IPR chapter is needed in T-TIP, arguing that it could open up the negotiations to controversial issues that could stall their progress. Debates could emerge about the appropriate balance between IPR protection and enforcement with other public policy goals, such as access to medicines in poor or developing countries and the free flow of information. Others argue that IPR commitments secured in T-TIP are critical to providing the United States and EU leverage for addressing IPR issues in third countries and multilaterally. In addition, certain sectors, such as the pharmaceutical brand name sector, contend that there are opportunities for greater enhancements of the EU's IPR regime through T-TIP. Moreover, the U.S. government remains concerned about the adequacy and effectiveness of IPR practices in specific EU member states. What follows is a discussion of certain possible IPR issues in the T-TIP negotiations. Geographical indications (GIs) are geographical names that act to protect the quality and reputation of a distinctive product originating in a certain region; the benefit does not accrue to a sole producer, but rather to the producers of a region. GIs, generally negotiated as part of IPR chapters in U.S. FTAs, also are a prominent agriculture issue (see above). Under the WTO TRIPS Agreement, the United States and EU have committed to providing a minimum standard of protection for GIs (i.e., protecting GI products to avoid misleading the public and to prevent unfair competition) and an "enhanced level of protection" to wines and spirits that carry a geographical indication, subject to certain exceptions. Beyond this, the U.S. and EU approaches to protecting GIs differ noticeably: the U.S. IPR system tends to protect GIs through trademark law, while EU IPR systems tend to offer more specific protections for GIs. Because of their commercial value, the protection of GIs is a major priority for the EU. However, terms that the EU recognizes as GIs often are considered to be generic versions of trademarks in the United States. From the U.S. perspective, the EU approach raises national treatment concerns and adversely affects trademarks and widely accepted generic terms for food products. Differences in U.S. and EU approaches to GIs are evident in their trade policies and indicative of potential positions on the issue in the T-TIP. For example, while the U.S. FTA with South Korea protects geographical products through trademark law, the EU FTA with South Korea provides for specific GI protections, establishes a GI register for agricultural products, foodstuffs, and wines; specifically designates certain EU and South Korean products to be given GI protection, and provides for additional enforcement measures related to GIs. Other examples include the Canada-EU Comprehensive Economic and Trade Agreement (CETA, concluded in October 2013), under which Canada agreed to recognize GIs, for instance, on certain cheeses that are generally viewed as common food names in the United States. This has led to concern on the part of some Members of Congress and U.S. companies about U.S. market access in Canada. The proposed TPP, on the other hand, includes a number of measures that, from the U.S. perspective, are intended to address the risk of inappropriately or excessively protecting GIs in ways constrain market access for U.S. agricultural and food producers. These include provisions related to administrative procedures, guidelines for determining whether a term is generic in its market, grounds for opposing or canceling GIs, and safeguards for owners of trademarks already in existence. TPP further requires certain transparency and other measures with respect to GIs that TPP parties recognize or protect through international agreements (under specified conditions and subject to exceptions). U.S.-EU differences on GIs also are apparent in multilateral venues. In the WTO, debate continues about establishing a multilateral system for notifying and registering GIs for wines and spirits, as well as extending the higher level of GI protection given to wines and spirits to other products. In WIPO, the United States opposed the adoption of the Geneva Act in May 2015, which expanded the WIPO Lisbon Agreement for the Protection of Appellations of Origins and their International Registration to also include GIs. Seven EU member states are members of the Lisbon Agreement; the EU as a whole currently is not, but it is possible that it could join the Agreement. Given differing U.S. and EU views on the treatment of GIs, there is debate about whether T-TIP will include GIs. On one hand, the EU may not be willing to negotiate a "comprehensive" FTA that does not include GIs. On the other hand, the historically strong U.S. resistance to more expansive protection and enforcement of GIs raises questions about how T-TIP will address GIs. The United States and EU have sought strong copyright standards in past FTAs. For example, their respective FTAs with South Korea provide an additional 20 years of copyright protection after the death of the author, beyond the minimum 50 years required under the TRIPS Agreement. They also include IPR protections related to the digital environment, including anti-circumvention provisions that prohibit altering technologies intended to prevent piracy and unauthorized distribution over the Internet. More recently, the proposed TPP increases copyright terms to life plus 70 years with phase-in periods for countries currently providing life plus 50 years of protection. U.S. and EU differences could emerge on the liability of Internet Service Providers (ISPs) for infringing content over their networks—a reportedly contentious issue during the ACTA negotiations. Many IPR-based industries argue that increasing ISP involvement in IPR enforcement is critical to combating online piracy. However, critics contend that requiring ISPs to filter communication places undue burdens on them. Some civil liberties groups have expressed concern about what they perceive as a low threshold for terminating consumers' Internet access; they assert that proof of online piracy, not allegations, should be the requirement for termination of Internet accounts. Treatment of copyright enforcement in TPP may inform the T-TIP negotiations. TPP, among other things, extends copyright enforcement commitments to the digital environment, provides "safe harbors" for ISPs, and adopts U.S.-style "notice and takedown" provisions to address ISP liability (though allowing certain existing alternative systems for specific countries). A long-standing debate in copyright protection and enforcement is the balance between granting copyright holders exclusive rights to control their works and providing certain limitations on that right for "fair use" (e.g., criticism, comment, news reporting, teaching, scholarship, and research). Such questions have emerged in T-TIP. Of interest may be that the proposed TPP would be the first U.S. FTA to include language encouraging countries to achieve an appropriate balance between users and rights holders in copyright systems (i.e., "fair use" in the United States). Both the United States and EU support strong patent protection, while respecting the Doha Declaration on TRIPS and Public Health, which confirms that the "TRIPS Agreement does not and should not prevent members from taking measures to protect public health." U.S. and EU approaches to patent protection are broadly similar, though with some differences. For example: Patent term extensions: The United States and EU, in their trade agreements with other countries, generally have provided for patent term extensions to compensate for regulatory delays in the granting of patent approval, beyond the TRIPS Agreement obligation of patent protection terms of twenty years from the filing date. In contrast to the EU, the United States also offers patent term extensions based on delays in the patent examination process. The length of time for extensions can differ as well. For example, although both the U.S. and EU FTAs with South Korea provide for patent term extensions, the EU FTA restricts the extension to a maximum of five years, while the U.S. FTA does not place any such limits. The TPP includes mandatory patent term extensions. Protection of "test" data: Both partners provide for the protection of data submitted to obtain marketing authorization for pharmaceutical products, such as "test" data demonstrating the safety and efficacy of the products. Data exclusively for biologics (i.e., medical preparations derived from living organisms, but generally not considered distinct from traditional pharmaceuticals in U.S. intellectual property law) may be a particularly contested in T-TIP. In the TPP negotiations, the United States sought a 12-year data exclusivity provision for biologic products, as enshrined in U.S. law. The concluded TPP, however, provides countries with a choice of an eight-year data exclusivity period for biologics or, alternatively, at least five years with possible additional measures that could "deliver a comparable market outcome." For new drugs since 2005, the EU has a maximum 11 year period of protection—an eight-year data exclusivity period and a ten-year period of marketing exclusivity, with an additional one year of marketing exclusivity possible for new therapeutic indications (often referred to as an "8+2+1" formula). Patent linkage: Patent linkage is the process whereby regulatory approval for the marketing of a generic drug is tied with the patent status of its brand name counterpart. Under U.S. law, government regulators must check to see whether a new drug would violate an existing patent before granting marketing approval (except in the case of biologics). The United States has negotiated mandatory patent linkage provisions in many of its FTAs, and optional patent linkage provisions in others. The proposed TPP gives parties an option of employing a system to provide notice to a patent holder when a generic version of its product has been submitted for regulatory approval while a patent is in force and to provide procedures for resolving disputes about the validity or infringement of the patent, among other things. In contrast, the European Commission allows for marketing authorizations for medicinal products for human use, stating that these authorization procedures can be carried out without affecting the protection of industrial and commercial property interests (i.e., removing patent linkage). The authorization holder of a generic drug is not allowed to place a product on the market before the patent on the reference product has expired. Patent linkage practices vary across EU member states vary. In prior FTAs, pharmaceutical patent protections have raised concerns about public policy issues, such as access to medicines for developing countries. Some Members of Congress have expressed concern over how to balance the goals of providing incentives for innovation through patents and addressing the need to provide affordable access to medicines. In the TPP negotiations, where participants to the negotiation are a mix of developed and developing countries, the role of patents in access to medicines was actively debated. However, in the transatlantic context, since both the United States and EU (as a whole) are advanced partners with large pharmaceutical industries, debate over patent commitments may not be as intense. At the same time, some civil society groups may express concern about T-TIP's possible impact on public health. Additionally, the debate over access to medicines encompasses other issues beyond pharmaceutical patent protections. The U.S. pharmaceutical industry, for example, has raised concerns about market access and government pricing and reimbursement systems in a number of European countries. Concerns identified regarding certain EU countries include government cost-containment measure, situations where U.S. companies must accept price reductions to compete with generic pharmaceuticals, delays in reimbursements for products, and non-transparent pricing and reimbursement policies. Such concerns may raise questions about governments' regulatory interests and policy goals to provide incentives for innovation while encouraging access to medicines. Further, a range of social, economic, and political factors can also affect public health. Trade secrets have emerged as an active area of discussions in IPR as well as in other areas of the T-TIP negotiations. A trade secret is any type of valuable information, including a "formula, pattern, compilation, program device, method, technique, or process," that derives independent economic value from not being generally known or readily ascertainable and is subject to reasonable efforts by the owner to maintain its secrecy. The TRIPS Agreement provides that member states shall protect "undisclosed information" against unauthorized use, specifically, requiring members to allow for persons to "have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices" so long as the information is secret, has commercial value because it is secret, and has been subject to reasonable steps to keep its secrecy (Article 39). Trade secrets, though not expressly mentioned in TRIPS, are considered "undisclosed information." The United States and some EU member states protect against the theft of trade secrets, and seek to strengthen such protections through trade policy discussions. Both the United States and EU express concern about trends suggesting increased instances of trade secret misappropriation internationally, due in part to increased cybercrime. The USTR has highlighted China as of major concern as a growing source of trade secret theft. The increased use of technology, combined with requirements that data be stored locally ("localization," see discussion below), have contributed to trade secret theft. U.S. and European companies that are involved in global value chains may face greater vulnerability to trade secret theft, as their business models often require them to share sensitive and valuable trade secrets overseas. U.S. and European companies face millions of dollars in damages from the loss of trade secrets and potential threats to their competitiveness. The Obama Administration's strategy on mitigating the theft of U.S. trade secrets, released in February 2013, includes seeking, in U.S. trade negotiations, new criminal remedy provisions for trade secret theft—similar to remedies provided in U.S. law. For example, the proposed TPP requires parties to establish criminal procedures and penalties for trade secret theft, including through cyber theft. U.S. and EU business groups jointly have called for specific provisions in the T-TIP on trade secrets. Trade secrets protections in T-TIP could be a prototype to heighten standards internationally. The United States and EU also could seek to address forced technology transfer requirements related to trade secrets in certain countries. For example, the "indigenous innovation" policies of certain countries, such as China and India, may require the transfer of technology as a condition for allowing access to a market or for a company to continue to do business in the market. Trade facilitation is the simplification or harmonization of import and export procedures, including collecting, presenting, and processing the data necessary for the movement of goods across borders. Addressing trade facilitation issues can expand trade generally and support global supply chains specifically, including by removing unnecessary "red tape" and costs to trade and improving the predictability and efficiency of supply chains. An example of potential benefits to U.S. businesses is provided by UPS, which estimates that "an ambitious and successful T-TIP, which moves beyond tariff barriers to encompass a broad range of nontariff, regulatory and supply chain barriers to trade" could boost the company's trade volume by 131 million packages and support 24,000 jobs over 10 years. Trade facilitation is a priority issue that the United States and EU are pursuing on multiple fronts. In the WTO, the two sides negotiated the December 2013 WTO multilateral Trade Facilitation Agreement that will go into effect once two-thirds of the WTO membership has formally accepted the Agreement. The United States and EU also are each seeking binding disciplines in other FTA negotiations, such as TPP. In addition, the United States, EU, and other members of the World Customs Organization (WCO) are encouraging the use of electronic systems to expedite the clearance of merchandise entries and to ensure effective customs controls. U.S. officials are leading international efforts to implement WCO-developed best practices, such as "single window" data systems so that importers can enter data, and multiple cross-border regulatory agencies can use the "window" to clear merchandise entries, as well as transportation carriers, equipment, and workers. Development of a single window was also the subject of Executive Order 13659, "Streamlining the Export Import Process for America's Businesses." The Executive Order required the completion of the International Trade Data System (ITDS), which was intended to become the "single window," by December 31, 2016. The Trade Facilitation and Trade Enforcement Act of 2015 ( H.R. 644 ), signed by the President on February 24, 2016, requires the Commissioner of Customs to report to Congress no later than December 31, 2016, on the implementation of CBP automated programs, incorporation of all core trade processing capabilities, components that have not been implemented, and additional components needed to realize the full implementation and operation of the program. A further update must be reported by September 30, 2017. U.S. officials voice long-standing concern with the EU's treatment of imports. Customs agencies in each EU member state are responsible for customs responsibilities, including proper classification, valuation, and tariff collection. Thus, even though there are uniform EU customs laws and a common tariff, there is no assurance for U.S. exporters that those laws will be interpreted or administered in a consistent manner across member states. Although some discrepancies may be referred to the EU Customs Code Committee (an entity consisting of member state representatives and chaired by a European Commission representative to assist in reconciling differences), success in resolving them has been limited. Legal issues involving customs laws are handled through individual courts in each member state. U.S. officials have raised these concerns numerous times, including through WTO dispute settlement. EU officials mention potential implementation of U.S. laws requiring "100% scanning" of maritime cargo containers as possibly injurious to EU exports. This U.S. legislation seeks to reduce potential terrorist threats to maritime shipments by pre-scanning containers prior to arrival in U.S. ports. U.S. shippers have also expressed concern about implementation of the law. The United States and EU maintain high levels of protection for workers and the environment in their domestic economies. As such, U.S. labor and environmental concerns associated with prior FTA negotiations do not appear to be as pronounced for T-TIP. Nevertheless, several U.S. and EU non-governmental organizations, including those representing labor and environmental interests, have expressed concern that a potential T-TIP with "regulatory harmonization" provisions could facilitate deregulation that is harmful to certain consumer protections, worker rights, environmental regulations, and other areas of public interest. At the same time, certain civil society groups may consider the negotiations as an opportunity to harmonize U.S. and EU protections for labor and the environment. Recent U.S. FTAs, including TPP, contain labor and environmental commitments that are enforceable under FTA dispute settlement procedures. In contrast, the EU tends to take a more consultative approach to resolve differences. The HLWG's final report recommends that the two sides "explore opportunities to address these important issues [labor and the environment], taking into account work done in the Sustainable Development Chapter of EU trade agreements and the Environmental and Labor Chapters of U.S. trade agreements." Localization barriers to trade function as a type of nontariff barrier to market access. "Forced" localization measures generally refer to those designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property at the expense of imported goods, services, or foreign-owned or foreign-developed intellectual property. Localization barriers can take a number of forms, such as requirements for: service providers to process data in the foreign country as a condition of market access; businesses to transfer technology and intellectual property as a condition of approval of foreign investments; or firms to use local content as a condition for manufacturing or for government procurement. According to the USTR, these measures can distort trade, inhibit FDI, and lead other countries to follow suit. Certain localization barriers have been addressed in previous multilateral trade negotiations. For instance, the WTO Agreement on Trade-Related Investment Measures (TRIMs) prohibits "local content" requirements imposed in a discriminatory manner with respect to foreign investment. Other localization barriers, particularly with respect to the digital environment, are considered to be newer trade issues. The proposed TPP prohibits countries from blocking cross-border data flows, including prohibiting forced localization of data centers. It provides some exceptions to these prohibitions in limited circumstances, and notably does not extend protections against forced localization to financial services—the latter being a major point of debate in potential congressional consideration of TPP. In terms of T-TIP, the HLWG's final report recommends that the two partners seek to reach bilateral agreement on globally relevant rules, principles, or modes of cooperation related to localization barriers to trade. For the United States, a key issue in T-TIP is addressing EU localization barriers to trade. According to a USITC survey, U.S. firms identified the EU as the second leading location where they experience localization barriers that limited their ability to conduct business online—second after China for large U.S. firms and second after Canada for small- and medium-sized enterprises. Certain EU member countries mandate or encourage local content. For example, they require companies to store or maintain data on local servers. Other examples include audiovisual quotas by certain EU member states that cap the number of foreign films that can enter the market or the percent of time that radio or television states play foreign content. The EU's 2007 Audiovisual Media Services Directive encourages production of and access to European works. However, the EU's future regulation of audiovisual content is unclear. U.S. companies are concerned that the disclosure of NSA surveillance activity could lead to European demands for restrictions on cross-border data flows and possible localization barriers, for example, requiring that servers be located in the EU for data privacy reasons. Potential U.S.-EU commitments on localization barriers to trade could set the stage for addressing such issues with respect to China and other emerging economies in the future. Of joint U.S. and EU concern are localization barriers to trade and indigenous innovation policies in China and other emerging economies. The EU has called for a specific T-TIP energy chapter to develop trade and investment rules that facilitate access to energy and raw materials and diversify energy supplies in a nondiscriminatory, transparent, competitive, and sustainable manner. The EU has an interest in access to U.S. crude oil and natural gas. Increased tension with Russia has elevated energy diversification as an EU priority, given the dependence of some EU countries on oil and gas from Russia. From the EU perspective, T-TIP rules on energy and raw materials could serve as a model for future negotiations on these issues with other countries. The United States reportedly has not reached a conclusion on "whether energy and raw materials specific provisions or a chapter is necessary." With respect to energy, the typical U.S. approach is to grant a national interest presumption for U.S. liquefied natural gas (LNG) exports to U.S. FTA trading partners. Specifically, exports of LNG are presumptively considered "in the public interest" for U.S. FTA partners, and applications for U.S. LNG exports to FTA partners receive expedited processing. In Congress, there was debate over allowing greater expedited processing for LNG exports and lifting restrictions on exports of domestically produced crude oil, given declining oil prices and growth in U.S. energy production. The FY2016 Consolidated Appropriations Act lifts the restriction on U.S. crude oil exports (Sec. 101, P.L. 114-113 ). How this development may affect the dynamics of the T-TIP negotiations remains to be seen. The United States and EU seek to address competitive challenges associated with the rise of SOEs and state-supported enterprises (SSEs) in the global economy. SOEs are businesses in which the government has significant control, through full, majority, or significant minority ownership. Governments often provide SOEs with specific privileges, such as subsidies, preferential financing, preferential access to government procurement, trade protection, and other immunities, that may not be available to nondomestic counterparts in the private sector. This presents concerns over potential anti-competitive behavior related to SOEs and discriminatory treatment of U.S. and European private counterparts operating in foreign countries. While entities exist in both economies that could be considered SOEs (e.g., the U.S. Postal Service and the German postal operator, Deutsche Post AG), of possibly greater U.S. and EU concern is the growth of SOEs in third countries, particularly in emerging markets such as Brazil, China, India, and Russia. In a set of shared investment principles, the United States and EU stated that, "[g]overnments should seek to enhance their understanding of the concrete challenges posed by state influence in relation to commercial enterprises... and work to coordinate their approaches to address these challenges." International disciplines on SOEs are limited. The United States has sought to address the potential unfair competitive element of SOEs through FTAs. For instance, several U.S. FTAs contain provisions related to national treatment, nondiscrimination, and transparency provisions, while maintaining the right of countries to establish and maintain SOEs. The TPP contains more comprehensive disciplines to ensure that SOEs operate on commercial terms. In addition, the 2012 U.S. Model Bilateral Investment Treaty clarifies that investment obligations apply to SOEs. In the T-TIP negotiations, debate about SOEs provisions likely would include consideration of the wider applicability of such provisions to third countries. In 2012, SMEs accounted for the majority of all firms involved in U.S. international trade, but a significantly smaller share of U.S. exports and import value. SMEs also participate in trade indirectly as suppliers of intermediate goods and services in supply chains for final products that are traded. The EU is an important trading partner for U.S. SMEs. U.S. SMEs accounted for, by number of firms, nearly 70% of all U.S. firms exporting to and importing from the EU, and by, value , more than one-fifth of U.S. exports to and imports from the EU. Although they hold significant exporting potential, SMEs may face greater challenges than larger firms in accessing information about foreign markets, connecting with potential overseas buyers, and securing export financing. U.S. SMEs report a range of barriers to the EU market, including standards-related measures and "difficulties involving trade secrets, patenting costs, and logistical challenges, especially involving customs requirements, Harmonized System classification, and the EU's value-added tax system," as well as industry-specific barriers. The United States and EU have cooperated to increase participation of U.S. and EU small businesses in the transatlantic market, including through efforts to reduce transatlantic regulatory and other barriers to trade, increase access to trade financing and trade promotion activities, improve information on standards, and address IPR issues. SMEs have been a long-running focus of U.S. export assistance efforts, as well as an increasing focus of U.S. trade policy more generally. For instance, the TPP released text includes a specific chapter focused on enhancing SMEs' ability to take advantage of trading opportunities through the trade agreement. In terms of T-TIP, the HWLG's final report recommended that the two sides seek to reach bilateral agreement on globally relevant rules, principles, or modes of cooperation related to SMEs. U.S. and EU trade agreements with other countries generally include provisions for resolving government-to-government disputes stemming from their commitments under the agreements. Likewise, any final T-TIP will likely include government-to-government dispute settlement provisions, separate from any investor-state dispute settlement mechanism that may also be included. Through T-TIP, the United States seeks to "establish fair, transparent, timely, and effective procedures to settle disputes on matters arising under a trade and investment agreement with the EU, including through early identification and settlement of disputes through consultation." As the negotiations evolve, specific questions may arise with respect to the scope and form of dispute settlement. One set of questions centers on what areas would be covered under a possible T-TIP dispute settlement mechanism. For example, would regulatory and sanitary and phytosanitary (SPS) issues be subject to dispute settlement? A second set of questions focuses on what options would be available for the resolution of disputes. Would T-TIP commitments be subject to binding resolution or consultative mechanisms for resolution? In addition, how would disputes on issues common to both T-TIP and the WTO be resolved? The T-TIP negotiations present Congress with the issue of whether the United States and the EU will be able to conclude a final agreement that is "comprehensive and high standard." Such an outcome depends on a number of factors. The United States and the EU, like all economies, have offensive and defensive interests. These include recognition that some sectors are import-sensitive, which may constrain the level of ambition in the T-TIP negotiations. Both sides also have identified certain issues that they prefer not to address through trade agreement negotiations, such as financial services regulations on the U.S. side and audiovisual cultural exceptions on the EU side. The ability to negotiate a "comprehensive and high standard" T-TIP also depends on the political momentum for the negotiations. Some stakeholders have expressed concern that the negotiations have not advanced as quickly as hoped and that political momentum and public support for T-TIP has waned. Others argue the 2015 grant of TPA and the conclusion of the TPP negotiations inject new momentum into the T-TIP negotiations. Still others contend that U.S. policymakers' focus on T-TIP may lessen, at least temporarily, as Congress considers TPP and its potential implementing legislation. Members of Congress have a direct interest in the implications of T-TIP for the U.S. economy as a whole, as well as their specific states and/or districts. The economic challenges in both the United States and EU are a major incentive for the T-TIP negotiation. Many policymakers view the T-TIP as a low-cost economic stimulus for supporting U.S. exports, employment, and economic growth. However, there is debate about how the economic effects of the T-TIP may be borne by various stakeholders. With any FTA, the benefits of trade liberalization tend to be diffuse, extending to a wide range of businesses, consumers, and other stakeholders. In contrast, the costs of FTAs tend to be concentrated—for example, with increased foreign competition resulting from an FTA adversely affecting certain firms and workers. An issue confronting policymakers is the difficulties in estimating the effects of a potential T-TIP. While estimates on the potential benefits and costs of trade agreements may help to inform trade policy debates, it can be highly complex and challenging to estimate such economic effects. Economic analyses can be constrained by a lack of data and other theoretical and practical issues associated with econometric analyses. In addition, estimates of economic effects of FTAs are often imprecise and highly sensitive to the assumptions that are used. Moreover, a range of factors beyond trade policy can affect U.S. economic performance, including global economic growth and exchange rates. The T-TIP negotiations raise a number of questions about U.S. trade policy. Among the more prominent questions that Congress could examine as part of oversight include the following. How may T-TIP address U.S. trade negotiating objectives? A potential T-TIP agreement could be eligible to receive expedited legislative consideration under the June 2015 grant of Trade Promotion Authority (TPA, P.L. 114-26 ) if it is concluded while TPA is in effect and if Congress determines that the Administration has advanced the TPA negotiating objectives and met various notification and consultation requirements. Of likely interest to Congress is to what extent T-TIP may address U.S. trade negotiating objectives. These may include newer "21 st century" objectives added to TPA, such as on cyber theft, localization barriers to trade, and SOEs. What is T-TIP's relationship to other U.S. and EU trade agreements and negotiations? Congress may examine how U.S. and EU trade agreements and negotiations with other countries affect T-TIP. Areas of inquiry may include how the proposed TPP, the EU-Canada Comprehensive Economic and Trade Agreement (CETA), and plurilateral negotiations such as on the potential Trade in Services Agreement (TiSA) affect T-TIP, including in terms of negotiating positions and dynamics. What is T-TIP's potential impact on the multilateral trading system? Analysts debate how T-TIP may affect the multilateral trading system. Supporters assert that U.S.-EU consensus in T-TIP could provide momentum for resolving long-standing issues in the WTO and advancing new trade rules and disciplines that could be incorporated multilaterally. They also assert that T-TIP's competitive pressures on countries not a part of the negotiations may provide further impetus for trade liberalization. Critics say that T-TIP may undermine multilateral trade liberalization by shifting focus and resources away from multilateral efforts in favor of regional and bilateral negotiations, and weakening the legitimacy of the WTO. T-TIP's impact may evolve as the United States and other WTO members consider the future role of the WTO. Congress may consider the balance between, on one hand, ensuring confidentiality to engage effectively on issues in T-TIP and, on the other hand, allowing for sufficient transparency for meaningful stakeholder input. As is its practice, the U.S. government has not released publicly any proposed or consolidated texts in the T-TIP negotiations. In general, the Administration tends to use existing FTAs as the starting point for future negotiations. Thus, KORUS and TPP could offer general insight into U.S. initial positions and approaches in T-TIP negotiations. With respect to the specific proposals in negotiations, the USTR's position has been that that confidentiality enables negotiators to communicate with each other more effectively. At the same time, congressional consultation and public engagement are a part of the U.S. trade policy process. Among other things, the USTR shares negotiating texts with Members of Congress and cleared advisors, meets with the public during negotiating rounds, holds public hearings and posts T-TIP resources such as issue-by-issue discussions on its website, among other things. Nevertheless, some observers express distrust of T-TIP negotiations because they say that trade officials have released general statements without any real detail with regard to specific negotiating positions. Debate over transparency has grown in light of the European Commission's initiative to publish some initial EU proposals for the T-TIP, noting that the "actual text in the final agreement will be a result of negotiations" between both sides. While some have welcomed this initiative, calls continue from some stakeholders for increased transparency, such as through the publication of consolidated negotiating texts as available. Congress may consider whether the potential T-TIP should be expanded to include other countries. Currently, the U.S. position is that the T-TIP negotiations are already complex, and including additional trading partners may further complicate the negotiations and prospects for concluding it at the envisioned level of ambition. Congress could examine the implications of other countries joining (or not joining) the T-TIP, including the impact on T-TIP's economic and broader strategic value. Countries may pursue T-TIP membership for a variety of reasons, including to: gain preferential access to U.S. and EU large market, reduce competitive pressures on their economies due to any trade diversion caused by T-TIP, pursue market-oriented reforms, enhance their leverage in other trade negotiations, and take advantage of T-TIP's broader strategic value. To date, certain countries have shown interest in joining T-TIP. For example, Turkey (an official candidate for EU membership), has expressed in interest in participating in the T-TIP discussions. Under the current rules of the Customs Union that Turkey has with the EU, countries with which the EU has signed FTAs have access to Turkey's market without having to reciprocate (e.g., the United States, if T-TIP is concluded). In order to gain market access to those countries, Turkey must negotiate its own FTAs with them. Turkey also has raised the possibility of parallel FTA negotiations with the United States. Other countries that may wish to join the T-TIP negotiations include Canada and Mexico. Mexican officials, in particular, have shown interest in joining T-TIP. Both Canada and Mexico may be well-positioned to join in any potential T-TIP expansion; Canada and Mexico are a part of NAFTA and the proposed TPP, and the EU has a bilateral FTA in force with Mexico and EU-Canada Comprehensive Economic and Trade Agreement (CETA) is pending entry into force. Congress may examine T-TIP's potential strategic implications for the transatlantic relationship and how to weigh these implications against other considerations. Many in Congress have long supported close U.S.-European political and economic ties, and view cooperation with the EU as supporting and advancing U.S. interests. Both sides of the Atlantic share common values, and face a broad set of common economic and strategic challenges. Despite concerns from some stakeholders that the transatlantic relationship is less important to the United States than it was during the Cold War, the United States and EU cooperate closely on an increasingly wide range of foreign policy, international security, and economic issues. A T-TIP agreement could provide a framework to potentially enhance the largest trading and investment relationship in the world. On the other hand, setbacks to the negotiations could raise questions about the strength of the transatlantic relationship. The T-TIP negotiations continue to evolve. Policy debates surrounding the more politically sensitive issues in T-TIP, as well as the economic and broader strategic implications of T-TIP, will likely continue to intensify. Congressional oversight of the T-TIP negotiations may be shaped by the broader U.S. trade agenda, which includes possible consideration of implementing legislation for TPP and oversight of other ongoing U.S. international trade agreements and negotiations. | The Transatlantic Trade and Investment Partnership (T-TIP) is a potential reciprocal free trade agreement (FTA) that the United States and the European Union (EU) are negotiating with each other. Formal negotiations commenced in July 2013. Both sides initially aimed to conclude the negotiations in two years, but more recently have updated their timeline and aim to conclude the T-TIP by the end of 2016. Twelve rounds of T-TIP negotiations have occurred to date. The United States and EU seek to enhance market access and trade disciplines by addressing remaining transatlantic barriers to trade and investment in goods, services, and agriculture by negotiating a "comprehensive and high-standard" T-TIP through: reducing and eliminating tariffs between the United States and EU; further opening services and government procurement markets; enhancing cooperation, convergence, and transparency in regulations and standards-setting processes; and strengthening and developing new rules in areas such as intellectual property rights (IPR), investment, digital trade, trade facilitation, labor and the environment, localization barriers, and state-owned enterprises (SOEs). Some rules potentially agreed to in T-TIP could exceed existing commitments in U.S. FTAs or World Trade Organization (WTO) agreements. Certain T-TIP issues are active areas of debate, in part because of divergent U.S. and EU cultural preferences and values as well as differing views on how any final T-TIP may impact government regulatory abilities. Such issues include regulatory cooperation, treatment of geographical indications (GIs), inclusion of investor-state dispute settlement (ISDS), and facilitation of cross-border data flows. Congress has important legislative, oversight, and advisory responsibilities with respect to T-TIP. Congress establishes overall U.S. trade negotiating objectives, which it updated in the 2015 Trade Promotion Authority (TPA) legislation (P.L. 114-26), and would approve future implementing legislation for a final T-TIP agreement to enter into force. T-TIP could be eligible to receive expedited legislative consideration under TPA if Congress determines that it satisfies the TPA negotiating objectives and has met TPA's various other requirements. T-TIP raises a range of issues of congressional interest: Will the United States and EU be able to successfully conclude a comprehensive and high-standard FTA through the T-TIP negotiations? What are the economic and broader strategic implications of a potential T-TIP? How does the T-TIP address U.S. trade negotiating objectives? What is T-TIP's relationship to the proposed Trans-Pacific Partnership (TPP), other potential trade agreements, and the multilateral trading system more generally? How do the T-TIP negotiations balance confidentiality and transparency? Should other countries be allowed to join the T-TIP negotiations or a completed agreement, and what are the implications? |
Over the course of 2014, the U.S. government rolled out targeted economic sanctions on Russian individuals and entities in critical commercial sectors in response to that country's annexing of the Crimean region of neighboring Ukraine and its support of separatist militants in Ukraine's east. Designed to change behavior of the Russian government by putting pressure on the Russian economy, sanctions include asset freezes for specific Russian individuals and entities; restrictions on financial transactions with Russian firms operating in key sectors; restrictions on U.S. exports, services, and technology for specific Russian oil exploration or production projects; and tighter restrictions on U.S. exports of dual-use and military items to Russia. The United States coordinated its sanctions with other countries, particularly with the European Union (EU). Russia retaliated against sanctions by banning imports of certain agricultural products from countries imposing sanctions, including the United States. U.S. policymakers are debating the use of economic sanctions in U.S. foreign policy toward Russia, including whether sanctions should be kept in place or further tightened. For example, in the Senate, legislation has been introduced to impose additional sanctions in response to Russia's alleged hacking of U.S. persons and institutions, including U.S. political organizations, and other aggressive actions, including in Ukraine ( S. 94 ), and to provide congressional oversight of actions that would limit Russia sanctions ( S. 341 , H.R. 1059 ). Legislation has also been introduced in the House to tighten sanctions, for example by prohibiting certain transactions in areas controlled by Russia ( H.R. 830 ), and to prohibit U.S. recognition of Russian sovereignty over Crimea ( H.R. 463 ). Some Members of Congress have proposed codifying existing sanctions, which could make them more difficult to ease or remove. Most of the current restrictions were put in place by President Barak Obama issuing Executive Orders under emergency authorities. On February 2, 2017, U.N. Ambassador Nikki Haley opened her first public remarks by referring to a recent flare-up of violence in Ukraine, noting that "the dire situation in eastern Ukraine is one that demands clear and strong condemnation of Russian actions." She stated that "the United States continues to condemn and call for an immediate end to the Russian occupation of Crimea" and that "Crimea-related sanctions will remain in place until Russia returns control of the peninsula to Ukraine." A key question in this debate is the impact of the Ukraine-related sanctions on Russia's economy and U.S. economic interests in Russia. The subsequent discussion on recent economic trends in Russia and U.S. economic ties with Russia may provide insight. The Obama Administration first imposed sanctions relating to the events in Ukraine in March 2014, and announced additional sanctions over subsequent months, working in coordination with the EU. The Obama Administration explained that the targeted sanctions on specific individuals, firms, and sectors "aim to increase Russia's political isolation as well as the economic costs to Russia, especially in areas of importance to President Putin and those close to him." In 2014, Congress also passed, and President Obama signed into law, the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 ( P.L. 113-95 ; 22 U.S.C. 8901 et seq .) and the Ukraine Freedom Support Act of 2014 ( P.L. 113-272 ; 22 U.S.C. 8921 et seq .). These acts contain provisions on U.S. sanctions in response to the conflict in Ukraine. U.S. sanctions on Russia in response to the Ukraine conflict include the following: Asset freezes and prohibitions against transactions with specific Russian individuals. The U.S. government has frozen assets under U.S. jurisdiction and prohibited U.S. persons from engaging in transactions with a number of Russian individuals, including Russian officials, deputies, businesspeople, and associates with ties to the Kremlin. Asset freezes and prohibitions against transactions with specific entities. Some Russian companies are subject to U.S. asset freezes and are prohibited from engaging in economic transactions with U.S. individuals and entities. Examples include Bank Rossiya, which has been called the "personal bank of Putin"; the Volga Group, a holding company owned by a close ally of Putin; and Almaz-Antey, a state-owned defense company. Restrictions on financial transactions with Russian firms operating in key sectors. Sanctions target sectors in Russia's financial services, energy, and defense sectors. U.S. individuals and entities face restrictions on select financial transactions, such as prohibitions on extending new debt with maturities longer than 30 or 90 days (depending on the sector). Examples of Russian firms subject to these sanctions include Rosoboronexport, a state-owned arms exporter; Rosneft, a state-owned oil company and the world's largest publicly traded oil producer; Rostec, a major Russian hi-tech and defense conglomerate; and Sberbank, the largest bank in Russia. Restrictions on specific o il-related exports , services, and technology to Russia . The United States restricts U.S. individuals and entities from exporting goods, services, or technology in support of exploration or production for deepwater, Artic offshore, or shale projects that have the potential to produce oil in Russia or in the maritime area claimed by Russia. Restrictions on specific exports . The United States has tightened restrictions on U.S. exports of dual-use and military items to Russia. The United States urged other countries to impose sanctions on Russia, and coordinated sanctions with a number of other countries, particularly in the EU. In August 2014, Russia announced a retaliatory ban on the import of certain foods from the United States, the EU, and other countries imposing sanctions. In 2014, the United States and other countries also began opposing new projects in Russia at the World Bank and European Bank for Reconstruction and Development (EBRD), to put additional pressure on the Russian government in response to Russia's actions in Ukraine. Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States suspended the G-8 and instead resumed convening as the G-7, of which Russia is not a member, for the first time since the late 1990s. Russian officials still attend G-20 meetings, which include a broader group of advanced and emerging-market economies. U.S. and EU sanctions on Russian individuals, firms, and sectors in 2014 came at a time when Russia's economy was still struggling to recover from the global financial crisis of 2008-2009. In the early 2000s, Russia's economy benefited from rising oil prices. Its economy was hit hard by the global financial crisis and ensuing global economic downturn, as demand for its exports fell, particularly in Europe. Russia's economy contracted sharply, by 7.8%, in 2009. The economy rebounded the following year, growing by 4.5%, before slowing between 2010 and 2013. Economists argue that the financial crisis and weak economic performance highlighted fundamental problems in Russia's economy, including the economy's dependence on the production and export of oil and gas, as well as the need for reform in a number of areas, including governance (including the need to address corruption), regulation, privatization, competition, the banking sector, and utility pricing. It is difficult to assess whether, and to what extent, the targeted U.S. and EU sanctions in response to the conflict in Ukraine, and Russia's retaliatory measures, have impacted the Russian economy broadly over the past two to three years. Sanctions hit at the same time the price of oil, a major export and source of revenue for the Russian government, dropped dramatically, by more than 60% between the start of 2014 and the end of 2015. That said, many economists, including at the IMF, have argued that the twin shocks of multilateral sanctions and low oil prices were the major driver behind Russia's economic challenges in 2014 and 2015 ( Figure 1 ). In particular, Russia grappled with economic contraction , with growth slowing to 0.7% in 2014, before contracting sharply by 3.7% in 2015; capital flight , with net private capital outflows from Russia totaling $152 billion in 2014, compared to $61 billion in 2013; rapid depreciation of the ruble , more than 50% against the dollar over the course of 2015; a higher rate of inflation , from 6.8% in 2013 to 15.5% in 2015; budgetary pressures , with the budget deficit widening to 3.2% in 2015, up from 0.9% in 2013; tapping international reserve holdings to offset fiscal challenges, including exclusion from international capital markets, as reserves fell from almost $500 billion at the start of 2014 to $368 billion at the end of 2015; and more widespread poverty , which increased by 3.1 million to 19.2 million in 2015 (13.4% of the population). During 2016, Russia's economy largely stabilized, even as the sanctions remained in place. Russia's economy contracted at a slower rate (0.8%); net private sector capital outflows slowed, from over $150 billion in 2014 to $15 billion in 2016; inflation fell by more than half, to 7.2%; the value of the ruble stabilized; and the government successfully sold new bonds in international capital markets in May 2016 for the first time since the sanctions were imposed. Russia's economy benefited from rising oil prices in 2016, from about $30/barrel to over $50/barrel. Additionally, the IMF argued that the sanctions and oil shocks were cushioned by a flexible exchange rate regime, which allowed the ruble to depreciate and support exports; banking sector capital and liquidity injections; regulatory forbearance for the banking sector, to help banks avoid regulatory triggers due to acute ruble depreciation and volatile securities market prices; and limited fiscal stimulus, particularly tapping the reserve fund to finance deficit spending, which reached 3.7% in 2016. Unemployment has remained broadly stable, at around 5.6%, and poverty is projected around 14.6% in the first half of 2016. Although the economy is no longer in acute crisis, Russia's access to foreign capital remains limited. For countries reporting banking data to the Bank for International Settlements (BIS), foreign bank loans to Russia (including private and public sectors) have fallen by more than half between the end of 2013 and the third quarter of 2016, from $225 billion to $103 billion ( Figure 2 ). However, there is also some evidence that investor sentiment for Russia is improving. Russia's government has been able to resume bond sales in international capital markets, and net private capital outflows have slowed. Additionally, net inward FDI into Russia, which essentially came to a halt in late 2014 and early 2015, has started to resume, although it has not reached pre-2014 levels ( Figure 3 ). News reports indicate that some major Western companies, such as Ikea, Pfizer, and Mars (food products), are looking to open new stores and factories in Russia. According to the IMF, Russia's economy is projected to resume modest growth of 1.1% in 2017 and 1.2% in 2018. The IMF argues that the medium-term prospects for Russia's economy are subdued due to the impact of sanctions on productivity and investment, as well as a number of unrelated long-standing structural challenges, including slow economic diversification, weak protection of property rights, burdensome administrative procedures, state involvement in the economy, corruption, and adverse demographic dynamics (declining population and lower labor force participation). Some analysts have also noted that the low value of the ruble may hamper Russia's attempts to innovate and modernize its economy, and that the economy's continued reliance on oil makes it vulnerable to another drop in oil prices. Some analysts have used statistical models to estimate the precise impact of sanctions imposed by the United States, the EU, and other countries on Russian individuals, firms, and sectors since 2014 relative to other factors, including oil prices. In 2015, the IMF estimated that U.S. and EU Ukraine-related sanctions and Russia's retaliatory ban on agricultural imports reduced output in Russia over the short term between 1.0% and 1.5%. The IMF's models suggest that the effects on Russia over the medium term could be more substantial, reducing output by up to 9%, as lower capital accumulation and technological transfers weaken already declining productivity growth. At the start of 2016, a State Department official argued that sanctions were not designed to push Russia "over the economic cliff" in the short run, but are designed to exert long-term pressure on Russia. In November 2014, Russian Finance Minister Anton Siluanov estimated the annual cost of sanctions to the Russian economy at $40 billion (2% of GDP), compared to $90 billion to $100 billion (4% to 5% of GDP) lost due to lower oil prices. Similarly, Russian economists estimated that the financial sanctions would decrease Russia's GDP by 2.4% by 2017, but the effect would be 3.3 times lower than the effect from the oil price shock. Russian President Vladimir Putin stated in November 2016 that the sanctions are "severely harming Russia" in terms of access to international financial markets, although the impact is not as severe as the harm from the decline in energy prices. Some analysts have noted that sanctions do not prohibit the Russian government from selling government bonds to Western investors, and as the Russian government resumes bond sales in international capital markets, it may lend the money on to sanctioned entities, easing their access to financing. In December 2016, the Office of the Chief Economist at the U.S. State Department published estimates of the impact of the U.S. and EU sanctions in 2014 on a firm-level basis. The main finding is that the average sanctioned company or associated company in Russia lost about one-third of its operating revenue, over one-half of its asset value, and about one-third of its employees relative to non-sanctioned peers. Their research also suggests that sanctions had a relatively smaller impact on Russia's economy overall (Russian GDP and import demand) compared to oil prices. There is debate about the economic impact of the Ukraine-related sanctions for the United States. When the sanctions were announced, U.S. business groups, including the Chamber of Commerce and the National Association of Manufacturers, raised concerns that U.S. sanctions on Russia could disrupt the operations of U.S. firms in Russia, thereby harming American manufacturers, jeopardizing American jobs, and ceding business opportunities to firms from other countries. Other analysts argued that the targeted sanctions were designed to minimize the impact on the U.S. economy while meeting foreign policy obligations to Europe and Ukraine and advancing U.S. national security interests. They note that Russia is a relatively minor trading and investment partner for the United States as a whole. Additionally, sanctions do not prohibit all economic transactions between the United States and Russia. They target a small portion of Russian individuals and entities and, in some cases, only restrict specific types of economic transactions. Although Russia is a major player in the international economy—it is the world's 12 th -largest economy, is home to a population of more than 140 million, and is a major producer and exporter of natural gas and oil—U.S.-Russia economic ties have been historically relatively limited. Russia accounts for a small portion of overall U.S. international economic activity. Even before the Ukraine-related sanctions were imposed, the United States had little direct trade and investment with Russia. Over the past decade, Russia has accounted for less than 2% of total U.S. merchandise imports, less than 1% of total U.S. merchandise exports, less than 1% of U.S. foreign direct investment (FDI), and less than 1% of FDI in the United States. Over the past three years, U.S. commodity trade with Russia has fallen by almost half ( Figure 4 ). U.S. merchandise exports to Russia fell from $11.1 billion in 2013 to $5.8 billion in 2016. U.S. merchandise imports from Russia fell from $27.1 billion in 2013 to $14.5 billion in 2016. U.S. investment ties with Russia also continued to weaken. U.S. investment in Russia was $9.2 billion in 2015, and down from a peak of $20.8 billion in 2009. Russian investment in the United States was $4.5 billion, down from a peak of $8.4 billion in 2009. It is difficult to assess the extent to which the downward trend in U.S. trade and investment with Russia was driven by the Ukraine-related sanctions. The sanctions target specific transactions with specific Russian individuals, firms, and sectors. Many trade and investment transactions between U.S. and Russian individuals and entities are not directly impacted by sanctions. Other factors may have driven the downturn, such as the economic contraction in Russia, structural problems in Russia's economy, or an inward-looking policy shift by the Russian government. Factors in the U.S. economy could also be at play, such as strengthening in the value of the U.S. dollar. Several large U.S. companies have been actively engaged with Russia: exporting to Russia, entering joint ventures with Russian partners, and relying on Russian suppliers for inputs. A notable example is ExxonMobil, which in 2011 signed a strategic cooperation agreement with Rosneft, the Russian state-owned oil company, to drill in the Russian Arctic, among other activities now subject to sanctions. Other examples include PepsiCo, the largest food and beverage company in Russia; Ford Motor Co., which has a partnership with Sollers, a Russian car company; General Electric, which has joint ventures with Russian firms to manufacture gas turbines; Boeing, among the top U.S. exporters to Russia; Visa and MasterCard, which provide payment services to 90% of the Russian market; and United Launch Alliance, a Lockheed Martin and Boeing joint venture, which imports Russian rocket engines. Russia is also an important market for Philip Morris and Avon Products. The U.S.-Russia Business Council, a Washington-based trade association that provides services to U.S. and Russian member companies, has a membership of 170 U.S. companies conducting business in Russia. When new U.S. sanctions on Russia were implemented in 2014 in response to the conflict in Ukraine, news reports cited a number of U.S. firms whose operations were disrupted. For example, sanctions forced ExxonMobil to suspend its $700 million exploration in Russia's Kara Sea (a joint venture with Rosneft). During the first seven months of sanctions, Exxon reported losses amounting to about $1 billion from its Russian operations. Oilfield service companies, including Halliburton and National Oilwell Varco, reported that sanctions restricted their operations in Russia and expressed concern that sanctions will limit their profits. Likewise, John Deere, which makes heavy farm equipment and has two factories in Russia, attributed weaker sales to the sanctions. U.S. gun dealers also face restrictions on imports of Russian-made Kalashnikov rifles, of which they have reportedly sold tens of thousands in previous years. Additionally, U.S. financial institutions have reportedly needed to hire additional legal and technical staff to monitor accounts and review any financing arrangements with Russian entities. It is difficult to extrapolate the full impact of sanctions on U.S. firms from these examples. One reason is that Russia may not be a critical economic partner for some U.S. firms and industries affected by the sanctions. For example, in response to the sanctions, Russia announced plans to accelerate the development of its own national payments system, which would undermine MasterCard and Visa's dominance in the Russian market. Although no such system has been rolled out to date, Russia only accounts for a small portion (2%) of MasterCard's and Visa's profits. In at least one case following the new sanctions, a U.S. subsidiary of a Russian company cut ties with the parent company and relocated manufacturing to the United States. Another factor is that the implementation of sanctions in phases or "rounds" gave U.S. companies some time to prepare for disruptions in economic transactions with Russia. According to news reports, many multinational companies have developed contingency plans that would allow them to adjust to suppliers and banks outside of Russia and minimize the impact of sanctions on their operations. There is likely less press coverage of U.S. firms that have been able to minimize the impact of the sanctions on Russia or the effects of Russian retaliation. Moreover, aggregate trade and investment trends mask differences at the firm and sector level. Although trade in most sectors has declined, in some cases, ties strengthened. For example, U.S. imports of aluminum from Russia increased by $536 million (68%) between 2014 and 2016. Some U.S. agricultural producers have been adversely affected by Russia's retaliatory ban on agricultural imports. Although Russia accounted for about 1% of the United States' total food and agricultural exports at the time the ban was imposed, specific producers within the United States have been adversely affected. For example, the congressional delegation from Alaska expressed concerns about the impact on Alaska's seafood industry. Another example is Washington State apple and pear producers, who sold $23 million worth of pears and apples to Russia in 2013 and had to locate new purchasers at the start of the new harvest season. Over the longer term, however, the impact of the sanctions could be mitigated in part as alternative markets for U.S. agricultural exports are located. For example, even though Russia's ban on agricultural imports impacted the U.S. poultry sector, which exported about $300 million to Russia a year, the industry downplayed the impact of the ban, stressing that Russia had already become a less important export market. The United States, in coordination with the EU, implemented targeted sanctions on key Russian individuals, entities, and sectors in response to Russia's actions in Ukraine. U.S. sanctions include, for example, targeting officials in Putin's inner circle and placing restrictions on new debt to specific financial institutions. As Congress evaluates U.S. foreign policy toward Russia and the role that sanctions may or may not play in advancing U.S. national security interests, it may consider the impact of current economic sanctions on Russia's economy and foreign policy, in addition to their impact on U.S. foreign policy and economic interests. Russia's economy faced a number of challenges in 2014 and 2015, including capital flight, depreciation of the ruble, rising inflation, weaker growth prospects, and budgetary pressures. Many experts believe that sanctions are contributing to Russia's economic challenges. However, it is difficult to assess the impact of sanctions separate from other domestic and international factors, particularly low oil prices. The effectiveness of the sanctions in inducing a change in the behavior of the Russian government remains to be seen. Although the Russian government continues to face a number of economic challenges, many of which are unrelated to sanctions, economic forecasts suggest that the Russian economy is stabilizing and there is some evidence that investor sentiment toward Russia may be improving. Some U.S. business groups have raised concerns about the economic costs of sanctions on Russia to the United States. News reports indicate that some U.S. firms and industries have been adversely affected. Longer-term, the impact of the sanctions, if they are kept in place, may depend on a number of factors, such as the ability of U.S. firms to find alternative markets, potential spillover effects from a slowdown in Russia, and whether Russia implements additional retaliatory measures against the United States. | In response to Russia's annexation of the Crimean region of neighboring Ukraine and its support of separatist militants in Ukraine's east, the United States imposed a number of targeted economic sanctions on Russian individuals, entities, and sectors. The United States coordinated its sanctions with other countries, particularly the European Union (EU). Russia retaliated against sanctions by banning imports of certain agricultural products from countries imposing sanctions, including the United States. U.S. policymakers are debating the use of economic sanctions in U.S. foreign policy toward Russia, including whether sanctions should be kept in place or further tightened. A key question in this debate is the impact of the Ukraine-related sanctions on Russia's economy and U.S. economic interests in Russia. Economic Conditions in Russia Russia faced a number of economic challenges in 2014 and 2015, including capital flight, rapid depreciation of the ruble, exclusion from international capital markets, inflation, and domestic budgetary pressures. Growth slowed to 0.7% in 2014 before contracting sharply by 3.7% in 2015. The extent to which U.S. and EU sanctions drove the downturn is difficult to disentangle from the impact of a dramatic drop in the price of oil, a major source of export revenue for the Russian government, or economic policy decisions by the Russian government. The International Monetary Fund (IMF) estimated in 2015 that U.S. and EU sanctions in response to the conflict in Ukraine and Russia's countervailing ban on agricultural imports reduced Russian output over the short term by as much as 1.5%. Russia's economy, more recently, is showing some signs of recovery, in part due to higher oil prices, a flexible exchange rate regime, and sizeable foreign exchange reserves, among other factors. The IMF projects Russia's economy will grow by 1.1% in 2017. U.S. Economic Interests When the sanctions were announced in 2014, U.S. business groups raised concerns that sanctions harm American manufacturers, jeopardize American jobs, and cede business opportunities to firms from other countries. When the sanctions were rolled out in 2014, news reports cited a number of U.S. firms that were adversely affected by U.S. sanctions on Russia and Russia's retaliatory measures. There are questions about the overall impact of the sanctions on the U.S. economy, however. Russia accounts for a small portion of total U.S. trade and foreign investment. U.S. sanctions also target specific Russian individuals and entities and, in some cases, restrict only specific types of economic transactions. |
U.S. elections are highly decentralized, with much of the responsibility for election administration residing with local election officials (LEOs). There are thousands of such officials, many of whom are responsible for all aspects of election administration in their local jurisdictions—including voter registration, recruiting pollworkers, running each election, and choosing and purchasing new voting systems. These officials are therefore critical not only to the successful administration of federal elections, but also to the implementation of the Help America Vote Act of 2002 (HAVA, P.L. 107-252 ). Nevertheless, there has been little objective information on the perceptions and attitudes of LEOs about election reform. This report discusses the results of two scientific opinion surveys of principal local election officials that were designed to help fill that gap in knowledge. The surveys were performed pursuant to two projects sponsored by the Congressional Research Service (CRS). The projects were developed in collaboration with and the surveys performed by faculty and students at the George Bush School of Government and Public Service at Texas A&M University. The Bush School team developed and administered the surveys, in consultation with CRS, to a sample of LEOs from all 50 states. The responses to each survey, from approximately 1,400 LEOs, were analyzed by CRS for purposes of this report. Methodological details are described in the Appendix . The surveys were administered following the 2004 and 2006 federal elections. While they were not identical, many of the questions were the same, and comparisons of the results are discussed where appropriate. The findings may be useful to Congress as it considers funding for HAVA, oversight of its implementation, and possible revisions. The report begins with a description of some characteristics of local election officials and their jurisdictions. That is followed by a discussion of perceptions and attitudes of LEOs about the different kinds of voting systems used in different jurisdictions—lever machines, punchcard ballots, hand-counted paper ballots, central-count optical scan (CCOS), precinct-count optical scan (PCOS), and direct-recording electronic (DRE) systems such as "touchscreens." The report then describes how HAVA has affected local jurisdictions and the opinions LEOs expressed about the law. The section after that discusses three other topics covered in the 2006 survey—issues related to the 2006 election, characteristics of pollworkers, and attitudes about nonpartisan election administration. The final sections discuss caveats to consider in interpreting the results, and potential policy implications of the findings. There are about 9,000 local election jurisdictions in the United States. In most states, they are counties or major cities, but in some New England and Upper Midwest states, they are small townships—for example, more than 1,800 townships in Wisconsin. The number of registered voters and polling places in a jurisdiction also varies greatly. The average reported was 40,000 voters, ranging from fewer than 100 to more than 1 million, and 32 polling places, ranging from 0 to almost 1,000, with 16% of jurisdictions having only one and 14% more than 50. The number of election personnel working in a jurisdiction, in addition to the local election official, also varied greatly, from none to more than 10,000. Given such diversity and other differences among states—such as wealth, population, and the role of state election officials—responsibilities and characteristics of LEOs are likely to vary greatly. Nevertheless, some patterns emerged from the survey. According to the survey results, the typical LEO is a white woman between 50 and 60 years old who is a high school graduate. She was elected to her current office, works full-time in election administration, has been in the profession for about 10 years, and earns under $50,000 per year. She belongs to a state-level professional organization but not a national one, and she believes that her training as an election official has been good to excellent. As with any such description, the one above does not capture the diversity within the community surveyed: About one-quarter of LEOs are men, about 5% belong to minority groups, 40% are college graduates, and 8% have graduate degrees (see Table 1 ). They range from 21 to more than 80 years of age, and have served from 1 to 45 years. About one-third were appointed rather than elected to their posts. Reported salaries range from under $10,000 to more than $120,000. About three-quarters belong to at least one professional organization. The demographic profile of LEOs is unusual, especially for a professional group. They differ from those of other local government employees. For example, according to U.S. Census figures, while women comprise a higher proportion of the local government workforce than men overall, men comprise a higher proportion of local government general and administrative managers. About 20% of those managers are members of minorities. The patterns do not appear to be a result of the fact that most LEOs are elected, as the demographic characteristics of legislators appear to be largely similar to those for local government managers. The average tenure in the current position declined by about one year from 2004 to 2006, with the proportion of LEOs who had served for two years or less in their current positions rising to 15% in 2006 from 11% in 2004 (see Figure 1 ). Thus, there appeared to be a small increase in job turnover between the two elections. However, there was no significant change in average age ( Figure 2 ). The survey was not designed to identify the causes of such changes, but they appear to be consistent with the impacts of federal and state election reform on local jurisdictions. That reform led to increased funding for election administration, changes in voting systems used by many jurisdictions, and an increased workload for election officials. For example, the survey found that those who reported that they worked full-time on election administration increased from 66% in 2004 to 76% in 2006, while those who reported that they spent more than twenty hours per week on election duties increased from 41% to 47%. The increasing complexity of elections and the increased federal role after the passage of HAVA have focused more attention on the role of professionalism in election administration. Given that change, it might be expected that election officials who began serving more recently would have more formal education than those who have served for longer periods. Such a pattern could yield a statistical association between the highest education level attained and the number of years in service as an election official. In fact, there was a small but significant relationship, with LEOs who did not have a college degree averaging 11-12 years of service and those with graduate degrees averaging 9 years. However, there was no significant change in the distribution of maximum education level between the 2004 and 2006 surveys ( Figure 3 ). The survey also examined other factors related to election administration as a profession. About three-quarters of LEOs belonged to at least one professional association. About 40% of those belonged to a national or international association, with 60% belonging only to a state or regional association (see Figure 4 ). Those results did not change significantly from 2004 to 2006. In 2006, the percentage of LEOs reporting that they had a written job description was 43% for those who had been elected and 70% for those who had been appointed. Most LEOs reported a broad range of election-administration responsibilities beyond solely running elections. Most are also responsible for budgeting, personnel, and purchasing, for example ( Table 2 ). Most LEOs received some initial training specifically designed to prepare them for their duties, but for most that training was less than 20 hours, and only one-fifth of LEOs were required to pass an examination ( Table 3 ). Most have also received additional training. More than two-thirds of LEOs assessed that their training was good to excellent and resulted in moderate to substantial improvement in their effectiveness and ability to solve problems. More than four-fifths believe that training and experience are equally important in ensuring a successful election. This result, shown in Figure 5 , might reflect the impact of HAVA requirements, most of which went into effect in 2006. For example, election officials might have felt less well prepared by their training to implement HAVA in 2006 than in 2004, but the survey did not address that possibility. Other possible factors include increasing public attention to problems in election administration, and recent controversies about the reliability and security of voting systems. Two-fifths of respondents to the 2006 survey commented on additional training needs. The most common suggestions were for more training in technical and legal aspects of elections, and more "hands-on" training. Given the increasing role of technology in elections, both surveys asked LEOs questions about their attitudes toward technology ( Figure 6 ). Respondents believed that technology can be useful for government services, but were cautious about implementation. They were only slightly positive on average about whether the benefits outweigh the risks. They held those views somewhat more strongly in 2006 than in 2004. Respondents reported that the percentage of jurisdictions using lever machines, punchcards, hand-counted paper ballots, and central-count optical scan (CCOS) as their primary voting system decreased substantially, while the percentage using PCOS and DREs increased (see Figure 7 ). These changes are consistent with results from other sources. The trends conform with expectations arising from HAVA requirements that emphasized improved usability and accessibility of voting systems for voters. The average length of time jurisdictions have been using a particular kind of voting system varies greatly with the kind of system ( Figure 8 ). The average length of use varies with the length of time a voting system has been available for use. At one extreme, jurisdictions with hand-counted paper ballots have used them for 80 years, on average. At the other, jurisdictions with DREs have had them under 10 years on average. The pattern of use shown in Figure 8 suggests that jurisdictions do not readily change the kinds of voting systems they use. On the one hand, such reluctance to change creates stability that may be beneficial to voters and administrators. On the other hand, it may mean that a particular kind of technology is used far longer than it should be, with increasing risks of negative consequences. For example, many of the problems associated with the 2000 presidential election were attributed to the continued use of outmoded or flawed technology, such as the punchcard systems in use at the time. The causes of such long-term use patterns are complex and may include factors such as legal and budgetary constraints and various forms of transaction costs that would be incurred with any change. Such factors, if they continue to be important, may impede jurisdictions from taking advantage of the kinds of improvements that are likely to occur in voting technology over the next decade. Most LEOs play a role in decisions on what voting systems to use in their jurisdictions (see Table 2 above). Many other stakeholders may also influence those decisions. To help provide an understanding of how LEOs assess the appropriateness of the roles other stakeholders play, the survey asked respondents to what extent they agreed or disagreed with statements about the influence of those stakeholders on the decision-making process. Two examples are "The federal government has too great an influence," and "Local level, elected officials should have greater influence." The results are presented in Figure 9 . On average, in fact, LEOs felt more strongly about the role of local elected officials than any other stakeholder. LEOs were largely neutral about the level of influence of state election officials and the public, and did not believe that nonelected officials, professional associations, and independent experts should have greater influence than they do now. Some of the differences between the 2004 and 2006 results are notable. In 2004, LEOs were largely neutral about the influence of the media, political parties, and various advocacy groups. In 2006, they thought those groups had too much influence. They also agreed more strongly than in 2004 that elected local officials should have more influence. Also, in 2006 more LEOs believed that vendors have too great an influence than in 2004, and fewer believed that the public and independent experts should have greater influence. Their views did not change on the roles of the federal government, elected state officials, professional associations, and nonelected state and local officials. Overall, the observed patterns of response are not surprising. LEOs generally either report to elected local officials or are elected themselves. The concerns of local officials about the influence of the federal government are well-known in many areas, not just election administration, and many may have resented the HAVA requirements that led to changes in long-used voting systems. Also, it is not surprising that LEOs have become more concerned about the roles of stakeholders such as the media, advocates, and political partisans, who are closely associated with the recent controversies about the reliability and security of voting systems. There has also been debate and uncertainty specifically about the role and influence of voting system manufacturers and vendors in the selection of voting systems by local jurisdictions. Some observers have argued that vendors have undue influence in what voting systems jurisdictions choose. Others believe that such concerns are unwarranted. But little has been known previously of how LEOs view vendors and their relationships with them. The results of the 2004 survey were mixed with respect to the importance of vendors. (These questions were not included in the 2006 survey.) LEOs in 2004 appeared to have high trust and confidence in vendors but did not rate them as being especially influential with respect to decisions about voting systems. Fewer than 10% believed that there was insufficient oversight of vendors by the federal government and states, but about one in six believed that local governments did not exercise enough oversight. Most jurisdictions using computer-assisted voting reported in 2004 that they had interacted with their voting-system vendors within the last four years. More than 90% of LEOs considered their voting system vendors responsive and the quality of their goods and services to be high. They felt equally strongly that the recommendations of those vendors could be trusted. However, about a fifth of respondents thought that vendors were willing to sacrifice security for greater profit, although 60% disagreed. Also, a quarter felt that vendors provide too many elements of election administration. When LEOs were asked in 2004 what sources of information they relied on with respect to voting systems, state election officials received the highest average rating, with about three-quarters of LEOs indicating that they rely on state officials a great deal. Next most important were other election officials, followed by the EAC and advocates for the disabled. About one-third of LEOs stated that they relied on vendors a great deal, a level similar to that for professional associations. Only 2% of LEOs rated vendors higher than any other source, whereas 20% rated state officials highest. Interest groups were rated lower than vendors, and political parties and media received the lowest ratings. When LEOs were asked in 2004 about the amount of influence different actors had on decisions about voting systems, the overall pattern of response was similar to that for information sources. Once again, state, local, and federal officials were judged the most influential, and political parties and the media the least, with vendors in between. An exception was that local nonelected officials were considered less influential on average than vendors. Both voters and advocates for the disabled were rated as more influential on average than vendors. No LEOs rated vendors as more influential than any other source. Those results contrast with the views of LEOs described above about whether the levels of influence of stakeholders are too little or too great ( Figure 9 ). Of the three actors considered most influential, LEOs believed that local elected officials should have more influence and the federal government has too much, and they were neutral about state officials. They did not believe on average that those considered least influential should have more. Congress may find it useful to take these attitudes into account in conducting oversight of HAVA implementation and in considering additional election-reform legislation. LEOs had strong opinions about the different kinds of voting systems used in the United States. Those whose jurisdiction used a particular kind of system, whatever it was, supported its use more strongly than any other system (see Figure 10 ). Thus, users of lever machines strongly supported their use, showed some support for the use of DREs, were neutral about optical scan systems, and were opposed to the use of punchcard and hand-counted paper ballot systems. In general, except for those using them, LEOs opposed the use of lever machines, punchcard systems, and paper ballots. Those views changed little across the two surveys. However, there was a slight but significant decrease in the level of support for DREs among users of optical scan and DRE systems. DREs were the only voting system for which support of users dropped between 2004 and 2006, although it still remained very high. It was not possible to determine if the change in support for users of DREs resulted from changes in the views of long-time users or from lower initial support among those who used DREs for the first time in the 2006 election. Overall, and consistent with the above results, LEOs reported a high level of satisfaction with their voting systems and assessed that they performed very well during the most recent election. On a scale of 1-10, average ratings were 8 or higher for each of those questions in both surveys ( Figure 11 ). However, ratings for satisfaction with and performance of optical scan and DRE systems were significantly lower in 2006. Ratings for performance were also lower for paper systems. There was no difference in ratings between years for lever machines in satisfaction or performance. LEOs who used DREs and precinct-count optical scan systems were more satisfied with them in 2004 than LEOs who used lever machines, paper ballots, or central-count optical scan, but in 2006, there were no significant differences in satisfaction among users of different voting systems. However, users of PCOS systems were slightly more satisfied overall than users of either CCOS or DRE systems. There were also no significant differences in rated performance of different voting systems in either 2004 or 2006, despite the striking difference between the two years. To assess more directly how LEOs rated their own voting systems in 2006, they were asked whether their current system is the best available, and what voting system they believed is best overall. Almost 80% agreed with the statement that their current voting system is the best available, although the level of agreement was somewhat higher among optical scan and DRE users ( Figure 12 ). The same percentage believed that their current voting system is the best overall, with a significantly higher percentage of PCOS users holding that view than users of other systems. To further assess voting system preferences, both surveys asked LEOs to assess their primary voting systems on fifteen specific characteristics ( Figure 13 ). The high ratings for accuracy, security, reliability, and usability changed little from 2004 to 2006. For other characteristics, there were substantial differences both among voting systems and between the two surveys. For most of those, LEOs were less happy with performance in 2006 than 2004, especially with respect to optical scan and DRE systems, which they rated lower for cost, size, storage requirements, and machine error in 2006 than 2004. Ratings for usability were also slightly lower, but those for multilingual capacity were higher. Optical scan systems, both central- and precinct-count, were rated higher for accessibility in 2006 than in 2004. The reasons for this change are not clear. All systems were rated lower for machine and voter error in 2006—LEOs switched from positive to fairly neutral about these performance characteristics. It was not surprising that DREs received the highest ratings of any system for accessibility and ability for use in multiple languages, or that hand-counted paper ballots were rated lowest for counting speed. Some of the comparisons among voting systems, however, did yield surprising results. The ratings for reliability, security, accuracy, and ease of use by voters were very high and were similar for all voting systems. Given media reports about problems with the reliability and security of electronic voting, somewhat different outcomes might have been expected—namely, that DREs would have been rated lower in reliability and security. Also, given that modern DREs are often described as more voter-friendly than other systems, and certainly have the capability of providing higher levels of usability than other types, the lack of difference in ratings for usability is somewhat surprising. With respect to accuracy, a lower rating might have been expected for punchcards, given the difficulties with recounts that were prominent during the 2000 presidential election. It is possible that such confidence exists because few jurisdictions use punch cards now, and those that do have them declined to replace them after 2000. Those jurisdictions kept the system despite intense negative media coverage of system limitations and opted not to take part in the punchcard buyout program offered through the Help America Vote Act. The relative lack of difference in ratings of optical scan and DRE systems for acquisition and maintenance costs, and size and storage requirements, appears to run counter to widely held views. Many observers regard DREs as the most expensive voting systems, given that several machines may be needed for each polling place, whereas optical scan systems usually require one machine per polling place (PCOS) or none (CCOS). These differences from expectation suggest that LEOs' perceptions of how their voting systems perform may differ substantially in some ways from public perceptions about those systems. If the perceptions of election officials are accurate, then several of the criticisms leveled at specific voting systems could lead, if acted upon, to unnecessary and even counterproductive regulation and expenditure. For example, if in fact there is little difference in security between an optical scan system and a DRE, then requirements for paper trails may be unnecessary. If, however, LEOs' perceptions are inaccurate, then understanding and addressing the causes of those inaccuracies may be beneficial. Much of the recent controversy about election reform has focused on electronic voting systems. Questions about the security and reliability of those systems were a relatively minor issue until 2003. Two factors led to a sharp increase in public concerns about them: (1) HAVA promoted the use of both PCOS and DREs through its provisions on preventing voter error and making voting systems accessible to persons with disabilities; and (2) the security vulnerabilities of electronic voting systems, especially DREs, were widely publicized as the result of several studies released in 2003. Both surveys asked several questions designed to elicit the views of LEOs about aspects of that controversy. When asked whether current federal and state guidelines and standards about electronic voting systems (both optical scan and DRE systems) are strict enough, most LEOs, about 60%, replied in the affirmative. Those who did not were fairly evenly split among officials who believed that the current standards are too strict and those who believed they are not strict enough. There was no significant difference in average assessment between users and nonusers of electronic voting systems, but nonusers were slightly more likely to believe that the standards are either too strict or not strict enough ( Figure 14 ). In both surveys, LEOs were asked to what extent they agreed with several statements about DRE and optical scan systems. In 2004 those questions were asked of all LEOs, but in 2006 they were asked only of those who used DREs and optical scan as their primary voting systems. Also, two questions asked in 2004 were not asked in 2006 (See Figures 15 and 16 ). Not surprisingly, the opinions of nonusers of either kind of system were generally less strong than those of users. Nonusers were neutral on average with respect to several statements about DREs, including their level of knowledge about the systems, vulnerabilities to tampering, and the need for more public trust. LEOs whose primary voting systems were precinct-count optical scan were more neutral about DREs than were users of other voting systems. Users of DREs, in contrast, generally agreed that they had sufficient knowledge about the voting system, that certification procedures were adequate, that DREs are not vulnerable to tampering and security concerns can be addressed with good procedures, that the public should have greater trust in DREs, and that the media report too many criticisms of that voting system. Those views were similar in both surveys. Nonusers were less neutral about optical scan (OS) systems, but users nevertheless held stronger views than nonusers about these systems, except for the statement about media criticism, about which both users and nonusers were neutral on average. LEOs whose primary voting systems were DREs were less neutral about OS systems than users of other voting systems. The controversy about the security and reliability of DREs has led to widespread calls for the adoption of a paper trail of the ballot choices that a voter can verify before casting the ballot. These paper trails, printed as separate ballot records that the voter can examine, are usually called voter-verified paper audit trails, or VVPAT. LEOs whose primary voting system is a DRE were asked several questions in both surveys about VVPAT. The percentage who used them doubled to 36% in 2006, from 18% in 2004 . About one-third of LEOs whose jurisdictions used DREs as their primary voting system stated that voters who did not wish to use a DRE had the option of using a paper ballot instead. However, it was not possible to determine which of those jurisdictions permitted that choice in the polling place rather than through the use of "no excuse" absentee balloting. In the 2006 survey, only DRE users were asked if VVPAT should be required. However, in the 2004 survey, both users and nonusers were asked. Among DRE users, only 14% supported such a requirement, whereas among nonusers 68% did ( Figure 17 ). In 2004, 47% of respondents strongly disagreed, and only 5% strongly agreed that DREs should produce a VVPAT, while in 2006 the numbers were 36% strongly disagreeing and 12% strongly agreeing ( Figure 18 ). In 2006, LEOs were also asked if they would be willing to use a VVPAT if reimbursed for the costs by the federal government, and 57% answered in the affirmative. However, even those respondents (DRE users and nonusers) who expressed support for VVPAT were generally willing (65%) to spend only $300 or less for the feature. LEOs were asked to choose one or more of several reasons for disagreeing or agreeing that DREs should produce a VVPAT ( Figure 19 ). The most frequent reasons chosen were the risk of printer failure, the complexity of implementation, and risks to voter privacy. Among the choices available in both surveys, LEOs were more concerned in 2006 about costs and the risk of printer failure, and less concerned about the risk of tampering with the VVPAT. About three-quarters of LEOs who used a VVPAT were somewhat to very satisfied with it. However, about one-fifth were dissatisfied. More than four-fifths of LEOs had confidence in their accuracy, with fewer than one-tenth expressing concerns. More than two-thirds thought that voters reacted positively to them, but about one-quarter thought that voters were neutral ( Figure 20 ). Most LEOs, about 90%, considered themselves familiar with and knowledgeable about HAVA's requirements in both surveys. The level of familiarity increased from 2004, when about 20% considered themselves "very familiar" with the law, to 2006, with almost 40% very familiar. Those who were "not familiar at all" with HAVA decreased from 4% in 2004 to 0.1% in 2006. About 90% of respondents believed that almost all jurisdictions in their state were in full compliance with HAVA provisions in 2006. However, more LEOs believed that the law resulted in no improvements than in major improvements, and the level of support was lower in 2006 than in 2004 ( Figure 21 ). Most LEOs regarded the major provisions of HAVA as advantageous, although the level of support varied both among the provisions and between the two surveys. LEOs were most supportive of federal funding and least supportive of the requirement for provisional voting and the creation of the Election Assistance Commission ( Figure 22 ). However, provisional voting received substantially higher negative ratings than any other provision in both surveys ( Table 4 ). While remaining positive overall, the level of support declined for all provisions except the voter registration and identification requirements, which were unchanged, and provisional voting, where support in 2006 was higher than in 2004. This was the only provision for which the percentage of negative ratings declined between the two surveys. The steepest decline in support was for the state matching-fund requirement. The decline in support for HAVA from 2004 did not result from a change in the perceived difficulty of implementation. In general, LEOs reported in both surveys that implementation of HAVA provisions was moderately difficult ( Figure 23 ). The level of difficulty declined for all but two provisions: The assessed level of difficulty increased for the process for certification of voting systems, and there was no significant change in perception about the difficulty of implementing provisions to facilitate participation by military and overseas voters. The comparatively large drop in support for the state matching-fund requirement suggests that the decrease in support for HAVA provisions overall in 2006 may have resulted in part from perceptions about costs and funding. Their importance is also supported by the responses to three questions in the 2006 survey: How has HAVA affected the cost of elections in your jurisdiction? To what degree is the funding your jurisdiction has received to implement HAVA requirements sufficient for their implementation? How concerned are you that limited funding in the future will leave you unable to comply with HAVA requirements for election administration? The results are presented in Figure 24 . About 90% of respondents believed that HAVA has increased the cost of elections, and only 2% believe the costs have decreased. LEOs were fairly evenly divided on whether current funding is sufficient to implement the requirements, but most expressed concerns about the sufficiency of future funding, with 30% stating that they were "extremely concerned." LEOs were also asked in 2006 to respond to a set of statements about the impacts of HAVA ( Figure 25 ). While agreeing on average that HAVA has made elections more accessible for voters, they disagreed that the law has made elections fairer or more reliable. They did not believe that HAVA requirements are inconsistent with state requirements, but they strongly believed that the law has made elections more complex to administer. As Table 5 shows, with the exception of the statement on complexity of elections, responses were fairly evenly distributed, with about one-quarter to one-third of respondents expressing a neutral position. When HAVA created the Election Assistance Commission, the law gave it several specific responsibilities. The EAC carries out grant programs, provides for voluntary testing and certification of voting systems, studies election issues, and issues voluntary guidelines for voting systems and guidance for the requirements in the act. The EAC has no rule-making authority (other than very limited authority under the National Voter Registration Act, the "motor-voter" law, P.L. 103-31 ) and does not enforce HAVA requirements. In the 2006 survey, LEOs were asked about the EAC's responsibilities, helpfulness, and benefits. They were asked to rank the importance of the following four EAC responsibilities: Provide guidance to local election officials, Research issues related to election administration, Certify voting systems, and Ensure that local jurisdictions are in compliance with federal law. The results are presented in Figure 26 . LEOs regarded guidance to them as the most important of the listed responsibilities and ensuring compliance by them as the least. Research and certification were rated in the middle and the ratings for them did not differ significantly. However, more than 60% of LEOs reported that the EAC had not helped them understand or perform their duties during the preceding year. About 6% found the EAC to be "extremely helpful" to them overall ( Figure 27 ), whereas 13% found the agency "not helpful at all." LEOs were also asked how they had benefitted from the four functions listed above plus the distribution of federal funds for use by local jurisdictions. The ratings ( Figure 28 ) generally reflect the pattern seen in the responses on overall helpfulness. On average, LEOs responded that they had benefitted only moderately overall. However, while they considered guidance as the most important responsibility, they rated it lowest in benefit, along with compliance, which they regarded as the least important responsibility. About a quarter rated EAC guidance as "not beneficial at all," with about 7% rating it "extremely beneficial." Perceived benefits from research and certification were somewhat higher, and funding, not surprisingly, was rated highest. The discrepancy in the ratings for EAC guidance have several possible explanations. For example, it could reflect frustration with the delays in start-up of the EAC and consequently in the issuance of guidance. It could reflect difficulties in understanding the guidance that was issued. It might reflect the fact that the purpose of the guidance is to assist states, not local jurisdictions, in meeting the title III requirements (§311(a)). Or it could simply be an expression of opposition to or uncertainty about the requirements themselves. Individual comments from LEOs suggest a diversity of views: - A clear and concise plan needs to be formulated as to what the EAC must do and definite timelines attached to the responsibilities. - Rating this committee is somewhat unfair; once finally appointed, funding was delayed; they really haven't had an opportunity to function in the capacity anticipated. - All I have received from them have been brochures that come too close to an election to be of any real use. - The EAC's information on their website can be very helpful. - At the local level we only deal with the Secretary of State and not with the EAC. - EAC commissioners and staff are very well aware of their situation and environment. I work closely with them on a regular basis and know they are doing the best they can, as a federal agency with no enforcement powers…. - Exempt cities or other entities with less than 2,000 voters from the very expensive HAVA equipment requirements. - Get rid of it. Elections…should be free of federal control. - I believe they need more power to correct election problems. HAVA required each state to implement a statewide, computerized voter registration list before the 2006 election. A few states were unable to meet that deadline, and that is reflected in the survey, with 6% of respondents indicating that their states had not yet met the requirement. Most LEOs were familiar with their state's database, with about a third assessing themselves as "very familiar." Given the concerns expressed in the first survey about the burdens of HAVA implementation, the second survey asked LEOs whether the implementation of the computerized list had required the hiring of additional staff in the local jurisdiction. Four-fifths responded that it had not. Those that did hire additional staff were asked to identify all sources of funds. More than three-quarters received funding from local governments ( Figure 29 ), with about 70% receiving only local funding. To explore perceptions about the effectiveness of the computerized statewide voter registration database, LEOs were asked about security, contingency plans in case of failure on election day, and agreement or disagreement with a series of statements. Respondents were very confident about both security and contingency plans. The responses to the statements ( Figure 30 ), however, appear to conflict with the responses to the question on security, in that most LEOs agreed that an unauthorized person could remove the register from the polling station and access the database, although they were neutral about the risk of identity theft. LEOs also expressed concerns about matching drivers' licenses and Social Security numbers, and the difficulty of updating records in the new system, but they did not believe that the system places a heavy burden on local governments overall. They were neutral about whether the new systems would improve the election process. Issues relating to voter identification have been controversial. HAVA requires that first-time voters who register by mail must present a specified form of identification, either when registering or when voting. It does not require photo identification, although a few states have such requirements, and many states require some form of identification document. The kinds of identification accepted for all voters to register and to vote, as reported by respondents, is shown in Table 6 . About one quarter of LEOs reported no identification requirement whatsoever, and about one-third stated that signature comparison or personal information was sufficient. One of the principal policy arguments for tightening voter-identification requirements is concern about the risk of significant levels of voting by ineligible voters. Opponents counter that those risks are small and that requiring identification, especially photo IDs, would effectively disenfranchise eligible voters who would have difficulty obtaining such documents. To help determine the views of LEOs about this issue, the 2006 survey asked several additional questions about voter identification: As a local election official, how supportive are you of requiring all voters in your jurisdiction to provide valid photo identification? How often do non-eligible persons attempt to vote in your jurisdiction, either in person or by absentee ballot? Do you agree or disagree that deliberate voter fraud is a serious problem in your jurisdiction? Do you believe that requiring photo identification of all voters would make elections more secure, less secure, or have no impact on election security? Do you believe that asking for photo identification of all voters would increase turnout, decrease turnout, or have no impact on turnout? The results are presented in Figure 31 . On average, LEOs mildly supported a requirement for photo identification. However, 29% of respondents chose "extremely supportive," 12% "do not support at all," and the choices of the other 60% were spread across the scale of possible responses. Two-thirds also believed that requiring such identification will make elections more secure. These views do not, however, appear to be based on concerns about ineligible voters or voter fraud, which few believe are problems in their jurisdictions. In addition, 41% believe that requiring photo IDs would depress turnout, while 56%, almost all the rest, believe it would have no impact. The causes of this apparent discrepancy are unclear. It is possible that however low the risk of fraud, LEOs believe reducing it outweighs any negative impact on turnout. There might also be other reasons that the survey did not explore. In any case, the range of perspectives in the responses to the questions shows that the controversy is not settled, even among local election officials. The 2006 election was the first under which all HAVA requirements were in effect. Consistent with the perception of LEOs that HAVA has made elections more complex to administer ( Figure 24 ), three-quarters found that they spent more time preparing for the 2006 than the 2004 election, with 40% spending much more time. This perception was supported by comparing the number of hours per week LEOs reported spending on election duties in the 2004 and 2006 surveys. On average, the time spent increased 15%, from 21 to 24 hours. In 2006, LEOs also stated that they worked an additional 20 hours per week in the month before the election. This difference may be especially significant given that 2006 was not a presidential election year, with the additional work required for that contest. In addition, there were prominent issues of concern in 2006 such as voting-system malfunctions and problems with pollworkers, vendors, long lines, media coverage, and timely and accurate reporting of results. The survey therefore presented a list of 16 potential problems and other events and asked LEOs to indicate which, if any, had occurred. The results are presented in Table 7 and Figure 32 . Not surprisingly, this was most commonly reported by LEOs using DREs as the primary voting system ( Figure 32 ), but the differences were relatively small. Among DRE users, 53% reported that at least one repairable malfunction occurred, and 12% that at least one malfunction occurred that could not be repaired. More such machines would be used on average in jurisdictions where DREs are the primary voting system (as opposed to those where only one is used per polling place to meet the HAVA accessibility requirement). Therefore, the chance of at least one malfunction would be expected to be higher on average than in jurisdictions using another kind of primary system, such as precinct-count optical scan, where typically only one OS machine is used in a precinct. However, if DREs had lower failure rates per machine than optical scan systems, the difference would be correspondingly lower. In fact, the incidence of such occurrences was almost equally as high for users of both precinct- and central-count optical scan systems (47% and 36%, respectively, for repairable malfunctions, and 12% and 15% for unrepairable ones) as their primary systems. In comparison, the reported failure rates in jurisdictions using lever machines and paper ballots was much lower (9% and 10% for repairable malfunctions, and 5% and 6% for unrepairable ones). About one in seven users of optical scan and DREs as their primary systems were disappointed in the level of support provided by vendors. Those LEOs were twice as likely to have experienced unrepairable malfunctions of their voting systems as LEOs who were not disappointed with vendor support. The results suggest that current optical scan systems may not be significantly more reliable than DREs. They also contrast strikingly with the uniformly high ratings all users gave for the reliability of their voting systems (see Figure 13 above). LEOs did not appear to assess the malfunctions as being the result of tampering. In fact, only one reported a system being hacked, and that was a precinct-count optical scan user. Another notable result was the fairly high incidence of LEOs, 12%, who reported excessively long lines at the polling place. The prevalence was much higher in jurisdictions using DREs primarily, occurring in about one quarter. In those using other kinds of voting systems, long lines occurred in only about 6% ( Figure 32 ). Jurisdictions using DREs also reported more unfair media coverage (19%) than users of other systems (6% on average). The incidence of problems with accurate and timely reporting of election results was low and did not differ among users of the different kinds of voting systems. Reports of deliberate election fraud of any kind were also few—8 LEOs, one out of every 170 jurisdictions or 0.75%. Such a low rate might nevertheless be considered unacceptably high, depending on such factors as the seriousness of the offense, the impact of such attempts at fraud on the election, and the degree to which election officials are able to detect all such attempts. LEOs noticed no change on average in residual votes (overvotes plus undervotes plus spoiled ballots) from 2004 to 2006. About 60% reported no change, and about 20% each reported an increase or a decrease. This result suggests that the decreased confidence LEOs had in 2006 in the ability of voting systems to reduce voter error was not a result of a noticeable increase in such error. Alternatively, the decrease in confidence might have resulted from sources such as changes in media coverage of voting-system problems. The number of provisional ballots used varied greatly among jurisdictions in 2006. About 30% of that variability is explainable by the number of voters in the jurisdiction. Thus, jurisdictions with fewer than 1,000 registered voters used about 10 provisional ballots on average and those with more than 100,000 voters used 1,500. Across all jurisdictions, one provisional ballot was used for every 140 registered voters on average. About a quarter of jurisdictions, mostly small, used no provisional ballots, and about 4% used more than 1,000, with a maximum of 15,000 in a jurisdiction with about half a million voters. When asked whether these ballots were easier to use than in 2004, about three-quarters of LEOs reported no change, but more found them easier (16%) than harder (9%) to use in 2006. Three-quarters of jurisdictions used optical scan systems for absentee ballots, and most of the rest used hand-counted paper ballots. More than half of respondents indicated that their jurisdictions offered early voting. About a third each of those offering it used optical scan, a third DREs, and under 10% hand-counted paper ballots. The rate of absentee voting has been increasing nationally over the last several elections, as the number of states offering early and "no excuse" absentee voting has increased. The survey asked LEOs to provide information on the percentage of all votes cast by absentee voting in 2006. On average, respondents reported that about 14% of votes were cast by absentee ballot, with 1-5% being most commonly reported ( Figure 33 ). The average rate is very similar to the one reported in the EAC's election day survey (14.2%). Some observers have expressed concerns about early and "no excuse" absentee voting, arguing, among other things, that they do not increase turnout and pose some security risks. These concerns were largely not shared by LEOs ( Figure 34 ). Three-quarters agreed that absentee voting should be considered a voter's right, and more than half that early voting should be. Three-quarters also agreed that absentee voting is worth the costs, and that verification of authenticity is not difficult for those ballots. However, they were equivocal about whether early voting is worth the costs. Both absentee and early voting reduce the pressures of election day administration; it is possible that election officials support absentee voting over early voting because it is easier to administer in the pre-election period. About 10% of jurisdictions experienced one or more instances of pollworkers not reporting for duty. Since the average jurisdiction used more than 150 pollworkers, the impact may be small on average (although not in the affected polling places). Nevertheless, absenteeism among pollworkers has been cited as a significant problem on election day. Factors that might contribute include long hours, low pay, poor training, and age, but analysis of pay and training data from the survey did not point to those factors as being significant. More than 20% of LEOs reported instances of pollworkers who did not understand their jobs. The lowest rate, 5%, was in jurisdictions using hand-counted paper ballots. Results from LEOs using other kinds of voting systems ranged from 17-25%, but those differences were not statistically significant. It seems unlikely that the differences between the results for paper and those for other voting systems arose purely from differences in the roles of technology in the different voting systems, since the technology-related tasks of pollworkers in jurisdictions using central-count optical scan are unlikely to be much greater than those in jurisdictions using hand-counted paper ballots. There are several other possible factors. For example, the average total number of pollworkers, polling places, and registered voters reported by LEOs is far lower for jurisdictions using hand-counted paper than for any other voting system (see Figure 35 in the next section). The 2006 survey included several questions about pollworkers. All but 3% of LEOs reported using one or more pollworkers, with a mean number of 164 in a jurisdiction and a maximum of 4,000. The number of pollworkers in the jurisdictions was strongly correlated with the number of registered voters reported, as was the total number of polling places. The kind of voting system used also varied with the number of registered voters. Overall, jurisdictions using hand-counted paper ballots had the smallest number of registered voters, polling places, and pollworkers, and those using DREs and lever machines the highest ( Figure 35 ). On average, there were 5-6 pollworkers per polling place. Jurisdictions using paper ballots had the highest average number, and those using lever machines the lowest. Compensation of pollworkers also varied substantially. About 60% of respondents reported paying them a lump-sum amount for work on election day, $100 on average. The remainder of respondents reported an hourly wage of $7.25 on average. Very few respondents reported paying nothing to pollworkers, and few likewise reported paying more than $200 per day or $12 per hour. The results suggest that there is some regional variation. For example, the average rate of pay by state varied in New England from $50 to $106 per day, and in the West from $70 to $155. While LEOs who reported problems with pollworker performance paid them $5-10 less per day on average, the effect of pay on performance was not statistically significant. However, the survey did not explore potentially influential demographic factors such as age of pollworkers or average cost of living. Perhaps more surprisingly, the amount of training pollworkers received was also not associated statistically with reports of performance problems. However, more LEOs than not believed that inadequate training was responsible for problems with election administration, and most believed that training needs significant improvement ( Figures 36 and 37 ). Not surprisingly, those views were strongly correlated: LEOs who believed more strongly that inadequate training caused problems also tended to believe more strongly that improvements in training were needed . On average, pollworkers received 3.5 hours of training in 2006 ( Figure 38 ). In about 10% of jurisdictions, training was 1 hour or less. In three quarters, it was 2-4 hours, and in only 5% was it one day or more. Nevertheless, 70% of LEOs considered pollworker training "extremely important," and only a few considered it "not important at all." There appeared to be substantial uniformity among respondents in the areas in which pollworkers were trained ( Figure 39 ), with more than 90% of pollworkers being trained in voter check-in, accessibility, election laws, operation of voting machines, and election integrity. LEOs were not asked what areas of training should be improved, but another study that surveyed pollworkers in New Mexico found that many desired more training in voting-machine operation and election laws. Interestingly, that finding reflects the views of many LEOs about their own training, as discussed earlier in this report. LEOs also believed that HAVA is changing the nature of pollworker training, with 20% reporting that the changes were "substantial." As reported earlier (see Table 5 and Figure 25 above), most LEOs believed that HAVA has made elections more complex to administer. Most also expressed concern that the increased complexity of elections will have a negative impact on recruitment of pollworkers, and more than a third of respondents were "extremely concerned" ( Figure 40 ). Some observers have suggested that the environment in which election officials operate is too politically contentious and that steps should be taken to make election administration more nonpartisan. For example, some believe that state election officials should not be permitted to be involved in political campaigns other than for their own positions. The 2006 survey asked LEOs several questions about this issue. In general, LEOs were satisfied with election administration at the state level ( Figure 41 ), with only about 10% expressing significant dissatisfaction. More LEOs than not also believed that election administration in their state is independent of partisan politics. However, more than half of elected LEOs (57%) indicated that they communicated their party affiliation during their election. There was more variation in the views of LEOs about the political contentiousness of the election administration environment, with about 18% believing it is "not contentious at all," and 9% that it is "extremely contentious." Nevertheless, on average LEOs rated the level of contentiousness relatively low. Finally, LEOs were asked whether election administration should be a civil service function in their state. About half had no opinion, but significantly more elected LEOs were opposed to the idea than favored it. Appointed LEOs were evenly divided ( Figure 42 ). As with any survey, care needs to be taken in drawing inferences from the results. One question that could arise is whether the sample is representative of LEOs as a whole. For example, simply drawing the sample at random from the nationwide pool of election administrators would have resulted in a disproportionately large number of jurisdictions from New England and the upper Midwest, where elections are administered by townships rather than counties. Steps were taken in the design of the studies to minimize the risk that the sample would not be representative (see the Appendix below). Overall, neither the sample design nor the characteristics of the responses suggest that the results are unrepresentative of the views and characteristics of local election officials. Another potential caution for interpretation relates to the inherent limits of surveys such as these. In particular, there is no way to guarantee that the responses of the election officials correspond to their actual beliefs. In addition, there is no way to be certain that any particular belief corresponds to reality. The question on voting-system characteristics (see Figure 13 ) provides an illustration of the possibility for disparity. For several reasons, LEOs might be reluctant to rate their voting systems low in reliability, accuracy, and security, despite the anonymity of the results. Alternatively, they might truly believe that their voting systems are highly reliable, accurate, and secure, even if independent evidence does not support that view. Also, some caution is needed in assigning cause and effect. The mere existence of an association or correlation between a factor and an effect does not necessarily mean that the factor caused the effect. For example, the survey showed a strong association between the kind of voting system used in a jurisdiction and the number of pollworkers (see Figure 35 ). However, while the kind of voting system may have some independent effect, a more important factor is the number of registered voters. A final caution involves how survey results might be used to inform policy decisions. On the one hand, the results could be used to support the shaping of policy in directions expressed by LEOs in their responses. In many cases, such policy changes might be appropriate. On the other hand, it is possible that at least some of those desired changes would not in fact yield the most effective or appropriate policies. In such cases, the results might more constructively be used to help policymakers identify issues for which improvements in communication and understanding are needed. The survey results may have policy implications for several issues at the federal, state, and local levels of government. Some issues that may be relevant for congressional deliberations are highlighted below. Many observers have commented favorably on the experience and dedication of the nation's local election officials. Survey results are consistent with that view. At the same time, other observers, including some election officials, have called for increased professionalism in election administration. Some survey results suggest areas of potential professional improvement, such as in education and in professional involvement at the national level. Congress could address this potential need by several means, for example facilitating educational and training programs for LEOs and promoting professional certification of election officials by entities accredited through the EAC. The seemingly unique demographic characteristics of LEOs as a group of government officials may have other policy implications, but they are not altogether clear. However, some observers may argue that efforts should be undertaken to ensure that LEOs reflect the diversity of the workforce or voting population as a whole, especially with respect to minority representation. The issue of partisanship among election officials has been controversial for several years. Most national attention has been on state officials, but, given that most LEOs are elected and only about half the local jurisdictions in the United States are administered on a nonpartisan or bipartisan basis, policymakers may wish to consider the influence of partisanship among LEOs. Since the enactment of HAVA, controversy has arisen over whether DRE voting systems are sufficiently secure and reliable. The survey revealed that LEOs who have experience with DREs are very confident in them, consider them superior for accessibility, and do not generally support the addition of a voter-verified paper audit trail (VVPAT) to address security concerns, although those who use a VVPAT are satisfied with its performance. However, LEOs using other systems are much less confident in DREs and more supportive of VVPAT. The strongly dichotomous results suggest that as Congress considers whether to require changes in the security mechanisms used in voting systems, it might be useful to determine whether DRE users are overconfident in the security of their systems and procedures in practice, or, alternatively, whether nonusers might need to be better educated about the reliability and security of DRE systems. The survey results suggest that HAVA is in the process of achieving several of its policy goals. The general support of HAVA provisions—including those such as the creation of the EAC and the provisional ballot requirement that have been somewhat controversial—implies that LEOs are in agreement with the goals of the act and are active partners in its implementation. The overwhelming choice of new voting systems that assist voters in avoiding errors indicates that the HAVA goal of reducing avoidable voter error is in the process of being met. The areas of concern expressed by LEOs—such as how to meet the costs of ongoing implementation of HAVA requirements—raise issues that Congress may wish to address as it considers HAVA appropriations and reauthorization. In addition, the reduction in the levels of support from 2004 for HAVA and the EAC, while small, and broader concerns about the effectiveness of the EAC, may raise concerns for Congress. The close relationship between LEOs and the vendors of their voting systems seems unlikely to change as a result of HAVA. However, with the codification by HAVA of the voting system standards and certification processes, the influence of the federal government in decisions about new voting systems might be expected to increase in relation to that of vendors and others. The increased concerns of LEOs in 2006 that vendors, media, political parties, and advocacy groups have too much influence on such decisions may raise concerns. Scientific opinion surveys of local election officials are rare, and additional research may be useful to address some of the matters raised by these studies. For example, a survey of state election officials might provide useful information and might additionally be helpful in assessing the most appropriate federal role in promoting the effective implementation of HAVA goals at all levels of government. One common suggestion of LEOs for improving HAVA was to provide a means of adjusting requirements to fit the needs of smaller jurisdictions. To determine what, if any, such adjustments would be appropriate, it may be useful to have specific information on how the needs and characteristics of different jurisdictions vary with size—something that was beyond the scope of these surveys. It could also be useful to identify how the duties of LEOs vary with size and other characteristics of the jurisdiction. In many jurisdictions, election administration is only part of the LEO's job. It is not known to what degree these other responsibilities might affect election administration—negatively or positively. Finally, these surveys have provided only snapshots of LEO characteristics and perceptions over a two-year period. It might be beneficial to perform similar surveys periodically to identify trends and explore new questions and issues. The results presented and analyzed in this report are from two surveys sponsored by CRS as part of its Capstone program and performed by graduate students and faculty at the George Bush School of Government and Public Service at Texas A&M University. The principal investigators for the 2004 survey were Donald P. Moynihan and Carol Silva for the 2004 study and Carol Silva for 2006. Ten graduate students participated in the first survey, and six in the second. For both studies the CRS project manager was Eric Fischer and the project liaison was Kevin Coleman. The topics for the two surveys were developed collaboratively by the CRS and Texas A&M participants. The major factor in choosing the topics was potential usefulness of the results for Congress. The Bush School team developed and administered the survey instrument in consultation with CRS and provided the authors with the data used in performing the analyses. The two surveys were conducted after the November 2004 and 2006 federal elections, between December and the following March. For each survey, a sample of approximately 3,800 LEOs was drawn from the roughly 9,000 election jurisdictions in the 50 states. To ensure that LEOs from all states were included, but that states with large numbers of LEOs were not disproportionately represented (see Figure A-1 ), a modified random-sampling regime was used, as follows: Surveys were sent to all LEOs in states with 150 or fewer local jurisdictions. For the ten states with more than 150 LEOs, a sample of 150 was chosen at random from the local jurisdictions, and surveys were sent to those LEOs. Most surveys were administered electronically, with respondents visiting a website to enter their responses. The remainder were paper surveys sent via the U.S. Postal Service. LEOs who did not respond were sent reminders or contacted by telephone. For each survey, the overall final response rate was 40% of the sample, or about 17% of all jurisdictions in the United States. Respondents answered 85-90% of questions, on average. The response was sufficiently high to permit statistical analysis and comparison of the results between the surveys. Individual response rates per state were between 25% and 50% for about three-quarters of states (see Figure A-2 ). The remainder were evenly split between those for which under 25% of LEOs responded, and those for which the rate was greater than 50%. Response rates were similar among states across the two surveys, and did not vary significantly for either survey with the number of local election jurisdictions in a state or its voting age population. About 70% of respondents worked in county election jurisdictions, with most of the remainder working in townships ( Figure A-3 ). The small difference between the two years in those choosing "town/township" and in those choosing "other" was almost certainly a result of a small change in the structure of the question for the 2006 survey. All the results presented in this report are from analyses by CRS of data provided from the surveys by researchers at Texas A&M University. The raw data were first examined for errors, and corrections were made where necessary, in a few cases, such as if a LEO claimed to work more hours per week than is physically possible. Where the correct answer could be reasonably discerned, the response was corrected. Otherwise it was discarded. Once cleaned, the data were analyzed using standard parametric methods, mainly analysis of variance, linear regression, and Student's t-tests as appropriate. Three kinds of hypotheses were tested: differences between groups, such as whether results for 2004 differed from those for 2006; differences from a hypothetical value, such as whether LEOs were neutral about, agreed with, or disagreed with a particular statement; and tests for associations, such as whether the number of pollworkers in a jurisdiction was correlated with the number of registered voters. Statistical significance was determined using a significance level (α) of .01. However, for display purposes, graphs with error bars were drawn showing 95% confidence intervals for the means. Most tests yielded highly statistically significant results—p-values much lower than the significance level (p << .01). For tests where statistically significant effects were not found, the lack of effect is noted in the text, for example, by stating that no change was found between 2004 and 2006 for a particular survey item. Additional methodological details can be provided upon request. | Local election officials (LEOs) are critical to the administration of federal elections and the implementation of the Help America Vote Act of 2002 (HAVA, P.L. 107-252). Two surveys of LEOs were performed, in 2004 and 2006, by Texas A&M University; the surveys were sponsored and coordinated by CRS. Although care needs to be taken in interpreting the results, they may have implications for several policy issues, such as how election officials are chosen and trained, the best ways to ensure that voting systems and election procedures are sufficiently effective, secure, and voter-friendly, and whether adjustments should be made to HAVA requirements. Major results include the following: The demographic characteristics of LEOs differ from those of other government officials. Almost three-quarters are women, and 5% are minorities. Most do not have a college degree, and most were elected. Some results suggest areas of potential improvement such as in training and participation in professional associations. LEOs believed that the federal government has too great an influence on the acquisition of voting systems, and that local elected officials have too little. Their concerns increased from 2004 to 2006 about the influence of the media, political parties, advocacy groups, and vendors. LEOs were highly satisfied with whatever voting system they used but were less supportive of other kinds. However, their satisfaction declined from 2004 to 2006 for all systems except lever machines. They also rated their primary voting systems as very accurate, secure, reliable, and voter- and pollworker-friendly, no matter what system they used. However, the most common incident reported by respondents in the 2006 election was malfunction of a direct recording (DRE) or optical scan (OS) electronic voting system. The incidence of long lines at polling places was highest in jurisdictions using DREs. Most DRE users did not believe that voter-verified paper audit trails (VVPAT) should be required, but nonusers believed they should be. However, the percentage of DRE users who supported VVPAT increased in 2006, and most VVPAT users were satisfied with them. On average, LEOs mildly supported requiring photo identification for all voters, even though they strongly believed that it will negatively affect turnout and did not believe that voter fraud is a problem in their jurisdictions. LEOs believed that HAVA is making moderate improvements in the electoral process, but the level of support declined from 2004 to 2006. They reported that HAVA has increased the accessibility of voting but has made elections more complicated and has increased their cost. LEOs spent much more time preparing for the election in 2006 than in 2004. They also believed that the increased complexity of elections is hindering recruitment of pollworkers. Most found the activities of the Election Assistance Commission (EAC) that HAVA created only moderately beneficial to them. They were neutral on average about the impacts of the requirement for a statewide voter-registration database. |
Since 2009, the Environmental Protection Agency (EPA) has proposed, promulgated, and is developing a number of regulations affecting the operation of the nation's steam electric power plants. Given the central role of electric power in the nation's economy, concerns have been raised about the cost and potential impact of many of these regulations. Industry and environmental advocacy groups have been keenly interested in both the substance of these rules and schedules for their implementation. A particular issue has been whether the regulations, especially the cumulative impact of implementing multiple rules, will lead to retirement of a significant number of electric generating units, with negative effects on the reliability of the nation's power supply. All together, these rules have been characterized by critics as a regulatory "train wreck" that would impose excessive costs and lead to plant retirements that could threaten the adequacy of electricity capacity across the country. EPA and many other analysts maintain that this will not be the case. Much of the criticism addressed to EPA's actions has concerned Clean Air Act rules, but Clean Water Act (CWA) rules also have been part of the discussion, such as a 2014 rule to regulate cooling water intake structures at power plants and some industrial sources. The most recent major rule affecting power plants that EPA has promulgated concerns limits on discharges of wastewater, and it is the subject of this report. It is the last of a suite of Obama Administration utility sector rules that also includes greenhouse gas standards for utilities and a rule for disposal of coal combustion residuals from power plants. The CWA power plant rule is a complex regulation, involving limits on six pollutant wastestreams. Finalized in November 2015, it updates standards that were issued more than 30 years ago, which did not reflect today's power plant technology. The 1972 CWA established a comprehensive program to "restore and maintain the chemical, physical and biological integrity of the Nation's waters." To implement the act, EPA was directed to issue effluent limitation guidelines and standards, or technology-based regulations, for industrial dischargers. The effluent limitation guidelines (ELG) are to reflect pollutant reductions that can be achieved by categories or subcategories of industrial point sources using technologies that represent appropriate levels of control. Since 1972, EPA has promulgated effluent limitation guidelines for 57 industrial categories, including for the steam electric power industry. For point sources that introduce pollutants directly into U.S. waters (termed direct dischargers), limits on specific pollutants set in effluent guidelines are implemented through National Pollutant Discharge Elimination System (NPDES) permits that are issued by EPA or states. For sources that discharge to publicly owned treatment works, or POTWs (termed indirect dischargers), EPA promulgates pretreatment standards that apply to those sources and are enforced by POTWs, and state and federal authorities. The guidelines and standards apply to direct and indirect discharges of conventional pollutants; toxic pollutants, including toxic metals and toxic organic pollutants; and non-conventional pollutants, which are all other pollutants that are not categorized as conventional or toxic (e.g., ammonia-N, phosphorus, and total dissolved solids). The CWA established several different kinds of effluent limitations, four for new and existing direct dischargers and two for new and existing indirect dischargers. Effluent limitations are based on performance of specific technologies, but regulations do not require use of a specific control technology. In establishing effluent limitations, EPA considers the cost and/or economic achievability of the controls. The economic test differs based on the level of control specified in the ELG. Best Practicable Control Technology Currently Available (BPT)—BPT limitations generally are based on the average of the best existing performance of plants within the industry or subcategory. In specifying BPT, EPA considers the total cost of applying the control technology in relation to the effluent reduction benefits, as well as the age of the equipment and facilities, processes employed, and other factors. BPT limitations can cover conventional, toxic, and non-conventional pollutant discharges. Best Available Technology Economically Achievable (BAT)—BAT limitations generally represent the best existing performance in the industrial category or subcategory. BAT is the principal national means of controlling toxic and nonconventional pollutant discharges. Factors considered in assessing BAT include the cost of achieving BAT effluent reductions, processes employed, and other factors. The EPA Administrator has considerable discretion in assigning the weight accorded to these factors. BAT limitations may be based on effluent reductions attainable through changes in a facility's processes and operations. Best Conventional Pollutant Control Technology (BCT)—BCT is not an additional limitation, but it replaces BAT for the control of conventional pollutant discharges from existing industrial sources. The statute specifies factors to be assessed in determining BCT, including a two-part "cost reasonableness" test. New Source Performance Standards (NSPS)—NSPS are based on the best available demonstrated control technology (BADCT) and represent the most stringent control attainable through the application of technology. New plants have the opportunity to install the best and most efficient production processes and wastewater treatment technologies. EPA is directed to take into consideration the cost of achieving the effluent reduction and any non-water quality environmental impacts and energy requirements. Pretreatment Standards for Existing Sources (PSES)—PSES are designed to control the discharge of pollutants that pass through, interfere with, or are otherwise incompatible with the operation of a POTW. PSES standards are analogous to BAT for direct dischargers. Pretreatment Standards for New Sources (PSNS)—Like PSES, PSNS are designed to control the discharge of pollutants that pass through, interfere with, or are otherwise incompatible with the operation of a POTW. EPA considers the same factors in promulgating PSNS that it does in promulgating NSPS. The requirements of the statute embody the concept that, over time, industrial sources will achieve greater pollutant removal by employing progressively more stringent technologies. Thus, the 1972 law required sources to achieve effluent limitations based on BPT by July 1, 1977, and effluent limitations based on BAT by July 1, 1983 (in 1987 Congress modified the BAT compliance date to March 31, 1989). New sources are expected to comply with applicable effluent limitations when they commence operation. Requirements of ELGs apply to direct discharges through incorporation into NPDES permits issued by EPA or authorized states under CWA Section 402 and to indirect discharges through local pretreatment programs under CWA Section 307. EPA initially promulgated effluent limitation guidelines for the steam electric industry in 1974 and issued revised standards in 1982. The 1982 rules apply to about 1,100 nuclear- and fossil-fueled steam electric power plants nationwide, 495 of which are coal-fired. Under CWA Section 301(d), EPA has a duty to review existing effluent limitation guidelines at least every five years and, if appropriate, revise them. EPA had been studying the ELG for the steam electric power generating category since the mid-1990s and on several occasions indicated that a preliminary study of discharges from this category was necessary. During the 2005 review of the existing effluent guidelines for all categories, EPA identified the rules governing the steam electric power point source category for possible revision, based in part on data showing that the industry ranked high in discharges of toxic and nonconventional pollutants. Power plant discharges account for about 30% of all toxic pollutants discharged into U.S. surface waters by all industrial categories that are regulated under the CWA. Broadly speaking, two factors have altered existing wastestreams or created new wastestreams at many power plants since promulgation of the 1982 power plant ELG. The first is the development of new technologies for generating electric power, such as coal gasification. The second, a result of federal and state requirements, is the widespread implementation of air pollution controls to reduce emissions of hazardous air pollutants and acid gases (e.g., flue gas desulfurization [FGD], selective catalytic reduction [SCR], and flue gas mercury controls [FGMC]). In particular, the use of wet FGD systems (the kind that generate liquid discharges) to control sulfur dioxide air emissions has increased significantly since 1982. Consequently, each year the pollutant discharges from this industry are increasing in volume, with additional chemical constituents. They account for 50%-60% of all toxic pollutants discharged into surface waters by all industrial categories currently regulated under the CWA, according to EPA. The main pollutants of concern for these discharges include metals (mercury, arsenic, selenium), nitrogen, and total dissolved solids (TDS). EPA initiated a study, completed in 2009, which found that the 1982 regulations did not adequately address the pollutants being discharged and have not kept pace with changes that have occurred in the electric power industry over the last three-plus decades, specifically the increase of FGD systems, or scrubbers, at coal-fired power plants to control air pollution. According to EPA, as of 2008, 30% of coal-fired power plants were using FGD systems to control sulfur dioxide emissions from the flue gas generated in the plants' boilers and prevent buildup of certain corrosive constituents such as chlorides, and by 2025, nearly 80% of coal-fired generating capacity is expected to employ FGD systems. While scrubbers dramatically reduce emissions of harmful pollutants into the air, some create a significant liquid waste stream (especially wet scrubbers). In addition, discharges from coal combustion residual (CCR) surface impoundments at steam electric power plants have a potential to degrade water quality. EPA believes that many current CWA permits for power plants do not fully address potential water quality impacts of these discharges through appropriate pollutant limits and monitoring and reporting requirements. In addition, EPA identified several wastestreams that are relatively new to the industry (e.g., carbon capture wastewater) and others for which there is little characterization data (e.g., gasification wastewater). In 2009, environmental groups sued EPA to compel the agency to commit to a schedule for issuing revised guidelines for this industry. Pursuant to a 2010 consent decree that it entered into with these litigants, EPA agreed to propose the revised power plant ELG by July 23, 2012, and to finalize the rule by January 31, 2014. These dates were subsequently modified and required EPA to propose revised effluent limitations by April 2013, and publish a final rule 13 months later. Pursuant to that agreement, EPA proposed revised standards on April 19, 2013. Public comments on the proposal were accepted until September 20, 2013. In April 2014, EPA and the environmental litigants agreed to give the agency an additional 16 months—until September 30, 2015—to finalize the effluent guidelines for the power plant sector. EPA announced the final rule on September 30, 2015; it was published in the Federal Register on November 3, 2015, and became effective on January 4, 2016. The revised ELG applies to two broad categories of firms in the electric generating industry, electric utilities and non-industrial non-utilities. Both categories produce electric power for distribution and/or sale. Non-industrial non-utilities (which generally operate in a non-regulated pricing environment) account for 49% of plants but represent only 30% of total U.S. generating capacity. Utilities, which generally operate in a rate regulation framework, consist of investor owned utilities that account for about 50% of all U.S. electric generating capacity; publicly owned utilities (federal, state, and municipalities) that represent 13% of U.S. electric generation capacity; and rural electric cooperatives, representing 4% of U.S. generating capacity. The number of steam electric plants subject to the ELG is 1,080 (units that do not burn fossil fuels or plants with a primary purpose other than generating electricity are not subject to the ELG). These plants operate approximately 1,210 generating units with total capacity of 741,000 megawatts (MW) of electricity. According to data compiled by EPA for the rulemaking, the 1,080 steam electric plants represent about 19% of the total number of plants in the power generation sector, but represent about 70% of the total national electric generating capacity. The vast majority (93%) burn at least some amount of either coal or natural gas, and 74% of the steam electric units in the industry burn more than one type of fuel (e.g., coal and oil, coal and gas). Coal- and petroleum-coke fired plants comprise 44% of the 1,080 plants subject to the ELG. Coal is the most common primary fuel type for stand-alone steam turbines, while gas is the primary fuel for nearly all combined cycle systems. Oil-fired units account for about 5% of generating units, and nuclear plants account for about 4.5%. The largest capacity plants (>500 MW) comprise 63% of all steam electric power plants and 92% of the steam electric generating capacity for all plants regulated by the ELG. Most steam electric power plants are either gas- or coal-fired and have a generating capacity greater than 500 MW. The smallest plants, under 100 MW, comprise about 10% of plants and provide less than 1% of generating capacity, according to the industry data used in the rulemaking. The 1982 pollutant discharge limitations apply to the following wastestreams: once-through cooling water, cooling tower blowdown, bottom ash transport water, fly ash transport water, boiler blowdown, metal cleaning wastes, low volume wastes, and material storage and construction site runoff (including coal pile runoff). The 1982 ELG contains standards for BPT, BAT, and PSES for existing sources and NSPS and PSNS for new sources. The 2013 proposal addressed BAT and PSES for existing sources, and NSPS and PSNS requirements for new sources. EPA proposed to establish new or additional requirements for seven processes utilized by steam electric power plants and byproducts of those processes. EPA had found that these wastestreams, some of which were not evaluated or were evaluated to only a limited extent during the previous rulemakings, contain pollutants in concentrations and mass loadings that cause documented environmental impacts. EPA also determined that treatment technologies to reduce or eliminate the pollutant discharges are available, economically achievable, and have acceptable non-water quality environmental impacts. In developing the 2013 proposal, EPA evaluated eight regulatory options and ultimately identified four preferred alternatives out of the eight for regulation of existing discharges and one preferred alternative for regulation of new sources. In the proposed rule, EPA did not express a preference for any one of the four options for existing sources that discharge directly to surface water. The options differed in the wastestreams controlled by the regulation, the size of the units controlled, and the types of controls. Each of the options was successively more stringent in terms of pollutant removal, as well as more costly to implement. The 2015 revised rule contains BAT and PSES standards for existing sources and NSPS and PSNS requirements for new sources, which apply to the following wastestreams: FGD wastewater, fly ash transport water, bottom ash transport water, flue gas mercury control (FGMC) system wastewater, gasification wastewater, and combustion residual leachate from landfills or surface impoundments. The requirements for these wastestreams are summarized in Table 1 and are described below. (The six wastestreams are described in more detail in the Appendix to this report.) In developing the 2015 revised rule, EPA evaluated five regulatory options for existing sources—three were identical to options in the 2013 proposal, and two were variants of options in the proposed rule. The BAT and PSES requirements for existing sources in the final rule are one of the variants. These requirements are most similar to the proposed rule's preferred option for new sources—and thus, most stringent—with the exception of one wastestream—combustion residual leachate. For that wastestream, the final rule establishes BAT standards equivalent to BPT requirements contained in the 1982 ELG. For new sources (NSPS and PSNS), the final rule establishes standards at levels generally similar to the 2013 proposed rule. A new source is one that begins operation on November 17, 2015, or later. For generating units that are existing sources and that discharge directly to surface waters, the final rule establishes BAT requirements as follows: For fly ash transport water, bottom ash transport water, and FGMC wastewater, the rule establishes a zero discharge limitation for all pollutants in these wastewaters. The BAT technology basis for fly ash transport water and FGMC wastewater is dry handling. The BAT technology basis for bottom ash transport water is dry handling or closed-loop systems. For FGD wastewater, the rule establishes numeric effluent limitations on mercury, arsenic, selenium, and nitrate/nitrite as N in the discharge. The numeric limits for these pollutants in the final rule are less stringent than the limits in the 2013 proposal. The BAT technology for controlling this wastestream is based on chemical precipitation plus biological treatment. The final rule includes an option for existing dischargers of FGD wastewater that voluntarily choose to have extended time to achieve compliance with more stringent numeric limits for mercury, arsenic, selenium, and nitrate/nitrite as N. That is, rather than having to comply with the FGD standards as soon as possible after November 1, 2018 (see " Timing of New Requirements "), these sources will be required to comply with the more stringent standards, but not until December 31, 2023. The more stringent BAT limits under the voluntary option will require dischargers to use technology—chemical precipitation followed by evaporation—that EPA determined was too expensive to require for all steam electric power plants. For gasification wastewater, the rule establishes numeric effluent limitations on mercury, arsenic, selenium, and Total Dissolved Solids (TDS) in the discharge. The BAT technology for controlling this wastestream is based on evaporation. The 1982 ELG included combustion residual leachate within the definition of low volume waste sources, which were subject to BPT limitations on TSS and oil and grease. In the final rule, EPA established a separate definition for combustion residual leachate; thus, no longer is it considered a low volume waste source. The BAT technology for managing combustion residual leachate in the revised rule is based on surface impoundments, the same as the 1982 BPT regulations. For all of the regulated wastestreams, the 2015 final rule retains BPT limits established in the 1982 rule for discharges of Total Suspended Solids (TSS) and oil and grease. The final rule, like the 2013 proposed rule, establishes BAT effluent limits for existing oil-fired generating units and small electric generating units (EGUs), that is, those 50 MW or smaller, that differ from the effluent limits for all other generating units. For these facilities, EPA set BAT effluent limits equal to existing BPT effluent limits for all of the wastestreams addressed by the rule. According to EPA, oil-fired units generate substantially fewer pollutants, are generally older and operate less frequently, and in many cases are more susceptible to early retirement when faced with compliance costs attributable to the ELG. Likewise, small EGUs are more likely to incur compliance costs that are proportionately higher than those incurred by large units, because they are not as able to take advantage of economies of scale, while the amount of pollutants collectively discharged by small units is a small portion of pollutants discharged collectively by all power plants. The final rule includes a provision to prevent existing facilities from circumventing the effluent limitation standards and guidelines. This anti-circumvention provision would prevent facilities from mixing wastewater from one of the more highly regulated waste streams with another that would be subject to a lower standard and disposing of the waste under the less stringent limit. The anti-circumvention provision applies only to those wastestreams for which the final rule establishes zero discharge limitations or standards (fly ash transport water, bottom ash transport water, and FGMC wastewater). For all generating units that are new sources and will discharge directly to surface waters (including oil-fired and small generating units), the final rule establishes NSPS as follows: For fly ash transport water, bottom ash transport water, and FGMC wastewater, the rule establishes a zero discharge standard for all pollutants. The NSPS technology basis for fly ash transport water and FGMC wastewater is dry handling, and the technology basis for bottom ash transport water is dry handling or closed-loop systems. These are the same as the technology bases for the BAT limitations for direct discharges in the final rule. For discharges of FGD wastewater, the rule establishes numeric standards on mercury, arsenic, selenium, and TDS. The numeric limits for these pollutants are the same as the BAT limits for existing sources, described above. The NSPS technology is based on chemical precipitation followed by evaporation—the same basis as for BAT limitations for direct discharges in the voluntary incentives program described above. For discharges of gasification wastewater, the rule establishes numeric standards on arsenic, mercury, selenium, and TDS, which are the same as the BAT limits for existing sources, described above. Similarly, the NSPS technology is based on evaporation, the same basis as for BAT limitations for direct dischargers in the final rule. For discharges of combustion residual leachate, the rule establishes numeric standards on mercury and arsenic. The numeric limits for these pollutants are the same as the BAT limits for direct discharges from existing sources, described above. The NSPS technology basis of these requirements is chemical precipitation. As described above, EPA prescribes pretreatment standards for existing sources (PSES) and new sources (PSNS) that discharge wastewater to publicly owned treatment works (POTWs), rather than fully treating their wastes and discharging directly to nearby surface waters. Under CWA Section 307(b), pretreatment standards are intended to prevent the discharge of pollutants that would pass through, interfere with, or otherwise be incompatible with the operation of the POTW. For discharges from existing sources to POTWs (PSES), the final rule establishes standards as follows: For fly ash transport water, bottom ash transport water, and FGMC wastewater, the 2015 rule establishes a zero discharge standard for all pollutants. The PSES technology basis of the standard for these wastestreams is dry handling (fly ash transport water and FGMC wastewater) and dry handling or closed-loop systems (bottom ash transport water). For discharges of FGD wastewater, the rule establishes numeric standards on mercury, arsenic, selenium, and nitrate/nitrite as N. The PSES technology basis for this wastestream is chemical precipitation plus biological treatment, the same as for BAT limitations for direct discharges in the final rule. For discharges of gasification wastewater, the rule establishes numeric standards on mercury, arsenic, selenium, and TDS. The PSES technology basis is evaporation. For discharges from new sources to POTWs (PSNS), the 2015 revised rule establishes PSNS that are the same as the rule's NSPS, described above. EPA believes that the technology for new indirect discharging sources to meet these requirements is available and is economically achievable, because the costs to install technologies at new units are typically less than the costs to retrofit existing units. A key factor that affects compliance costs for existing sources is the need to retrofit new pollution controls to replace existing pollution controls, but new sources do not trigger retrofit costs because pollution controls are installed at the time the new source is constructed. The steam electric power sector is a source of significant pollutant emissions and discharges to the environment, and thus is subject to pollution control requirements under a number of federal environmental laws. In the preamble to the final rule and documents supporting it, EPA discusses how the ELG relates to several existing EPA rules and pending rulemakings. These include regulations under the Clean Air Act (such as Mercury and Air Toxics Standards promulgated in 2012 and the 2015 Clean Power Plan) and other provisions of the CWA (such as the 2014 cooling water intake rule). A 2014 rule under the Resource Conservation and Recovery Act (RCRA) on managing coal combustion residuals (CCR) also relates to the CWA ELG rule, because both statutes address coal combustion waste such as coal ash that is generated by electric utilities and independent power producers and is released to the environment. Disposal of CCR onsite at individual power plants may involve decades-long accumulation of tons of dry ash (in a landfill) or wet ash slurry (in a surface impoundment) deposited at the site. In December 2008, national attention was turned to risks associated with managing CCR when a breach in a surface impoundment pond at the Tennessee Valley Authority's Kingston, TN, plant released 1.1 billion gallons of coal fly ash slurry that damaged or destroyed homes and property. Beyond the potential for a sudden, catastrophic release from a surface impoundment, a more common threat associated with CCR management is the leaching of contaminants commonly present in the waste, primarily heavy metals, resulting in surface or groundwater contamination. This risk is particularly high at unlined surface impoundments, which are in common use today. The Kingston release also brought attention to how the waste is managed and regulated. CCR management is primarily regulated by individual states. For several years, EPA considered whether and how to establish national standards to regulate CCR and address potential threats of improper CCR management to human health and the environment, because of concerns about inconsistencies and deficiencies in some state regulatory programs. In December 2014, EPA finalized a rule that establishes national criteria applicable to landfills and surface impoundments under RCRA's Subtitle D non-hazardous solid waste requirements. The rule establishes technical requirements for CCR landfills and surface impoundments under Subtitle D of RCRA to address the risk of coal ash disposal. Under Subtitle D, EPA does not have the authority to implement or enforce its requirements. Instead, EPA will continue to rely on states to operate approved regulatory programs or citizen suits to enforce the new standards. The scope of the CWA ELG and RCRA rule differ. While both address disposal of CCR in surface impoundments at power plants, only the RCRA rule regulates disposal of CCRs in landfills. In the preamble to the 2013 proposed ELG, EPA said that it would seek to effectively coordinate any final RCRA and CWA requirements to ensure that the rules work together while minimizing the potential for overlap of two regulatory structures, especially concerning surface impoundments. For example, the RCRA rule could potentially require a surface impoundment to either undergo closure or retrofit. But a decision on what action to take with that unit may ultimately be directly influenced by requirements of the revised ELG. One possible consequence of the requirements in the ELG is that many power plants will convert from wet to dry fly ash handling systems and will no longer send such wastes to surface impoundments. If this occurs, it might affect the time frames for closure of impoundments under a RCRA rule, according to EPA. In the final CCR rule, EPA extended by one year, compared to the proposed rule, that rule's deadline for owners or operators of covered facilities to prepare a closure plan. This would give owners or operators 24 months after publication of the CCR rule, or slightly more than 6 months after the effective date of the revised ELG, to understand the requirements of both regulations and to make the appropriate business decisions and prepare closure and post-closure plans. CWA Section 304(e) authorizes EPA to supplement effluent limitation guidelines with Best Management Practices (BMPs) for toxic or hazardous pollutants in order to control plant site runoff, spillage or leaks, sludge or waste disposal, and drainage from raw material storage that is ancillary to the regulated industrial process and may contribute significant amounts of pollutants to U.S. waters. In the ELG proposal, EPA said that it was considering using this authority to establish BMP requirements to address impoundment construction, operation, and maintenance. EPA explained that the BMPs under consideration were similar to structural integrity and corrective action requirements that EPA had proposed in the then-pending RCRA rulemaking to address CCR. In the CWA proposal, EPA said that the BMP provisions being considered in both the ELG and CCR rulemakings, such as requiring that impoundment inspections be conducted weekly by a qualified person, are critical to ensure that owners and operators of impoundments become aware of structural stability problems before they occur. If included in the ELG rule, these BMPs would become conditions to be included in CWA permits, along with numeric limits and other requirements in that rule, thus utilizing the CWA to accomplish a portion of the agency's objectives in the CCR regulatory proposal. The 2013 CWA proposal included BMP provisions for CCR surface impoundments similar to those for coal slurry impoundments at coal mines promulgated by the Mine Safety and Health Administration (MSHA). These provisions in the proposed ELG would require facilities using CCR impoundments to submit to the CWA permitting authority (EPA or an authorized state) plans for design, construction, and maintenance of existing impoundments, as well as closure plans. They also would require periodic inspection and annual certification of the construction, operation, and maintenance of the impoundment. In the 2015 final CWA rule, EPA declined to include BMPs, saying that many commenters had argued that BMPs are better suited for the CCR rule. EPA believes that providing a window of time for facilities to raise capital, plan and design systems, and construct and test equipment will enable installation of technology during planned shutdown or maintenance periods. Further, EPA anticipates that for many plants, changes to FGD wastewater treatment systems, fly ash and bottom ash transport systems, and leachate treatment systems would constitute major system modifications requiring several years to accomplish. In the 2015 final rule, EPA provides that BAT limitations for existing sources (those that would establish requirements more stringent than existing BPT requirements) will apply beginning three years after the effective date of the rule. Thus, the rule will apply to discharges generated on or after the date established by the permitting authority that is as soon as possible within the next permitting cycle after November 1, 2018. Under the rule, all steam electric facilities will have the BAT limitations applied to their permits no later than December 31, 2023, approximately eight years from the anticipated date of promulgation of a final regulation. Permitting authorities will have flexibility to determine the "as soon as possible" date (but no later than December 31, 2023), based on considerations of a facility's need for new treatment technology. Plants are assumed to implement the control technologies beginning in 2019. For those parts of the rule where EPA promulgated BAT limits equivalent to current BPT limits (e.g., combustion residual leachate), the rule does not build in an implementation period for meeting its limitations, since existing facilities presumably are already meeting these limits. These requirements are applicable on the date that a permit is issued to a discharger, after the rule's effective date. Also, new NSPS and PSNS requirements (for new sources) would be applicable on the effective date of the rule. Because pretreatment standards are self-implementing (they do not require permits), existing sources that are indirect dischargers must comply with the final rule by November 1, 2018. EPA defines "legacy" wastewater as discharges of wastewater and associated pollutants from existing sources from the six wastestreams regulated by the ELG that are generated prior to the date established by the permitting authority for the effective date of the 2015 rule (see above). Wastewater generated after the date established by the permitting authority is referred to as "newly generated" wastewater. Under the final rule (and as proposed by EPA in 2013), legacy wastewater discharges will continue to be subject to existing BPT effluent limits, not to more stringent BAT or PSES requirements that apply to newly generated wastewater. In other words, discharges from the regulated wastestreams that occur before the date set by the permitting authority for meeting the rule's new standards will not be required to retrofit to meet more stringent standards. In developing the 2013 proposal, EPA found that these legacy wastewaters are typically transferred to surface impoundments that often commingle legacy wastewaters and other plant wastewaters, such as cooling water or coal pile runoff. Except in limited circumstances, plants do not treat the legacy wastewater that they send to an impoundment using anything beyond the surface impoundment itself. Under the 2015 final rule, the technology basis to meet the rule's BAT requirements will eliminate wastewater in the future (e.g., the zero discharge requirement for fly ash transport water will necessitate conversion to dry ash handling) but does not eliminate wastewater that has already been generated and transferred to an existing impoundment. EPA evaluated whether technologies would be available that might represent BAT for these legacy wastewaters, but determined that these alternatives are either impracticable or insufficient data are available for establishing BAT effluent limitations. In the final rule, the agency did not establish zero discharge BAT limitations for legacy wastewater because technologies that can achieve zero discharge were not shown to be available. EPA believes that the rule's zero discharge requirements for newly generated discharges of fly ash transport water, bottom ash transport water, and FGMC wastewater will provide strong incentives for power plants to greatly reduce, if not completely eliminate, disposal of their major sources of ash-containing wastewater in surface impoundments. EPA estimates that the final rule will result in annualized pre-tax compliance costs for industry of $496.2 million and after-tax costs of $339.6 million. Pre-tax costs provide insight on the total expenditures as incurred by the plants, while after-tax annualized costs are a more meaningful measure of impact on privately owned for-profit plants, because they incorporate approximate capital depreciation and other relevant tax treatments in the analysis. EPA's estimates of compliance costs reflect anticipated unit retirements or fuel conversion, ash handling conversions (from wet to a dry or closed-loop ash handling system), and repowerings announced as of August 2015. The agency projects that 133 steam electric power plants (130 direct discharging facilities and three indirect discharging plants), or 12% of plants to which the final rule applies, will incur costs associated with the rule. EPA also analyzed the social costs of the final ELG, which are the costs from the viewpoint of society as a whole, rather than regulated facilities only. Social costs include costs incurred by both private entities and government in implementing the regulation. In this case, EPA estimates that the final rule will not lead to additional costs to permitting authorities, so, in calculating social costs, the agency only estimated social costs for owners of steam electric power plants. The analysis projects total annualized social costs of $479.5 million at a 3% discount rate and $471.2 million at a 7% discount rate. The value for the 7% discount rate is slightly lower than the comparable pre-tax industry costs described above ($471.2 million versus $496.2 million) due to the consideration of the timing of expenditures in the annualized social calculations. Overall, EPA concludes that the limitations and standards in the final rule are economically achievable for the industry as a whole. EPA projects that 88% of the plants subject to the rule will incur zero compliance costs, because they already have implemented processes or technologies that are the basis for the rule. An estimated 8% of plants will incur compliance costs of less than 1% of revenue and in EPA's view are unlikely to face economic impacts (88 plants) as a result of the ELG rule. The agency estimates that 4% of plants will have compliance costs between 1% and 3% of revenue (38 plants), and less than 1% of plants have costs above 3% of revenue (eight plants). The number of plants projected to incur non-zero compliance costs is about 50% less than that estimated at the time of the 2013 proposal, due to such factors as announced unit retirements, relevant operational changes, and changes that plants are likely to make in response to the CCR and other EPA rules. Regionally, plants in the Reliability First Corporation (covering the eastern United States and lower Great Lakes region) and the Southeast are generally expected to have the highest compliance costs. EPA estimates that variable production costs at steam electric power plants will increase by approximately 0.3%, or 10 cents per megawatt-hour, at the national level as a result of the rule. Major compliance costs are associated with controls on FGD and bottom ash transport wastewater. An important factor that reduced total compliance costs of the final rule, compared with stringent alternatives in the 2013 proposal, is the standard for one of the wastestreams, combustion residual leachate. By retaining the technology basis of the 1982 BPT ELG—i.e., surface impoundments—EPA concluded that facilities will incur no compliance costs for managing this wastestream. In developing the final rule, the agency considered a regulatory option that would establish limitations for arsenic and mercury in combustion residual leachate based on treatment using a chemical precipitation system, but concluded that the amount of pollutants discharged in combustion residual leachate is a small portion of the pollutants discharged collectively by all steam electric power plants. That fact, combined with the final rule's standards for larger contributors of pollutant discharges (e.g., FGD wastewater), led EPA to conclude that retaining the BPT standard for this wastestream still represents reasonable further progress toward the CWA's goal of eliminating the discharge of all pollutants. EPA does not expect the final rule to increase costs to permitting authorities, because it does not change permit application requirements or increase the number of permits issued to steam electric power plants. Overall, EPA expects that the rule will reduce the burden to permitting authorities, because, by establishing national BAT standards, it will require permitting authorities to make fewer site-specific permitting decisions than under the 1982 ELG. EPA also examined impacts of the final rule on electricity markets, including changes in capacity to plant or unit closures (i.e., capacity closures and avoided closures) and changes in the price of electricity (due to increased generation costs). Overall, EPA concluded that the final rule will not significantly affect total costs of electricity production either in the short run (2020) or the long run (2030). Under the final rule, the electricity market would generate 843 million kWh less coal-fired electricity in 2030, or 0.2% of the 359,982 MW baseline (2009) capacity. The change is based on a combination of incremental capacity closures (corresponding to eight generating units nationwide) and avoided capacity closures nationally (six generating units). EPA projects that the final rule will have small effects on the electricity market in 2030, both nationally and regionally, despite the higher compliance costs. At the national level, total annual costs are estimated to increase by 0.4%, compared with the 2009 baseline. The agency's model projects a small increase on electricity prices nationally, with increases of no more than 0.5% in any region and a 0.2% reduction in the West. EPA examined impacts of the ELG on residential, commercial, industrial, and transportation consumers and concluded that industrial consumers would experience the highest price increases relative to their baseline electricity price (0.21% nationally), while residential consumers would experience the lowest price increases (0.11% nationally). The higher relative price increase for industrial consumers is due to the lower baseline electricity rates paid by this sector and EPA's assumption of uniform price increase across all consumer groups. EPA's analysis shows the average annual cost per residential household increasing as a result of the ELG, depending on the region, by $0.03 (in the Northeast Power Coordinating Council region) to $2.67 (in the Reliability First Corporation region) with a national average of $1.42. EPA's model projects that total coal-fired generating capacity will decrease by approximately 0.6% due to the ELG final rule. Coal-fired plants may generate less electricity than would otherwise occur in the absence of the rule, due to increased production costs. In addition, some plants may retire earlier than would otherwise occur. These effects may lead to lower employment at coal-fired power plants and in coal mining. Generation using other fuels, including natural gas, nuclear power, and renewable fuels such as biomass, would increase modestly and would have positive labor impacts (e.g., natural gas extraction, constructing and operating natural gas power plants). EPA estimated that approximately 60% of the annualized compliance costs for the final rule are annualized capital costs. These capital costs are not expected to significantly affect employment at steam electric power plants themselves, but could increase employment in industries that manufacture and install equipment, according to EPA. Many stakeholders and other observers have criticized EPA for not analyzing the impacts of its regulatory proposals on jobs, the labor market, and the economy broadly, arguing that the agency fails to consider the economy-wide effects of its rules. EPA does not have a robust methodology to fully assess impact of all possible changes in employment, so it is difficult for the agency to project how the ELG would affect employment levels in the entire U.S. economy. Thus, EPA did not quantify long-run economy-wide regulatory changes in employment resulting from the ELG, which would depend on how the electric power sector adjusts to regulatory requirements, as well as indirect upstream and downstream effects in the rest of the economy, and the overall state of the economy and the labor market. EPA acknowledges some uncertainties in these analyses. For example, it assumes that electricity demand at the national level would not change between the baseline and post-compliance options, and the model does not capture changes in demand that may result from electricity price increases associated with proposed ELG. Also, fuel prices—differences in actual fuel prices vs. modeled prices, such as lower natural gas prices—would be expected to affect the cost of electricity generation and the amount of electricity generated, but effects of fuel prices are not reflected in the analysis. Estimates of price increases to households and other consumer groups assume 100% pass-through of compliance costs, which EPA characterizes as a worse-case scenario that may overstate potential impact, depending on whether power plants are able to pass their costs on to electricity customers. Further, how states choose to comply with the Clean Power Plan may lead to fewer or more coal-fired steam power plant retirements than EPA's model is able to project. Such differences could affect power plant existing and new capacity, production costs, prices, and other factors. EPA estimated the reduction of conventional, non-conventional, and priority (toxic) pollutants that would result from the final rule is 385 million pounds per year. The largest amount of pollutant reduction (96%) is nonconventional pollutants, such as ammonia, phosphorus, and TDS. Additionally, the final rule will eliminate or reduce water withdrawals associated with wet fly ash and bottom ash transport and wet FGD scrubbers by 57 billion gallons per year. Reduced water usage is significant, because total water withdrawals by the steam electric power industry (primarily for cooling purposes) are larger than those of any other public or private sector. EPA expects a number of environmental and ecological improvements and reduced impacts to wildlife and human health to result from reductions in effluent loadings for the different proposed options. The agency conducted an environmental assessment that examined several beneficial outcomes, including improvements in water quality, reduction in impacts to wildlife, and reduction in number of receiving waters impacted by potential human health cancer and non-cancer risks. In that analysis, EPA estimated that reduced pollutant loadings to surface waters would improve water quality by reducing metal concentrations to receiving waters. Metals in combustion wastewater discharges such as arsenic, cadmium, copper, and chromium can drastically alter aquatic populations and communities and the surrounding ecosystems that rely on them. Selenium is the metal most frequently associated with environmental impacts following exposure to combustion wastewaters. On average, total selenium receiving water concentrations would be reduced by two-thirds under the final rule, leading to a reduction in the number of receiving waters exceeding the freshwater chronic criteria for selenium. EPA acknowledges that there are varying degrees of completeness and rigor in its ability to assess benefits. Where possible, EPA quantified expected effects and associated human health and ecological benefits—such as reduced incidence of cancer from arsenic exposure via fish consumption—but EPA was able to monetize only a small subset of health benefits associated with reduced steam electric discharges. Other benefits can be quantified, but not monetized, such as reduced non-cancer adverse health effects. Quantifying and monetizing the benefits of regulations is challenging because of a large number of uncertainties in approaches used to value benefits. Finally, due to data limitations and gaps in understanding how society values certain water quality changes, some effects can be neither quantified nor monetized, such as reduced sediment contamination and increased property values from water quality improvements. EPA also recognizes a number of other limitations and uncertainties in analyzing benefits. Some may lead to potential overestimation of benefits. For example, the analysis is based on information on loadings of toxic metals that that was subsequently revised downward by EPA, and the change indicates that water quality improvements due to the ELG may be lower than the agency estimated. Others may lead to underestimation of benefits: EPA estimated the benefits of reducing mercury exposure in children, but not in adults, although the scientific literature suggests that exposure to mercury also may have adverse health effects in adults. Despite the data limitations, EPA projects annualized monetized benefits of the final rule (human health, recreational uses, improved ecological conditions, groundwater quality, avoided impoundment failures, air-related [i.e., human health and avoided climate change impacts] , and reduced water withdrawals) to range from $451 million to $566 million, with a mid-point of $463 million (at a 3% discount rate), and from $387 million to $478 million, with a mid-point of $397 million, at a 7% discount rate. Finally, EPA evaluated the net benefits (i.e., benefits minus costs) and estimates that the annual monetized social costs exceed the mid-range annual monetized benefits for the final ELG by $16.5 million using a 3% discount rate and by $74.2 million using a 7% discount rate. It should be noted that the CWA does not require that the benefits of regulation exceed or even equal the costs. It does require that effluent limitations "result in reasonable further progress toward the national goal of eliminating the discharge of all pollutants." Steam electric power plants are highly technical and complex industrial operations. So, too, the revised ELG is very technical and complex. Industry's major concern with the 2013 proposed rule was that EPA would set overly stringent standards that will be an economic burden on generators and may not be achievable. Following release of the final rule, an industry spokesman noted that the rule will force technological and operational changes at existing facilities that have the potential to create compliance challenges and increase customer costs. The technology bases of the rule are available, companies generally agree, but there is concern that the standards may require extensive retrofitting that is costly and could reduce generating plant effectiveness, and some may be infeasible (e.g., may not be physically possible within the plant's footprint). Many in industry are concerned that the CWA rule imposes new requirements and compliance timelines at the same time that power plants are implementing other costly and burdensome EPA rules. The agency attempted to address the issue of timing and coordination with other rules both through the timing of the final ELG and deadlines in the RCRA coal ash rule, discussed above. One issue concerns impacts of the rule on small entities, including small businesses and small governmental jurisdictions. The Regulatory Flexibility Act (RFA) requires agencies to prepare a regulatory flexibility analysis of most rules. The RFA, as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), requires EPA to convene a Small Business Advocacy Review Panel for most rules, unless the agency can certify that a rule will not have a significant economic impact on a substantial number of small entities. EPA did analyze impacts of the proposed ELG on small entities. EPA projects that 22 small entities (small businesses, small organizations, and small governmental jurisdictions) will incur compliance costs as a result of the final rule. It estimates that six small entities owning steam electric power plants (one cooperative, one nonutility, and four municipalities) will incur compliance costs exceeding 1% of revenue as a result of the final rule, and one additional municipality will incur costs exceeding 3% of revenue. Further, potential impacts of the rule on small entities and municipalities are reduced by establishing requirements for small power plants (50 MW or less) equal to the previous BPT limits. The agency believes that these impacts are small and support a finding of no significant economic impact on a substantial number of small entities. Nevertheless, a number of stakeholders are concerned that EPA underestimated costs of portions of the rule (for example, by overestimating the bottom ash removal efficiencies of power plants). Some were critical that EPA did not convene a SBREFA panel, with small business representatives participating, to evaluate the impact prior to the proposed rulemaking. Spokesmen for the National Rural Electric Cooperative Association (NRECA) argue that EPA has underestimated compliance costs of the final rule. NRECA believes that the ELG, together with other recent EPA rules, will disproportionately affect the small- and medium-sized power plants that its members operate. Environmental advocates view the ELG differently from industry and reportedly are generally satisfied with the final rule, but expressed concerns that parts of the rule were not stringent enough. Many had urged that EPA promulgate standards requiring the most environmentally protective technologies (i.e., dry handling of fly ash and bottom ash by all plants, and chemical precipitation plus biological treatment or evaporation of FGD scrubber waste by all plants). They opposed regulatory options in the proposed rule would have set BAT equal to current BPT standards for some wastestreams and thus allow continued use of surface impoundments for bottom ash and combustion residual leachate, because impoundments can be a significant source of contamination of surface and ground water. Thus, they endorsed provisions of the final rule that will require dry handling of fly ash and bottom ash from power plants. Environmental advocates indicated concern with some provisions of the final rule, however, such as allowing compliance deadlines as late as December 31, 2023, under the rule's incentive program (rather than in three years) and the lack of strict limits on legacy wastestreams, discussed previously. Some advocates dispute EPA's view that it is not possible to establish BAT limits for power plant wastestreams that are generated before standards under the new rule are required and believe that the rule should have addressed waste that leaks from old, inactive coal ash ponds. As noted in the introduction to this report, EPA rules affecting steam electric power plants have been scrutinized and challenged based on their stringency, feasibility, and projected compliance costs. Some argue that these rules may change the economics of power production, the fuel profile of the electricity market, and electricity rates. Congressional interest has been evident in legislation that has been introduced to alter the direction and substance of some of EPA's regulatory actions and initiatives. To this point, discussion of the power plant ELG has centered on the administrative proceedings at EPA and has not drawn significant attention of lawmakers. Following promulgation of the ELG, attention has shifted to the federal courts. Petitions for review of the ELG were filed in several federal courts of appeals and have been consolidated in the U.S. Court of Appeals for the Fifth Circuit ( Southwestern Elec. Power Co. v. EPA , 5 th Cir., 15-60821, filed November 20, 2015). The consolidated cases include challenges filed by individual electric utility companies and a group of such companies, as well as environmental advocacy groups. The deadline for new challenges to the ELG is March 16, 2016, under a 120-day time limit that started two weeks after the rule's publication in the Federal Register . This Appendix provides additional detail on the six wastestreams from steam electric power plants that are regulated in the revised ELG. Also see the summary information in Table 1 . FGD Wastewater FGD systems remove sulfur dioxide from the flue gas so that it is not emitted into the air. There are approximately 401 FGD systems either currently operating or planned in the United States. Approximately 17% are dry systems that do not generate wastewater and are not subject to the FGD wastewater requirements of the ELG, while the remaining 83% are wet FGD systems that generate a slurry and are subject to FGD requirements of the rule. Dry FGD systems typically remove 80% to 90% of the sulfur dioxide, which is less than a wet FGD system which in some cases can remove up to 99%. In wet FGD systems, the flue gas stream comes in contact with a liquid stream containing a sorbent, which is used to effect the transfer of pollutants from the flue gas to the liquid stream. Of the 150 plants with wet FGD systems, 100 discharge FGD wastewater after treatment using one or more of several technologies alone or in combination, including surface impoundments, chemical precipitation systems, biological treatment, vapor-compression evaporation systems, and constructed wetlands. EPA estimates that the steam electric industry discharges 16.1 billion gallons of FGD wastewater per year, with an average total industry daily discharge of 0.45 million gallons per day (MGD) per plant. Wastewaters generated by wet FGD systems generally contain significant levels of metals and other pollutants of concern. EPA found that treatment technologies are available to treat these pollutants in FGD wastewater; however, most plants use only surface impoundments that are designed primarily to remove suspended solids from FGD wastewater via settling. Historically, power plants relied on surface impoundments to treat FGD wastewater because NPDES permits generally focused on controlling suspended solids for this wastestream. Metals in FGD wastewater are present both in particulate form, which can be substantially removed by settling (e.g., arsenic), and in soluble (i.e., dissolved) form (metals such as selenium, boron, and magnesium) that is not effectively and reliably removed by surface impoundments. More advanced technologies are available that are effective at removing both soluble and dissolved forms of metals, as well as nitrogen and total dissolved solids (TDS). The technology basis for the final rule is chemical precipitation/coprecipitation used in combination with anoxic/anaerobic biological treatment to optimize removal of selenium. EPA determined that 45% of all steam electric power plants with wet scrubbers have equipment or processes in place able to meet the final BAT/PSES effluent limitations and standards in the 2015 rule. Many of these plants use FGD wastewater management approaches that eliminate the discharge of FGD wastewater. EPA rejected technology based on chemical precipitation alone for FGD wastewater because, while chemical treatment systems are capable of achieving removals of various metals, the technology is not effective at removing selenium, nitrogen compounds, and certain metals that contribute to high concentrations of TDS in FGD wastewater. Fly Ash Transport Water Fly ash is the combustion residual of fine ash particles entrained in flue gases. Depending on the boiler design, as much as 70% to 80% of the ash from a pulverized coal furnace consists of fly ash. Many plants transport fly ash from the boiler using water as the motive force, known as sluicing, and fly ash transport water is one of the largest wastewater sources generated at coal-fired power plants. The steam electric power industry generates 209 billion gallons of fly ash transport water annually, with the average plant generating 4.27 MGD. It is typically treated in large surface impoundment systems. Untreated fly ash transport waters contain significant concentrations of metals and total suspended solids (TSS). Because current NSPS regulations prohibit the discharge of pollutants in fly ash transport water, all plants built since 1982, as well as many existing generating units that have converted, already have dry fly ash handling systems that use air to transport fly ash to storage silos. Because dry fly ash handling practices do not generate fly ash transport water, converting to a dry system eliminates the discharge of fly ash transport water and the pollutants contained therein. EPA estimates that over 80% of existing coal- and petroleum coke-fired generating units use dry ash fly handling systems that utilize mechanical, pressure, or other technologies. Fly ash transport water is one of the largest volume flows from coal-fired power plants. Studies have found that fly ash transport waters generated from wet systems at coal-fired power plants contain significant concentrations of metals, including arsenic, selenium, and mercury. EPA identified generating units at 145 plants that transport (i.e., sluice) fly ash with water to a surface impoundment to remove particulates from the wastewater by means of gravity. Thus, steam electric units generating wet fly ash transport water tend to be older units (e.g., more than 30 years old). Most of these plants are located east of the Mississippi River. The 2015 revised rule establishes zero discharge effluent limitations and standards for discharges of pollutants in fly ash transport water, based on the use of dry fly ash handling technologies. Specifically, the technology basis for BAT is a dry vacuum system that employs a mechanical exhauster to pneumatically convey the fly ash from hoppers directly to a silo. As with FGD wastewater, surface impoundments are not effective at removing soluble forms of metals and nutrients. Bottom Ash Transport Water Bottom ash, sometimes referred to as "boiler slag," is the combustion residual of heavier ash particles collected at the bottom of a boiler. Since 70%-80% of the ash from a pulverized coal furnace consists of fly ash, the remaining 20%-30% is bottom ash. Like fly ash, bottom ash can be transported from the boiler using water and when it is, it is typically directed to an on-site ash impoundment for treatment. EPA found that bottom ash transport waters generated from wet systems at coal-fired power plants contain significant concentrations of the same metals found in fly ash transport water. Bottom ash transport water is an intermittent stream from steam electric units, with flow rates that typically are not as large as fly ash transport water flow rates, but it is still one of the larger volume flows. Moreover, significantly more plants generate bottom ash transport water than generate fly ash transport water. EPA identified 875 EGUs (348 plants)—67% of plants—that wet sluice (transport) at least a portion of their bottom ash to a surface impoundment or a dewatering bin for solids removal. EPA estimates that the steam electric industry generates a total of 297 billion gallons of bottom ash transport water annually, with the average plant generating 2.5 MGD. Amounts released to surface waters from impoundment overflow or discharge totaled 157 billion gallons in 2009. According to EPA, many coal and oil-fired power plants design their bottom ash handling systems either to not use water to transport bottom ash away from the boiler or manage the transport water in a manner that eliminates or reduces the need to discharge bottom ash transport water to surface waters. The 2015 revised rule requires zero discharge, using dry handling or closed-loop systems as the BAT technology basis for control of pollutants. About 20% of coal- and petroleum coke-fired units that generate bottom ash currently operate systems that eliminate the use of transport water; more than 80% of coal-fired generating units built in the last 20 years have installed dry bottom ash handling systems. Technologies to achieve zero discharge include mechanical drag systems, remote mechanical drag systems, and impoundment-based systems that are managed to eliminate all discharge of bottom ash transport water and associated pollutants. EPA found that more than half of the entities that would be subject to BAT requirements for bottom ash transport water are already employing zero discharge technologies or are planning to do so in the near future. Combustion Residual Leachate from Surface Impoundments and Landfills Combustion residuals include fly ash, bottom ash, and FGD solids, which are generally collected by or generated from air pollution control technologies. These residuals may be stored at the plant in on-site landfills or surface impoundments (ponds). Few steam electric power plants currently employ technologies other than surface impoundments for this waste. Combustion residual leachate is leachate from landfills or surface impoundments that contains combustion residuals. Water that comes in contact with the combustion residuals stored in a landfill or impoundment will be contaminated by metals and other contaminants present in the combustion residuals. The two sources of landfill combustion residual leachate are precipitation that percolates through the waste deposited in the landfill or impoundment and the liquids produced from the combustion residual placed in the landfill or impoundment. When a landfill or impoundment has reached its capacity, it will typically be closed to protect against environmental release of pollutants in the waste. However, these landfills or impoundments may continue to generate leachate, which is the liquid that drains or leaches from a landfill or surface impoundment. EPA estimated in 2009 that 150 to 200 coal-fired and petroleum coke-fired steam electric plants generated on average 0.57 MGD per plant of combustion residual leachate and that 100 to 110 plants discharged 80,000 to 90,000 gallons per day of combustion leachate residual. In addition to leachate, stormwater that enters the impoundment or contacts and flows over the landfilled combustion residual would be contaminated with pollutants, such as heavy metals. Power plants manage these wastewaters in various ways. Stormwater collection systems typically consist of one or more small impoundments. According to EPA, approximately 160 to 190 coal- and petroleum-fired steam electric power plants collect combustion residual leachate from either an impoundment and/or landfill. The majority (52%) of landfills and some impoundments (13%) have leachate collection systems, which may be combined with stormwater or sent to a separate impoundment. According to EPA, 63% of combustion residual landfills and 51% of combustion residual impoundments are lined. Unlined impoundments and landfills do not collect leachate that migrates away from the impoundment or landfill, which can potentially cause groundwater and/or drinking water contamination. Recently installed landfills and impoundments are more likely to be lined and to collect leachate. Once collected, the landfill or impoundment leachate can be recycled back to the landfill or impoundment or within the plant, or it is discharged. Some plants discharge the effluent from leachate impoundments, while others send the leachate impoundment effluent to another impoundment that handles ash transport water or other systems. Surface impoundments are the most common type of system used to treat combustion residual leachate from landfills and impoundments. Constructed wetlands are the next most commonly used treatment system. Physical/chemical and chemical precipitation technologies also have been demonstrated capable of treating pollutants in combustion residual leachate. In the 2015 revised rule, EPA established effluent limitations and standards for existing sources equal to current BPT effluent limitations, based on technology of gravity settling in surface impoundments to remove suspended solids. For new sources, the technology basis of the 2015 rule is chemical precipitation/coprecipitation. Such systems are capable of achieving low effluent concentrations of various metals and are effective at removing many of the pollutants of concern present in leachate discharges to surface waters, and, like FGD wastewater, combustion residual leachate is similarly amenable to chemical precipitation treatment. However, as is the case with FGD wastewater, this technology is not effective at removing selenium, boron, and other parameters that contribute to TDS (e.g., magnesium, sodium). Flue Gas Mercury Control (FGMC) System Wastewater In response to recent Clean Air Act rules and other state regulations requiring limits on air emissions of mercury and other air toxics, power plants have been installing systems to improve removal of mercury from flue gas emissions. Thus, these systems are relatively new to the steam electric industry. FGMC systems remove mercury from the flue gas, so that it is not emitted into the air. In 2009, there were approximately 120 operating FGMC systems, with an additional 40 planned for installation by 2020. Approximately 90% of the currently operating FGMC systems are dry systems that add oxidizers to the coal prior to combustion and move the oxidized mercury in the wet FGD system. Using oxidizers does not generate a new wastestream, but the mercury concentration in FGD wastewater may be increased as a result, because oxidized mercury is more easily removed by the FGD system. About 6% of the currently operating systems involve injection of activated carbon into the flue gas to adsorb the mercury, which can generate a new wastestream at a plant that is likely sent to a surface impoundment. According to EPA, coal-fired power plants can minimize or eliminate the discharge of FGMC particulate handling transport water using the same technologies that are available for fly ash, such as wet or dry vacuum pneumatic systems, pressure systems, or combined vacuum/pressure systems. EPA identified 6 plants that manage their FGMC waste with systems that use water to transport the waste to surface impoundments. Under the final rule, the technology basis for existing and new sources would be zero discharge using dry handling technologies to store and dispose of fly ash without utilizing transport water. EPA found that this technology is available and well-demonstrated in the industry, since nearly all plants with FGMC systems use dry handling systems. Effluent limits based on dry handling would completely eliminate the discharge of pollutants in FGMC wastewater. EPA did not select BAT limitations for FGMC wastewater based on surface impoundments, because impoundments, which can remove particulate forms of metals and other pollutants, are not capable of removing dissolved metals and nitrates. Gasification Wastewater Integrated gasification combined cycle (IGCC) plants use coal or petroleum coke and subject it to high temperature and pressure to produce a synthetic gas, which is used as the fuel for combined cycle generating plants. After the synthetic gas is produced and prior to combustion, it undergoes cleaning to remove chlorides and other contaminants. This step can generate wastewater and condensate that require treatment prior to reuse or discharge. Two technologies in use to treat gasification wastewaters are vapor-compression evaporation systems and cyanide destruction systems. The technology basis for the effluent limitations in the final rule is vapor-compression evaporation, which is currently used by the three operating IGCC plants in the United States. Surface impoundments were not selected as the basis for BAT limitations, because impoundments are not effective at removing the pollutants of concern in gasification wastewater, particularly dissolved solids. | To implement the Clean Water Act (CWA), the Environmental Protection Agency (EPA) issues effluent limitation guidelines (ELG), or technology-based standards, for categories of industrial dischargers. These standards are implemented through permits issued by states or EPA to individual facilities. In November 2015, EPA promulgated revised effluent limitations for the steam electric power industry to replace rules that were issued in 1982. The new rule was effective on January 4, 2016. Two factors have altered existing wastestreams or created new wastestreams from many power plants since promulgation of the 1982 ELG. These factors are the development of new technologies for generating electric power, such as coal gasification, and, as a result of federal and state requirements, the widespread implementation of air pollution controls to reduce emissions of hazardous air pollutants and acid gases, such as flue gas desulfurization (scrubber) systems. While scrubbers dramatically reduce emissions of harmful pollutants into the air, some create a significant liquid waste stream. As a result, pollutant discharges from this industry to surface waters have increased in volume, with additional chemical constituents, and EPA believes that many current CWA permits for power plants do not fully address potential water quality impacts of these discharges. Based on studies of the industry and to settle litigation brought by environmental advocates, EPA proposed a rule in April 2013 to revise the steam electric ELG and issued a final rule in November 2015. A total of 1,080 steam electric plants that burn fossil fuels and whose primary purpose is generating electricity are subject to the ELG. Only a subset of these plants is likely to incur compliance costs as a result of the 2015 rule—only 133—because a large portion of the industry has already implemented processes or technologies that are required by the rule. All of the plants that are expected to incur compliance costs are coal- or petroleum coke-fired. EPA estimates that the annualized compliance costs for the rule are $496 million pre-tax and $340 million after-tax, costs that the agency believes are economically achievable and would have minimal effects on the electricity market, both nationally and regionally. The rule also would reduce pollutant discharges by 385 million pounds annually and reduce water use by 57 billion gallons per year. Estimated costs of the rule exceed estimates of monetized benefits; however, the CWA does not require that the benefits of regulation exceed or even equal the costs. An EPA rule under the Resource Conservation and Recovery Act (RCRA) on managing coal combustion residuals (CCR) also relates to the CWA ELG rule, because both statutes address coal ash that is generated by power plants and released to the environment. The scope of the CWA and RCRA rules differ. While both address disposal of CCR in surface impoundments at power plants, only the RCRA rule regulates disposal of CCRs in landfills. To coordinate the two rules, in the final CCR rule, EPA extended by one year that rule's deadline for owners or operators of covered facilities to prepare a closure plan. This would give owners or operators 24 months after publication of the CCR rule, or slightly more than 6 months after the effective date of the revised ELG, to understand the requirements of both regulations and to make the appropriate business decisions and prepare closure and post-closure plans. Many in industry are concerned that the 2015 rule will impose new requirements and compliance timelines at the same time that power plants are implementing other EPA rules. One issue concerns impacts of the proposal on small entities, including small businesses and small governmental jurisdictions. Environmental advocates view the ELG differently from industry and reportedly are generally satisfied with the final rule, but many do have concerns with issues such as compliance deadlines in the rule. Both industry groups and environmental groups have challenged the rule in federal court. EPA rules affecting steam electric power plants have been scrutinized and criticized based on their stringency, feasibility, and projected compliance costs. Congressional interest has been evident in legislation to alter the direction and substance of some of EPA's regulatory actions and initiatives. To this point, discussion of the power plant ELG has centered on the administrative proceedings at EPA and has not drawn specific attention of lawmakers. |
On April 29, 2004, the Department of State released its Patterns of Global Terrorism report(hereafter referred to as Patterns 2003 ). (1) Shortly thereafter it was observed that the original numbersof terrorist attacks and casualties were understated and on June 22, 2004, an updated version wasreleased. (2) Revised data (3) show minimal change in the number of terrorist attacks worldwide in 2003over 2002 levels -- an increase from 205 attacks to 208. In 2003, the overall number of reported anti-U.S. attacks declined visibly, 60 anti-US attacks in 2003 as opposed to 77 attacks in the previousyear. The report indicates that worldwide deaths from international terrorist activity were down roughly 14% in 2003 (from 725 to 625) and the number of wounded was up roughly 81% from 2,013to 3,646. In 2003, as in 2002, both the highest number of attacks (80) and highest number ofcasualties (159 dead and 1,268 wounded) continued to occur in Asia where the number of attacksdeclined roughly by one-fifth, and the number of casualties increased roughly 11%. The reportemphasizes that most of the attacks in Iraq that occurred during Operation Iraqi Freedom do not meetthe U.S. definition of international terrorism employed by Patterns because they were directed atcombatants, that is, "American and coalition forces on duty." (4) In additional to statistical charts, Patterns includes in its Appendixes a summary chronology of significant terrorist incidents and background information on U.S. designated foreign terroristorganizations and other terrorist groups. (5) In addition to data on terrorist trends, groups, and activities worldwide, the report provides adescription as to why countries are on the U.S. list of state sponsors of terrorism that are subject toU.S. sanctions. Thus, included in Patterns are detailed data on the seven countries currently on the"terrorism list": Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria. U.S. Administrationofficials maintain that the practice of designating and reporting on the activities of the state sponsorsof terrorism list and concomitant sanctions policy has contributed significantly to a reduction in theovert -- and apparently overall -- activity level of states supporting terrorism in the past decade. Libya and Sudan are frequently cited as examples of such success. Countries designated as state sponsors of terrorism are subject to severe U.S. export controls -- particularly of dual use technology. The Anti-Terrorism and Arms Export Amendments Act of1989 ( P.L. 101-222 ) prohibits export of dual use items, as well sales of military items and foreigneconomic assistance to countries on the terrorism list. Also, the Foreign Assistance Act prohibitsproviding foreign aid to these designated countries. Section 6(j) of the 1979 Export AdministrationAct stipulates that Congress must be notified at least 30 days in advance before any licenses areissued for exporting equipment or services that could be used for terrorist or military purposes. Other sanctions include denying foreign tax credits on income earned in those countries. The degree of support for, or involvement in, terrorist activities typically varies dramatically from nation to nation. In 2003, of the seven on the U.S. terrorism list, Iran continued to becharacterized on one extreme as an active supporter of terrorism: a nation that uses terrorism as aninstrument of policy or warfare beyond its borders. Closer to the middle of the spectrum is Syria. Although not formally detected in an active role since 1986, Patterns reports that the Assad regimereportedly uses groups in Syria and Lebanon to export terror into Israel and allows groups to trainin territory under its control. On the less active end of the spectrum, one might place countriessuchas Cuba or North Korea, which at the height of the Cold War were more active, but in recent yearshave seemed to settle for a more passive role of granting ongoing safe haven to previously admittedterrorists. Also at the less active end of the spectrum, and arguably falling off it, are Libya andnotably Sudan, which reportedly has stepped up counterterrorism cooperation with U.S. lawenforcement and intelligence agencies after the attacks of September 11, 2001. Iran. Patterns 2003 again designates Iran as the"most active" state sponsor of international terrorism. The report, which incorporates data from U.S.and allied intelligence services, notes that Iran's Islamic Revolutionary Guard and Ministry ofIntelligence and Security were "involved in the planning of and support for terrorist acts andcontinued to exhort a variety of groups that use terrorism to pursue their goals." (6) Actions citedinclude (1) providing safe haven to members of Al Qaeda; (2) providing money, weapons andtraining to HAMAS, Hizballah, and Arab Palestinian rejectionist groups; and (3) helping membersof the Ansar al Islam group in Iraq transit and find safe haven in Iran. The report notes that Iranianofficials have acknowledged detaining Al Qaeda operatives during 2003, but have resisted calls totransfer them to their countries of origin. On December 19, 2003, Iran announced it will sign anagreement allowing international inspections of nuclear sites. Iran is not considered to be a likelycandidate for removal from the Department of State's Terrorism Sponsors List in the coming year. North Korea. North Korea, designated a member of the "axis of evil" by President Bush in his 2003 State of the Union Address, is not known to havesponsored any terrorist acts since 1987 according to the report. However, it continued to givesanctuary to hijackers affiliated with the Japanese Red Army. Patterns 2003 stresses that NorthKorea announced it planned to sign several antiterrorism conventions, but did not take anysubstantive steps to cooperate in efforts to combat terrorism. Although Patterns notes that NorthKorea's support for international terrorism appears limited at present, its efforts to restart its nuclearprogram and its role in proliferation of ballistic missiles and missile technology suggest that itsremoval from the terrorism list will not occur anytime soon. Iraq. Iraq, under Saddam Hussein, had been cited in the 2002 Patterns report for a longstanding policy of providing safe haven and bases for terroristgroups and as having laid the groundwork for possible attacks against civilian and military targetsin the United States and other Western nations throughout 2002. However, in the event of asubstantive regime change, a nation may be removed from the terrorism list. Under U.S. law,(Paragraph 6 (j) (4) of the Export Administration Act, the President must first report to Congress thatthe government of the country concerned: (1) does not support terrorism and (2) has providedassurances that it will not support terrorism in the future. On May 7, 2003, President Bushsuspended all sanctions against Iraq applicable to state sponsors of terrorism, which had the practicaleffect of putting Iraq on a par with non terrorist states. Iraq is expected to be removed from theterrorism list as soon as it has its own government in place that pledges not to support terrorist actsin the future, a requirement expected to be met shortly after June 30, 2004. The report notes that theline between insurgency and terrorism has become "increasingly blurred" in Iraq, as attacks oncivilian targets have become more common. By the end of 2003, coalition forces had detained morethan 300 suspected foreign fighters in Iraq (7) . Libya. In 2003 Libya reiterated assurances to the U.N. Security Council that it had renounced terrorism, had shared intelligence with Westernintelligence agencies, had taken steps to resolve matters related to its past support of terrorism, andon December 19, 2003 announced it would rid itself of weapons of mass destruction and allowinspections of its nuclear facilities. (8) The report statesthat in 2003, Libya held to its pattern in recentyears of curtailing support for international terrorists, although Tripoli continued in 2003 to maintaincontact with "some past terrorist clients." President Bush lifted sanctions against Libya on April 23,2004, after successful intelligence cooperation on WMD issues and efforts by Libya to resolvecompensation for Pam Am flight 103 survivors. Syria. Syria, according to Patterns 2003, continued to provide political and material support to Palestinian rejectionist groups and continuedto permit Iran to use Damascus as a transhipment point for resupplying Hizballah in Lebanon. Ona positive note, the report notes that Damascus has cooperated with other governments "against alQaeda, the Taliban, and other terrorist organizations and individuals," has discouraged signs ofpublic support for Al Qaeda, including in the media and mosques, and has made efforts to tightenits borders with Iraq to limit the movement of anti-Coalition foreign fighters. On May 11, 2004,President Bush imposed economic and trade sanctions against Syria under the Syrian Accountability Act, (9) but also waived some of the provisions,notably provisions applying to the export of selectitems. (10) Cuba. Cuba, a terrorism list carryover from the cold war has, according to Patterns 2003 , "remained opposed to the U.S.- led Coalition prosecutingthe global war on terrorism" (11) and continued toprovide support to designated terrorist organizations. It is considered unlikely that Cuba will be removed from the terrorism list, absent a regime change. (12) Sudan. Sudan is generally considered by observers to be a strong candidate for removal from the terrorism list. Patterns 2003 claims that thenation has "deepened its cooperation with the U.S. Government," producing significant progress incombating terrorist activity, but "areas of concern" remain, notably the active presence in Sudan ofHamas and the Palestine Islamic Jihad (PIJ). In 2004, Sudan was removed from the list of countriesdesignated by the Secretary of State as not fully cooperating with the United States in the war onterrorism. Some critics of Patterns and its designation of state sponsors of terrorism charge that the Patterns 2003 report generally, and specifically its reporting of activities of nations, is undulyinfluenced by a complex web of overlapping and sometimes competing political and economicagendas and concerns. As cases in point, they refer to activity cited in Patterns reports used tojustify retaining Cuba and North Korea on the state sponsors list. (13) Others suggest that Patterns' heavy focus on state sponsors of terror make such reports less useful in a world where terroristactivity is increasingly neither state supported nor state countenanced. Still others ask whether, andto what degree, Patterns supports a sanctions policy that is unrealistically achievable and toounilateral when imposing sanctions on nations in which U.S. and allied economic and strategicgeopolitical interests run high. However, Patterns in its current form is not intended to set policy. Thus, one potential shortcoming of the criticisms cited above is that they are either policy oriented or revolve arounddisagreement with policy issues instead of centering on disagreement with the data and analysispresented in Patterns reports. Moreover, such criticisms, they maintain, arguably place too muchemphasis on the state sponsors section of P atterns, with little or no emphasis on the plethora ofuseful data provided in the report on trends in terrorist activity and background on terroristorganizations. Another issue related to politicization not addressed in Patterns 2003 is that ofconfronting incitement to terrorism when promoted, countenanced, or facilitated by the action, orinaction, of nation states. Particularly strong have been suggestions by some that Patterns plays down undesirable levels of counterterrorism cooperation and progress in the case of nations seen as vital to the globalcampaign against terror. Patterns 2003 , in contrast to pre "9/11" report versions, is silent aboutPakistan's alleged ongoing support for Kashmiri militants and their attacks against the populationof India. Some critics argue that Patterns 2003 also falls far short of criticizing Saudi Arabia,perceived by many analysts as a slow, unwilling, or halfhearted ally in curbing or cracking downon activities which support or spawn terrorism activities outside its borders. In contrast, Patterns2003 cites Saudi Arabia as "an excellent example of a nation increasingly focusing its political willto fight terrorism." Some suggest, however, that often at play here is simply a desire to put the bestface on terrorist related relationships in the hopes of obtaining better cooperation in the future. On the flip side of the coin is an issue, yet to be resolved, of how to inform Congress and give countries credit in Patterns for cooperation in such matters as intelligence or renditions when, fordomestic political concerns, they do not want this made public. One option might be to producemore frequently a classified annex to the Patterns report which has been done in the past. A downside, however, is that preparation of a classified version is much more time consuming forthose tasked with simultaneously preparing the public document. Some also suggest that Pattern s reports could be stronger in their coverage of the ideological and economic impact of terrorism on individual nations and the global economy. One issue here,as raised by some observers, is whether Patterns places too much emphasis on quantifying andmeasuring terrorist success in terms of physical damage to persons and property when terror groupsmay increasingly be measuring mid-and long term success by economic and political criteria. Going beyond the question, raised by some, of any perceived shortcomings in data, which may or may not be found in Patterns 2003 , is the question of the quality of strategic analysis of the dataprovided. To what degree might such analysis be enhanced? Some observers suggest the issue hereis the degree to which Patterns is designed to reflect, or might be construed to reflect, a "body count"reporting mentality. (14) Would there be benefitsto Congress and the counterterrorism policycommunity if the focus of Patterns reports was less on presenting statistics and facts, and more ongaining meaning from the data? And if so, how might Congress effect such a change in policyfocus? Admittedly, overall numbers by themselves may not always present a complete picture. Forexample, each small pipeline bombing in Colombia is cited as one incident in Patterns as would bea major terrorist incident as the multiple train bombings in Madrid in March 2004. Another possibleshortcoming, some note, is that Patterns sometimes may not include, or adequately note, incidentsthat are not international in nature but which may have a major political or economic impact on thetarget nation and well beyond it. Indeed, Patterns 2003 has been subject to criticism on the issue of data completeness or accuracy, as well as on the issue of data relevance. (15) In a May 17, 2004 letter to Secretary of StateColin L. Powell, Henry A. Waxman, Ranking Minority Member of the House Committee onGovernment Reform, suggests that data in Patterns 2003 which indicate that non-significant terroristattacks have declined in the last two years is in sharp contrast to independent analysis of the samedata which concludes that significant terrorist attacks (acts causing, or reasonably expected to cause:death, serious personal injury or major property damage) actually reached a 20-year high in 2003. (16) Also questioned is completeness, if not factual accuracy, of the data relied upon in the Patterns 2003 report. The list of significant incidents in Patterns 2003, as originally disseminated , concludesabruptly on November 11, 2003, presumably therefore, not counting major multiple terrorists attacksthat occurred later in the year. (17) The statistical data which forms the basis for Patterns have traditionally been provided to the State Department by the CIA. More recently this function has been transferred to the newlyoperational Terrorist Threat Integration Center (TTIC). (18) TTIC is providing an errata sheet to correctincomplete data. (19) The final report of the 9/11 Commission, issued on June 22, 2004, recommends the creation of a National Counterterrorism Center. Subsequently on August 2, 2004, President Bush announcedsimilar plans to establish such a center. The new center is envisioned as serving as a centralknowledge bank for information about known and suspected terrorists and would be charged withcoordinating and monitoring counterterrorism plans and activities of all government agencies, andpreparing the daily terrorism report for the President and senior officials. (20) Presumably the functionof compiling the data for Patterns will be performed by the new National Counterterrorism Center, if and when it is established. In the wake of discrepancies contained in the Patterns 2003 as originally released, the Chairmenof three House Committees (International Relations, Judiciary, Government Reform) forwarded aletter to Secretary of State, Colin Powell, dated July 15, 2004. The letter cites discussions betweenState Department and other officials with committee staff and reiterates "that there will be acomprehensive review of the definitions of terrorist acts as compared to (1) the language in thestatute; and (2) the current experiences with multinational terrorist organizations that sponsor orotherwise promote terrorist acts perpetrated by 'local' terrorist organizations." Moreover, it reaffirmsan understanding that the executive branch has assigned an appropriate level of staff to provide fulltime attention to the contents of the report. The results of this executive branch internal review arerequested by October 1, 2004. It has been some fifteen years since Congress mandated the first Patterns report. At the time the report was originally conceived as a reference document, the primary threat from terrorism wasstate sponsored. Since then, the threat has evolved, with Al Qaeda affiliated groups and non-statesponsors increasingly posing a major threat. Over the years, the report has increased in length andexpanded in scope. It has been disseminated on the internet, translated into five additionallanguages, and is widely recognized as a primary resource on terrorist activities and groups. However, in view of the earlier- noted data issues, the report may be subject to increased criticismand scrutiny. In light of the high level of international attention attached to the report and theincreased complexity and danger posed by the terrorist threat, some observers have suggested thata thorough Executive/Congressional review of Patterns , its structure and content, may be timely andwarranted. Patterns of Global Terrorism Data, 2002-2003 Note: Based on revised data published in Patterns 2003. Traditionally, this data hadbeen providedto the State Department by the Central Intelligence Agency. More recently this function has beentransferred to the newly operational Terrorist Threat Integration Center (TTIC). Periodic requestsfrom analysts at the Department of State and from analysts at the Congressional Research Servicein April 2004 for quarterly access to an unclassified version of the data base of terrorist incidentshave, to date, not resulted in access to the data desired. a. Compared with 487 attacks in 1982. b. In 2003 the highest percent of targets were businesses (40%); the most common method of attackwas bombing (67%). c. Casualties include dead and wounded. d. 2002 figures include relatively high casualties in a number of anti-Russian attacks, such as theOctober 2002 Moscow theater attack. e. Note that the reason for this dramatic increase is not apparent. | This report highlights trends and data found in the State Department's annual Patterns of Global Terrorism report , (Patterns 2003) and addresses selected issues relating to its content. Thisreport will not be updated. On April 29, 2004, the Department of State released its annual Patterns of Global Terrorism report. After discrepancies were noted in reported data, the Department of State issued revisedstatistics on June 22, 2004. The newly released data showed minimal change in the number ofterrorist attacks worldwide in 2003 over 2002 levels -- an increase from 205 attacks to 208. In2003, the overall number of reported anti-U.S. attacks declined visibly, 60 anti-U.S. attacks in 2003as opposed to 77 attacks in the previous year. In 2003, the number of persons killed in internationalterrorist attacks was 625, down from 725 in 2002. In 2003, persons wounded numbered 3,646, upfrom 2,013 the previous year. In 2003, as in 2002, both the highest number of attacks (80) andhighest number of casualties (159 dead and 1,268 wounded) continued to occur in Asia. Notably,the report defines terrorist acts as incidents directed against noncombatants. Thus, attacks in Iraqon military targets are not included. Patterns , a work widely perceived as a standard, authoritative reference tool on terrorist activity, trends, and groups, has been subject to periodic criticism that it is unduly influenced bydomestic, other foreign policy, political and economic considerations. Patterns is currentlyundergoing an internal executive branch review. This year for the first time, data contained in Patterns was provided by the newly operational Terrorist Threat Integration Center (TTIC). On August 2, 2004, President Bush announced plans tocreate a National Counterterrorism Center (NCTC), an institutional change recommended by the9/11 Commission in its July 19, 2004 report. The center is envisioned as serving as a centralknowledge bank for information about known and suspected terrorists and would be charged withcoordinating and monitoring counterterrorism plans and activities of all government agencies, andpreparing the daily terrorism threat report for the President and senior officials. Presumably thefunction of compiling the data for Patterns will be performed by the new National CounterterrorismCenter, if and when it is established. It has been some fifteen years since Congress mandated the first Patterns report. When the report was originally conceived as a reference document, the primary threat from terrorism was statesponsored. Since then, the threat has evolved with Al Qaeda affiliated groups and non-state sponsorsincreasingly posing a major threat. Given the increased complexity and danger posed by the terroristthreat, one option available to Congress and the executive branch is to take a fresh look at Patterns, its structure and content. |
The Environmental Quality Incentives Program (EQIP) is a voluntary program that provides technical and financial assistance to eligible agricultural producers who wish to implement soil and water conservation practices. The purpose of EQIP is to promote agriculture production, forestry management, and environmental quality as compatible goals, and to optimize environmental benefits. EQIP was originally authorized in the 1996 farm bill as an amendment to the 1985 farm bill. EQIP replaced four conservation programs repealed in the same law. These were the Great Plains Conservation Program, the Agricultural Conservation Program, the Water Quality Incentives Program, and the Colorado River Basin Salinity Control Program. EQIP is the largest agriculture conservation program for working lands. The program encourages farmers and ranchers to participate in conservation efforts by paying a portion of the cost of installing or constructing approved conservation practices. Eligible producers enter into EQIP contracts to receive payment for implementing conservation practices. Approved activities are carried out according to an EQIP plan developed in conjunction with the producer that identifies the appropriate conservation practice or practices to address resource concerns on the land. EQIP was amended and reauthorized in both the 2002 and 2008 farm bills. The U.S. Department of Agriculture's (USDA's) Natural Resources Conservation Service (NRCS) administers EQIP under an interim final rule. NRCS implemented EQIP by establishing national priorities to reflect the most pressing natural resource needs and emphasize offsite benefits to the environment. The current national priorities set by NRCS are as follows: reductions of nonpoint source pollution, such as nutrients, sediment, pesticides, or excess salinity in impaired watersheds consistent with Total Maximum Daily Loads (TMDLs), where available; the reduction of surface and groundwater contamination; reduction of contamination from agricultural point sources, such as concentrated animal feeding operations (CAFOs); conservation of ground and surface water resources; reduction of emissions, such as particulate matter, nitrogen oxides (NOX), volatile organic compounds, and ozone precursors and depleters that contribute to air quality impairment violations of National Ambient Air Quality Standards; reduction of soil erosion and sedimentation from unacceptable levels on agricultural land; and promotion of at-risk species habitat conservation. Producers with eligible land can submit an EQIP plan that describes the conservation and environmental purposes that will be achieved using one or more USDA-approved conservation practices. USDA-approved conservation practices may involve structures, vegetation, or land management. Structural practices include the establishment, construction, or installation of measures designed for specific sites, such as animal waste management facilities, livestock water developments, and capping abandoned wells. Vegetative practices involve introduction or modification of plantings, such as filter strips or trees. Land management practices require site-specific management techniques and methods, such as nutrient management, irrigation water management, or grazing management. Producers can receive technical assistance to develop an EQIP plan and, after approval, to implement the plan. Decisions about which plans to fund are made by USDA at the state level, with local input. Applications are accepted and ranked throughout the year within each state. Applications are grouped with similar crop, forestry, and livestock operation applications and evaluated within the groups. Additional funding groups may be created to rank applications based on similar resource objectives, geographic area, or type of agricultural operation. After an application is selected and approved, USDA provides payments to help the producer offset the cost of each practice, as well as income forgone relating to that practice implementation. Participants are eligible to receive payments for both constructing structures and implementing land management practices. Of the total annual EQIP spending, 60% is allocated to livestock practices. Under an EQIP contract, USDA pays up to 75% of the projected costs associated with planning, design, materials, equipment, installation, labor, management, maintenance, or training, or up to 100% of the estimated income forgone to implement certain conservation practices. This payment rate can be higher for limited-resource, socially disadvantaged, or beginning farmers and ranchers, provided this increase does not exceed 90% of practice costs. Initial payments are made in the year in which the contract is signed, but most payments are made after the practices are completed. Contracts have a term of one to ten years and payments are limited by direct attribution to individuals or entities. Total payments a person or entity can receive over any six-year period are limited to $300,000, except for projects having special environmental significance, which are limited to $450,000 over any six-year period. Individuals or entities with an average annual non-farm adjusted gross income (AGI) of $1 million or more for the three years prior to the contract period are ineligible unless they received at least two-thirds of their AGI from farming, ranching, or forestry. The 2008 farm bill created a case-by-case waiver to the AGI limitation if it is determined that environmentally sensitive land of special significance would be protected through a conservation program. The number and frequency of AGI waivers granted is not limited, is at USDA's sole discretion, and remains to be determined. The 1996 farm bill authorized EQIP funding of $130 million in FY1996 and $200 million annually from FY1997 through FY2002. The 2002 farm bill significantly increased the annual authorized funding level incrementally from $400 million in FY2002 to $1.3 billion in FY2007. EQIP funding levels were revised in Section 1203 of the Deficit Reduction Act of 2005 ( P.L. 109-171 ) to limit funding to $1.27 billion in FY2007, while extending the authorization through FY2010 and providing $1.27 billion in each of FY2008 and FY2009, and $1.3 billion in FY2010. The 2008 farm bill further increased the annual authorized funding levels incrementally from $1.34 billion in FY2009 to $1.75 billion in FY2012. Funding under EQIP is mandatory (not subject to annual appropriations), and the program receives authorized amounts each year under the borrowing authority of USDA's Commodity Credit Corporation (CCC). Congress, however, has limited EQIP funding below authorized levels in every year since FY2005, through annual appropriations bills. Figure 1 identifies the authorized and actual funding levels for EQIP. The FY2011 full-year continuing resolution (Department of Defense and Full-Year Continuing Appropriations Act of 2011, P.L. 112-10 ) limited EQIP to $1.238 billion for FY2011—a reduction of $350 million from the authorized level of $1.558 billion in the 2008 farm bill. For FY2012, the Administration has proposed a limit of $1.408 billion—a reduction of $342 million from the authorized level of $1.75 billion. Annual funding received for EQIP is allocated to the states by NRCS using a formula based on national priorities, natural resource need, efficiency and performance measures, and regional equity. The EQIP allocation formula uses 20 weighted factors based on the characteristics of agriculture and land use and resource considerations. Factors with the largest weights within the formula include irrigated cropland, non-irrigated cropland, non-federal grazing land, livestock animal units, cropland eroding above the tolerance level, and impaired rivers and streams. States that receive the largest EQIP allocations have remained consistent from year to year, with Texas, California, and Colorado receiving the highest levels of funding annually between FY2004 and FY2008 (most recent information available). States who obligate the most EQIP funding annually are similar to those who receive the largest allocations each year (see Table 1 ). One of two subprograms under EQIP is the Agricultural Water Enhancement Program (AWEP). The 2008 farm bill (Sec. 2510, P.L. 110-246 ) created AWEP to promote ground and surface water conservation and to improve water quality on agricultural lands. The program replaces two previous water conservation programs: the Ground and Surface Water Conservation Program and the Klamath Basin Program. Eligible partners or groups submit project proposals to conserve ground and surface water or improve water quality in a specified area. NRCS selects projects based on requirements established in a Federal Register notice and enters into agreements with selected partners. In FY2009, NRCS approved approximately $58 million for 63 projects in 21 states. In FY2010, NRCS approved approximately $19.8 million for 28 new projects in 10 states. An additional $40.4 million was made available in FY2010 for projects approved in FY2009. To date, only $5 million has been made available for new projects in FY2011. Once proposals for specific areas are selected, there are two methods for producers to sign up for an AWEP contract. Producers may either (1) apply directly to NRCS for approved agricultural water enhancement activities or (2) apply through the partner or group who submits applications on the producer's behalf. Funding is authorized as a separate amount from the general EQIP, at $73 million for each of FY2009 and FY2010, $74 million in FY2011, and $60 million in FY2012 and each fiscal year thereafter. The second subprogram under EQIP is the Conservation Innovation Grants (CIG) program, created in the 2002 farm bill. The program, implemented through EQIP, is intended to leverage federal investment, stimulate innovative approaches to conservation, and accelerate technology transfer in environmental protection, agricultural production, and forest management. Examples of CIG projects include developing market-based approaches in conservation, demonstrating precision agriculture, capturing nutrients through a community anaerobic digester, and establishing a tribal partnership for regional habitat conservation. The program was reauthorized in the 2008 farm bill through FY2012 at an unspecified funding level of general EQIP dollars. NRCS uses its discretion to determine the level of general EQIP funds for CIG and annually allocates approximately $15 million for a national competition and up to $5 million for a watershed competition, such as the Chesapeake Bay or the Mississippi River basin ( Table 2 ). For FY2011, NRCS announced two funding competitions: a national competition to include the Chesapeake Bay and Mississippi River basin (up to $25 million available), and a separate competition for practices that reduce greenhouse gases and sequester carbon on agricultural lands (up to $5 million available). In addition, 32 states conduct, or have conducted, a state-level CIG competition, which has awarded over $17 million since FY2005. In FY2011, Louisiana, Missouri, New Hampshire, New York, Pacific Islands, and Washington are holding state-level competitions. The 2008 farm bill made some modifications to the CIG program. Previously, grants could not exceed 50% of the project cost, with nonfederal matching funds provided by the grantee. The 2008 farm bill removed this requirement, though USDA still requires a 50% match of nonfederal funds. Also, the farm bill added an air quality component requiring that payments be made through CIG to producers to implement practices to address air quality concerns from agricultural operations and to meet federal, state, and local regulatory requirements. This air quality component is authorized at $37.5 million annually. EQIP continues to receive widespread support in the farm community and in Congress, as it remains the major source of financial and technical assistance to help producers implement conservation practices that address specific resource and environmental problems. During the 112 th Congress, several issues may attract congressional interest, including budgetary pressures, a continuing backlog of unfunded applications, program reauthorization, and measuring program accomplishments. The 2008 farm bill reauthorized EQIP through September 30, 2012, with annual authorized funding levels of $1.2 billion in FY2008, $1.34 billion in FY2009, $1.45 billion in FY2010, $1.59 billion in FY2011, and $1.75 billion in FY2012. As shown in Figure 1 , the authorized funding level has continued to increase since the 2002 farm bill; however, annual appropriations acts have reduced the actual funding levels by a total of nearly $1.8 billion from FY2005 through FY2011. With the 112 th Congress's emphasis on reducing federal spending, similar reductions to EQIP could be considered either in the appropriations process or through possible reconciliation. Another possible reduction to EQIP funding could come during farm bill reauthorization, as the authorizing committee seeks to offset funding for other farm bill programs. Most policy observers expect the next farm bill will be budget-neutral and written using only the current budget "baseline." No additional money is expected for new programs without corresponding offsets. Congress faces difficult choices about how much total support to provide agricultural conservation, and how to allocate it among competing programs. A main justification for the large funding increase in the 2002 farm bill was to respond to a large backlog of producer demand that had been documented during the farm bill debate. Despite this increase in funding, the number of pending applications continues to exceed the amount of available funding (see Table 3 ). Although this gap now constitutes a smaller portion of applications, it is still an issue for many producers who seek environmental assistance and are continuously denied funding due to budgetary constraints. Many conservation groups worry that this could deter producers from applying and enrolling in the program. This issue will likely intensify if annual appropriations continue to reduce actual funding or if funding is reduced to offset additional funding for other programs. One reason why higher funding has not resulted in the elimination of the backlog is that the average contract size has grown since the 2002 farm bill. The average cost of an EQIP contract has more than doubled from almost $7,800 per contract prior to 2002 to over $16,000 per contract since 2002. One reason for this increase could be the higher funding cap established in the 2002 farm bill that allowed large-scale livestock operations to fund waste management facilities and allowed the installation of more expensive conservation practices. According to NRCS, between 1997 and 2007, the top practice by cumulative cost-share dollars was waste storage facilities, which totaled $486 million over the ten-year period. Though the 2008 farm bill lowered the payment limitation to $300,000 over any six-year period, the average contract is still considerably less ($16,000) than the limit. This will continue to be an issue as it is widely believed that the lower payment limitation will not greatly reduce the number of unfunded applications. Section 2502 of the 2008 farm bill made certain conservation activities involving the development of plans eligible for financial assistance under EQIP. Traditionally, technical assistance provides the planning, design, and technical consultation functions, while financial assistance offers monetary support for implementation capacity. NRCS refers to these plans as conservation activity plans (CAPs). While the 2008 farm bill amendment specifically includes comprehensive nutrient management planning (CNMP), NRCS has expanded the list of eligible CAPs to include forestry management, energy management, and pollinator habitat, among others. CAPs are performed by third-party technical assistance providers, referred to as technical service providers (TSP), and must meet NRCS standards and requirements. EQIP payments are made to the EQIP participant, who then reimburses the TSP for the CAP. NRCS continues to provide the majority of technical assistance for EQIP, including development of plans eligible under CAPs; however, EQIP continues to serve as the primary program for funding third-party technical assistance activities. The use of CAPs and other third-party services could be a way to free up NRCS staff time for other EQIP activities. On the other hand, the additional administrative measures required to write CAP contracts could offset time savings devoted to technical assistance. This issue could be debated in the next farm bill as CAPs and their implementation are reviewed. From available records, NRCS can provide considerable information about EQIP contracts, including which conservation practices are being installed, and their design and maintenance standards. However, until recently, relatively little was known about what is actually being accomplished through EQIP contracts. To begin filling this void, NRCS has compiled information about various resource concerns that EQIP addresses. These data show that in 2007, the primary resource concerns addressed through EQIP spending included water quality (20%), plant condition (17%), soil erosion (16%), water quantity (13%), domestic animals (12%), soil condition (10%), wildlife and fish (7%), and air quality (5%). Little is known, however, about how enduring those conservation practices might be after the contract ends. Among the questions that NRCS is trying to address for all of its conservation activities, including EQIP, are how to (1) evaluate performance, (2) measure environmental changes, (3) evaluate cost-effectiveness, (4) determine which methods to use to identify environmental effects, and (5) determine which types of data should be collected to measure output. NRCS initiated a national review in 2003, called the Conservation Effects Assessment Project (CEAP), in an attempt to develop better answers to all these questions. CEAP was originally intended to account for the benefits from the 2002 farm bill's substantial increase in conservation program funding through the scientific understanding of the effects of conservation practices at the watershed scale. Only a few initial results are currently available based on cropland in the upper Mississippi River basin and the Chesapeake Bay watershed. Initial findings show beneficial effects from conservation practices as well as additional application needs. EQIP offers financial assistance to producers to implement many of the conservation practices analyzed in the CEAP assessment; however, the assessment does not correlate the effects and benefits of conservation practice to any one federal program. | The Environmental Quality Incentives Program (EQIP) is a voluntary program that provides farmers with financial and technical assistance to plan and implement soil and water conservation practices. EQIP is the largest agriculture conservation financial assistance program for working lands. EQIP was first authorized in 1996 and was most recently revised by Section 2501 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill). It is a mandatory spending program (i.e., not subject to annual appropriations) and is administered by the U.S. Department of Agriculture's (USDA's) Natural Resources Conservation Service (NRCS). Funding is currently authorized to grow to $1.75 billion in FY2012. Eligible land includes cropland, rangeland, pasture, non-industrial private forestland, and other land on which resource concerns related to agricultural production could be addressed through an EQIP contract. With the 112th Congress's emphasis on reducing federal spending, EQIP could face tighter budget constraints with a potential reduction in mandatory funding levels and a continuing backlog of unfunded applications. Congress will also likely consider reauthorization of the 2008 farm bill because much of the current law, including EQIP, expires in 2012. |
Belarusian President Aleksandr Lukashenko snuffed out Belarus's modest progress toward democracy and a free market economy and created an authoritarian regime shortly after being elected as president in 1994. His regime is in rhetoric and policies a throwback to the Soviet era. Those advocating a stronger U.S. role in trying to bring democratic change to Belarus say that the country is important to the United States because Belarus is an obstacle to the U.S. goal of making Europe "whole and free." Another concern is Belarus's support for pariah regimes, including through arms sales. Relations between Belarus and the United States have been particularly poor since Lukashenko's brutal repression of the opposition after fraudulent presidential elections in December 2010. In response, the EU and United States have imposed strengthened sanctions against key Belarusian leaders, businessmen, and firms. Russia has taken advantage of this situation to increase its political and economic influence in Belarus. Lukashenko was first elected as president of Belarus in 1994 on a populist, anti-corruption platform. He dominates the Belarusian political scene, controlling the parliament, government, security services, and judiciary through a large presidential administration and substantial extra-budgetary resources. He has reduced potential threats from within his regime by frequently removing or transferring officials at all levels, often claiming they are incompetent or corrupt. Former regime figures who move into opposition are singled out for particularly harsh punishment. His tight control over an unreformed economy has kept the Belarusian business elite dependent on him. The Lukashenko regime also controls almost all of the media, which it uses to burnish Lukashenko's image and attack real and imagined adversaries. Lukashenko is known for his political unpredictability and for making rambling and rhetorically colorful public statements. Opposition groups and leaders in Belarus have so far posed little threat to the Lukashenko regime. The opposition's weakness is in part due to the regime's repression, but divisions over ideology and the conflicting personal ambitions of its leaders have also been factors. Lukashenko also appears to have succeeded in convincing some Belarusians, especially in the countryside, that his leadership has provided them with stable (if very modest) living standards and public order, in contrast to the vast disparities in wealth and rampant criminality prevalent in neighboring Russia. The State Department's Country Reports on Human Rights for 2011 said the regime harassed, arrested, and beat opposition figures. The regime forced the closure of independent media and non-governmental organizations (NGOs) dealing with political issues and human rights. The regime sharply restricted activities of independent trade unions and some religious groups. In January 2012, a law went into effect that strengthened the government's ability to control Internet use in Belarus. Belarus held presidential elections in December 2010. According to monitors from the Organization for Security and Cooperation in Europe (OSCE), the elections failed to meet international standards for free and fair elections. The observers noted a few positive trends, including limited but uncensored television airtime for opposition candidates. However, the observers also detailed serious shortcomings in the vote. The government used its administrative resources to support Lukashenko's candidacy and broadcast media (entirely state-owned) focused overwhelmingly on positive coverage of Lukashenko. The vote count was conducted in a non-transparent way, with observers assessing almost half of observed vote counts as "bad or very bad." According to the Belarusian Central Election Commission, Lukashenko was reelected with nearly 80% of the vote. His top opponent, Andrei Sannikau, purportedly won under 3%. The government responded to an election-night demonstration against electoral fraud in central Minsk with the arrest (and in several cases vicious beatings) of seven of the nine opposition candidates as well as the detention of over 700 other persons, including activists, journalists, and civil society representatives. Since early 2011, Lukashenko has released most, but not all, of the political prisoners. In April 2012, Lukashenko released Sannikau and Dzmitry Bandarenka, his chief campaign aide. In order to secure their release, Sannikau, Bandarenka, and others had to request pardons from Lukashenko and apologize for their alleged misdeeds. About a dozen persons are still held as political prisoners by the Belarusian government. Belarus held parliamentary elections in September 2012. As expected, supporters of the regime won all 110 seats in the parliament. Two opposition political parties boycotted the vote, and two others withdrew before election day, citing the unfairness of the electoral process. A team of observers led by the OSCE concluded that the elections did not meet international standards due to such issues as the imprisonment of some political leaders, the lack of impartiality of the central electoral commission, and the lack of transparency of the vote count. Belarus's economy is the most unreformed in Europe, according to most observers. Nevertheless, until the global economic crisis, Belarus's economy appeared to be doing quite well, at least on paper. Belarus's economy has been buoyed by exports to a growing Russia, and, until recently, Belarusian refineries have profited from refining cheap Russian crude oil and exporting it to Western countries. Russia has also provided Belarus with cheap natural gas. In addition, many experts doubt that Belarusian statistics are entirely accurate. Growth in industrial production is made possible by subsidies to ailing state firms. This economic system keeps official unemployment very low. Wage and pension increases are mandated by the government. Some prices are controlled. Collective farms are also propped up by subsidies, although private plots held by peasants are more productive. For much of his reign, Lukashenko's policies have provided a low but stable standard of living for many Belarusians and are a key reason for the public support that he has enjoyed, particularly among older and rurally based Belarusians. State control of most of the economy can also provide a way of pressuring potential opponents into silence. Most persons in Belarus work at state-owned enterprises on one-year labor contacts, which the government can decline to renew if an employee displeases it. The global economic crisis caused a slowdown in Belarus's economic growth. In 2008, real Gross Domestic Product (GDP) increased by a reported 10%, but growth slowed to 0.2% in 2009. Reported GDP growth surged again in 2010 to 7.6%. Belarus's foreign exchange reserves dwindled as the government tried to defend the Belarusian ruble, leading it to request and receive a $2 billion stabilization loan from Russia. Belarus received $3.5 billion in loans from the International Monetary Fund in 2009-2010. Belarus also received loans from the World Bank. Belarus suffered another economic crisis in 2011 due to rapidly dwindling foreign exchange reserves, in part as a result of government overspending prior to the December 2010 election. The government sought an IMF loan, which was refused due to Belarus's failure to agree to structural economic reforms. Instead, in October 2011, the government allowed the Belarusian ruble to float freely, which resulted in an immediate devaluation of the Belarusian currency by more than 50%. This move, plus loans from Russia and asset sales to Russian firms, helped to stabilize Belarus's external position, at least temporarily. The devaluation caused a deterioration of living standards for many Belarusians, who depend on imports, which are now more expensive, for high-quality consumer goods. It has also added to Belarus's problem with hyperinflation. Average consumer price inflation jumped from 7.8% in 2010 to an estimated 68% in 2012. Real GDP growth slowed to 5.3% in 2011 and to an estimated 2% in 2012. Some experts believe that the Belarusian economy could suffer yet another crisis in 2013, including further devaluation of the Belarusian ruble. Belarus continues to increase its external indebtedness in an effort to prop up its unreformed economy and service existing debts. In 2005, Belarus's external debt was $589 million. In January 2013, it was $12 billion. Given that it is unlikely to receive an IMF loan due to its failure to undertake comprehensive reforms, the Belarusian government has sought high-interest loans from the Eurobond market. The government has also borrowed heavily in Belarus's internal debt market. Belarus has close historical and cultural ties with Russia. The two countries also have close economic relations. Belarus is a member of the Eurasian Economic Community (also known as EurAsEC), also which includes Russia, Kazakhstan, Tajikistan, and Kyrgyzstan. Belarus is also a member of a customs union within EurAsEC, with Russian and Kazakhstan. These countries have started the process of creating a single Economic Space, or common market. Russian policy toward Belarus appears to be focused on gaining control of Belarus's key economic assets, while limiting subsidies to the country. After the collapse of the Soviet Union, Russia's state-owned natural gas firm Gazprom supplied Belarus with natural gas at Russian domestic prices, providing a large indirect subsidy to the Lukashenko regime. About 20% of Russia's natural gas exports and about half of its oil exports to Europe flow through Belarusian pipelines. In 2006, Gazprom pressured Belarus to sell to it half of the Beltransgaz natural gas firm (which controls the pipelines and other infrastructure on Belarusian territory) and other key Belarusian energy firms, or face the quadrupling of the price Belarus would pay for Russian natural gas. Belarus would face a cut-off in supplies, if it did not agree to pay the higher price. Belarus agreed to sell Gazprom a 50% majority stake in stages between 2007 and 2010. In addition to receiving cheap natural gas, Belarus has also benefitted from inexpensive and duty-free crude oil supplies that are processed at Belarusian refineries. Belarus then sold the bulk of these refined products to EU countries at a hefty profit. In 2007, Russia started reducing this subsidy to the Belarusian economy, as well. To hedge his bets, Lukashenko has tried to diversify Belarus's energy supplies through imports from such countries as Venezuela, Kazakhstan, Iran, and Azerbaijan, as well as development of coal reserves and a nuclear power plant within Belarus. Lukashenko has pointed to close military cooperation between Russia and Belarus, and Belarus's geographical position between NATO and Russia as reasons for Russia to subsidize energy supplies to Belarus. Belarus is a member of the Russian-dominated Collective Security Treaty Organization (CSTO), which Russia hopes to make into a counterweight to NATO influence. In 2009, Belarus announced that it would join the CSTO rapid reaction force. However, Belarus continues to stress that it will not deploy its forces outside its borders. Russian and Belarusian air defenses are closely integrated. Russia has supplied Belarus with up-to-date air defense equipment. A regional task force of Belarusian and Russian ground forces conducts joint military exercises. There are a small number of Russian troops in Belarus, in part to run a naval radio station and an early warning radar station. Although the Kremlin's most loyal ally, Lukashenko has shown some independence from Moscow's foreign policy. Belarus has refrained from following Russia's lead in recognizing the Georgian breakaway regions of South Ossetia and Abkhazia as independent countries, despite continuing pressure from Moscow to do so. Belarus provided asylum to former Kyrgyzstan President Kurmanbek Bakiyev, whose 2010 ouster was supported by Moscow. Lukashenko has also played host to Georgian President and Kremlin antagonist Mikheil Shaakashvili. Tensions between Moscow and Minsk increased as a result of attacks on Lukashenko in government-controlled Russian media in the second half of 2010. However, just days before the December 2010 presidential election the two sides signed an agreement on oil export duties that Minsk claimed was worth an estimated $4 billion a year to Belarus. Lukashenko agreed that Belarus would further integrate its economy with Russia's in a regional "Single Economic Space." In contrast to U.S. and EU condemnation of what was widely perceived as a fraudulent election and of an ensuing crackdown against the opposition, Russian President Medvedev congratulated Lukashenko on his "reelection." Russia has taken advantage of Minsk's international isolation since the presidential election and its foreign exchange shortfall to gain control of key Belarusian economic assets. In June 2011, Russia, through the Eurasian Economic Community, granted Belarus a $3 billion stabilization loan. Release of the loan tranches is conditioned on the privatization of Belarusian companies. In November 2011, Belarus agreed to sell its remaining portion of Beltransgaz to Gazprom, giving the Russian state-owned company a 100% share. In exchange, Belarus received a substantial reduction in the price charged by Gazprom for natural gas supplies. Russia also cut the price of oil supplies to Belarus. In addition, Belarus received a $1 billion loan from the Russian Sberbank and the Eurasian Development Bank. As collateral, Belarus had to put up 35% of the key Belarusian fertilizer company Belaruskali. Russia will likely continue to exercise substantial economic leverage over Belarus. Russia has threatened to cut crude oil supplies to Belarusian refineries in 2013 over what appeared to be a Belarusian attempt in 2012 to evade export duties on the products of its refineries by mislabeling them as solvents. Russian efforts to secure control of key Belarusian assets, such as Belaruskali and oil refineries, are likely. Belarus's cooperation with NATO has been limited in most respects. Belarus strongly opposed NATO enlargement to include neighboring central European countries. Lukashenko continues to claim that NATO represents a military threat to Belarus. However, Belarus is a member of NATO's Partnership for Peace (PFP) program, and participates in some PFP exercises. More importantly, since January 2011, Belarus has cooperated with the United States and NATO on the Northern Distribution Network, a supply line that runs from Baltic ports to rail lines in Belarus and other countries to NATO-led troops in Afghanistan. Belarus-EU ties (and to some extent U.S.-Belarus relations) have followed a familiar pattern—the Lukashenko regime conducts fraudulent elections and engages in repressive actions against opposition figures. The EU responds with sanctions against persons responsible for those actions, but refrains from sanctions against Belarus as a whole. Lukashenko, perhaps seeking international loans and feeling particularly strong pressure from Russia, liberates political prisoners, while keeping the fundamentally undemocratic nature of the regime intact. The EU responds by suspending sanctions and enhancing contacts with the government. Another cycle of repression ensues, often after the next fraudulent election, and the cycle repeats itself. The most recent thaw in EU-Belarus relations occurred in 2008-2010. This period ended after the fraudulent December 19, 2010, elections and the ensuing repression of the opposition. On January 31, 2011, European Union foreign ministers agreed to re-implement visa bans against top Belarusian leaders, which had been imposed in 2004 and 2006 and suspended in 2008. In addition, they agreed to impose visa bans and asset freezes on those responsible for the fraudulent December 2010 election and the ensuing crackdown on the opposition and civil society. The ministers said that the sanctions would be lifted only after the release and "rehabilitation" of those persons detained on political grounds. They added that in addition to this, "further reforms of the Electoral Code, the freedom of expression and of the media, the freedom of assembly and association, would pave the way for the lifting of the restrictive measures." The ministers said the EU would provide "urgent support to those repressed and detained on political grounds and their families" and strengthen other aid to civil society, "targeting in particular NGOs and students." The statement said the EU looked forward to opening talks with Belarus for "visa facilitation" to permit more ordinary Belarusians to visit the EU. In the meantime, the ministers expressed support for EU member states' waiver or reduction of visa fees for Belarusians. The EU statement stated that the EU remains committed to dialogue with the Belarusian authorities and to the Eastern Partnership program, but that "deepening" EU relations with Belarus "is conditional on progress towards respect by the Belarusian authorities for the principles of democracy, the rule of law and human rights." In 2011, it seemed that another cycle in the EU-Belarus relationship would begin as the regime liberated many of its political prisoners. However, others remained in captivity and additional arrests and persecution of the opposition took place. In addition, those imprisoned were reportedly subjected to ill-treatment and torture. In response, the EU has added names to its list of persons subject to a visa ban and asset freeze on several occasions, most recently in March 2012. The list contains not only senior Belarusian leaders responsible for repression, but also wealthy businessmen (often referred to as "oligarchs") with close connections to the regime. The EU's sanctions list contains 243 persons. In addition, 32 firms associated with the regime have had their assets frozen by the EU. In addition to Lukashenko, the list of persons includes current Belarusian Foreign Minister Vladimir Makei. Some analysts have pointed out Lukashenko has found ways to pressure the EU to not push sanctions too far. For example, press reports claimed that during talks over adding certain Belarusian oligarchs to the sanctions list in early 2012, Slovenia, Latvia, and other countries were hesitant to include some names on the list, because of the investments of the oligarchs in their countries. In addition, Belarusian officials have hinted that, if EU pressure is too intense, Belarusian border guards could focus more on holding up the transit of EU exports through Belarus, rather than intercepting asylum-seekers seeking to enter EU territory. In November 2012 Lukashenko announced that Belarus (which is landlocked) will use Russian ports for its exports rather than ports in the Baltic States, as it does now. Such a move would have a significant negative impact on the economies of Lithuania and Latvia. Lukashenko has also barred opposition figures from attending conferences in the EU, in retaliation for visa sanctions against his officials and supporters. Perhaps for the same reason, the regime has declined to agree to an accord with the EU on visa facilitation for ordinary Belarusians. But while the lack of an agreement means the EU visa process remains expensive and burdensome, in 2011 Belarusians nevertheless received far more "Schengen" visas (permitting travel to 25 countries, including most but not all EU countries) on a per capita basis than any other country in the world. Poland and Lithuania have been particularly generous in providing visas to Belarusians, some of whom visit to buy high-quality consumer goods in their countries. The EU allocated a total of 19.3 million Euro ($25.5 million) for aid for civil society and independent media in Belarus between 2011 and 2013. In March 2012, the EU launched a dialogue with Belarusian civil society and the opposition on the reforms needed to modernize Belarus and to improve EU-Belarusian cooperation. The United States recognized independent Belarus on December 25, 1991. U.S. officials hailed the removal of all nuclear weapons from Belarus in November 1996. However, U.S.-Belarus relations deteriorated as Lukashenko become increasingly authoritarian. In 1997, a State Department spokesman announced a policy of "selective engagement" with Belarus on issues of U.S. national interests and "very limited dealings" on other issues. In addition to U.S. opposition to Lukashenko's human rights violations, the United States has criticized Belarus's relations with rogue regimes, such as Iran and Venezuela. U.S. aid to Belarus has been meager. According to the FY2013 Congressional Budget Justification for Foreign Operations, in FY2011, the United States provided $13.864 million in aid for Belarus. In FY2012, Belarus was expected to receive $11 million in U.S. aid. For FY2013, the Administration requested $11 million in aid for Belarus. Over three-quarters of this aid is slated for strengthening democratic political parties, civil society, and independent media. U.S. aid funds exchange programs and education programs for Belarusian students. The U.S. assistance program also supports anti-trafficking efforts and the strengthening of small and medium-sized businesses in Belarus U.S. officials have noted that implementation of U.S. programs has been made difficult by the Lukashenko regime. The regime's harassment of NGOs, including by banning foreign aid to NGOs even remotely dealing with politics and jailing members of NGOs not registered with the authorities, has hindered the delivery of U.S. aid. The sharp reduction in the number of U.S. diplomats in Belarus forced by the Belarusian government has made monitoring and assessing program performance difficult. In concert with the EU, the United States has imposed a visa ban against Lukashenko and top Belarusian officials since 2004 for undermining democratic processes, violating human rights, and engaging in corruption. In addition, in November 2007 the United States froze the U.S. assets of the state-owned oil and petrochemicals firm Belneftekhim and prohibited U.S. persons or businesses from doing business with it. Belneftekhim makes chemical fertilizers and oil products. It accounts for 35% of Belarus's exports and over 30% of the country's industrial output. U.S. officials said the move was aimed at tightening financial sanctions against a massive conglomerate under the regime's control. However, the material impact of the sanctions was not expected to be great, given the company has only modest assets in the United States, and that the EU, the main market for Belneftekhim's products, has not imposed sanctions of its own on the firm. On March 6, 2008, the Administration issued a clarification on the Belneftekhim sanctions that said that the freezing of Belneftekhim's assets included the assets of any firms in which Belneftekhim owns a 50% or greater interest. Belarus interpreted the move as a tightening of the sanctions. Lukashenko responded by recalling Belarus's ambassador to the United States on March 7 and pressing for the removal of the U.S. Ambassador to Belarus, Karen Stewart. Ambassador Stewart left Minsk on March 12 for consultations in Washington. Belarus reduced the number of its diplomats in Washington to five persons, and demanded that the United States do the same. The United States complied with Belarus's request. The United States has not appointed a new Ambassador to Belarus. After this low point in U.S.-Belarusian ties, the United States appeared to attempt to improve relations, in line with the European Union's desire to engage Belarus by easing sanctions in exchange for small steps forward on democratization. In early September 2008, the United States suspended sanctions for six months on two Belneftekhim entities, while leaving sanctions on others. The move was a reward for the release of the last Belarusian political prisoners in August and an incentive to hold freer and fairer parliamentary elections on September 28. However, the overture to Belarus appeared to suffer a setback after Belarus's 2008 parliamentary elections, which the State Department said "fell significantly short" of international standards. It said that the United States would "maintain the dialogue" with the Belarusian government, but that better elections and a better human rights record would be needed before ties could improve "significantly." Despite Belarus's lack of significant progress on democratic reform, the United States extended the suspension of sanctions on the two Belneftekhim entities for additional six-month periods through November 2010. The U.S.-Belarus rapprochement continued in early December 2010, when Secretary of State Clinton and Belarusian Foreign Minister Sergei Martynov, meeting in Astana, Kazakhstan, announced that Belarus had agreed to eliminate its supply of highly enriched uranium (HEU) by the Nuclear Security Summit in March 2012 in Korea. In return, Belarus was to receive an invitation to that summit, as well as U.S. aid to help Belarus dispose of its HEU. The United States would continue to provide assistance for security upgrades at the Belarus Joint Institute for Power and Nuclear Research, where all of the HEU is kept. The United States also offered unspecified support for Belarus's desire to build a new civilian nuclear power plant. Finally, the two sides agreed that "enhanced respect for democracy and human rights in Belarus remains central to improving bilateral relations." Belarus's agreement to give up its HEU may have been part of an effort to secure better ties with the United States, given the importance with which the United States views nuclear proliferation. However, the positive impact of the HEU agreement on U.S.-Belarusian relations was sharply diminished by the December 19, 2010, presidential election debacle. In a statement released by the White House press secretary on December 20, the Administration said it strongly condemns the actions that the Government of Belarus has taken to undermine the democratic process and use disproportionate force against political activists, civil society representatives and journalists, and we call for the immediate release of all presidential candidates and the hundreds of protestors who were detained on December 19 and 20. The United States cannot accept as legitimate the results of the presidential election announced by the Belarusian Central Election Commission. The statement said that "the Belarusian government's actions are a clear step backwards on issues central to our relationship with Belarus." On January 31, 2011, in a move timed to coincide with a similar EU statement, the United States announced a package of measures in response to the situation in Belarus. The Administration re-imposed sanctions against Lakokraska OAO and Polotsk Steklovolokno OAO, the two key subsidiaries of Belneftekhim against which sanctions had previously been suspended. The statement also said the United States will "significantly" expand the number of Belarusian officials (and their families) subject to a visa ban to include those responsible for the fraudulent December 2010 election and the repression that followed. The United States would also increase the number of persons and entities subject to asset freezes. The statement said that the United States would increase its support to Belarusian civil society, independent media, and democratic political parties. The Administration said that the United States will review its policy based on whether Belarus takes certain actions, including "the immediate release of all detainees and the dropping of all charges associated with the crackdown; a halt to the harassment of civil society, independent media and the political opposition; and space for the free expression of political views, the development of a civil society, and freedom of the media." In August 2011, the United States imposed sanctions against four additional Belarusian state-owned enterprises: the Belshina tire factory; Grodno Azot, which manufactures fertilizer; Grodno Khimvolokno, a fiber manufacturer; and Naftan, a major oil refinery. All four companies are deemed to be controlled by Belneftekhim. In response to the U.S. announcement, Belarus suspended the elimination of its stock of highly enriched uranium, which it had undertaken as part of the December 2010 agreement with the United States. In September 2012, a State Department spokesperson said the Belarusian parliamentary elections "fell short of international standards and their conduct cannot be considered free or fair." The spokesperson added that "enhanced respect for democracy and human rights in Belarus, including the release and rehabilitation of all political prisoners, remains central to improving bilateral relations with the United States." In addition to sanctions against persons and firms for the regime's undemocratic actions, the United States has imposed sanctions on Belarusian firms on non-proliferation grounds. Most recently, in February 2013, the United States imposed sanctions on TM Services Limited and Scientific and Industrial Republic Unitary Enterprise (also known as DB Radar) for violating the Iran, North Korea, and Syria Non-Proliferation Act ( P.L. 109-353 ). The sanctions prohibit the U.S. government from working with these firms, including the sale of arms and granting of export licenses. The United States is concerned about human trafficking in Belarus. According to the State Department's 2012 Trafficking in Persons report, Belarus is a country of origin and transit for women and children trafficked for sexual exploitation. It is listed as a "Tier 2" Watch List country. This means that it does not meet minimum standards for the elimination of trafficking, and has not made significant efforts in the previous year to do so. There has been some debate among policy analysts in Belarus, the United States, and Europe about whether the current sanctions policy against Belarus is effective or even in some respects counterproductive. Supporters, including some Belarusian opposition leaders, credit them with being responsible for their liberation from prison. However, some Belarusian opposition figures also criticize the sanctions for being largely symbolic in character, given that they permit the regime to continue to do highly lucrative business in the EU and elsewhere. Some who favor increasing pressure on the Lukashenko regime call for sanctions on Belaruskali, a very large potash producer that is a mainstay of the Belarusian economy. On the other hand, experts in the United States and Europe who are concerned about Russian efforts to strengthen its sphere of influence in the region warn that by isolating Belarus, the EU and United States are playing into Moscow's hands, without achieving real gains on democratization. They call for a policy of greater engagement with Belarus. In the 112 th Congress, Members of Congress spoke out strongly against human rights abuses in Belarus in congressional hearings, floor statements, speeches, and legislation. On January 26, 2011, Representative Smith introduced H.R. 515 , the Belarus Democracy and Human Rights Act of 2011. On July 6, 2011, the House agreed to the bill by voice vote. The Senate passed an amended version of H.R. 515 on December 14. The House agreed to the Senate version by voice vote on December 20. President Obama signed the bill into law on January 3 ( P.L. 112-82 ). The law reauthorizes the Belarus Democracy Act (BDA) of 2004. It updates the provisions of the legislation to sharply condemn the fraudulent December 2010 presidential election and the ensuing crackdown. It expresses support for continuing radio, television, and Internet broadcasting to Belarus by Radio Free Europe/Radio Liberty, the Voice of America, European Radio for Belarus, and Belsat. The legislation updates the BDA by including the post-December 2010 events in the section of the earlier law that expressed support for U.S. sanctions against Belarus. These include a prohibition on U.S. financial assistance to the Belarusian government and expressing the sense of the Congress that the United States should oppose multilateral financial aid to Belarus. These conditions are to remain in place until the President determines Belarus meets specific democratic and human rights criteria. The section expresses the sense of the Congress that the President should coordinate with European countries to take similar measures against Belarus. The BDA also required the President to report within 90 days and every year thereafter on the sale of weapons or weapons-related assistance to regimes supporting terrorism, and on the personal wealth of Lukashenko and other senior Belarusian leaders. P.L. 112-82 expands that report to include weapons technology and training, as well as support from foreign governments or organizations for the surveillance or censorship of the Internet. The law also says it is the policy of the United States to call on the International Ice Hockey Federation to suspend its plan to hold the 2014 International World Ice Hockey championship in Minsk until the government of Belarus releases all political prisoners. The move would be a serious blow to Lukashenko personally, as he is known to be an avid hockey fan. On March 17, 2011, the Senate approved S.Res. 105 by unanimous consent. S.Res. 105 sharply condemned the conduct of the December 2010 presidential vote, applauded the sanctions imposed by the United States and EU on the Lukashenko regime and their commitment to provide assistance to civil society in Belarus, and called for the 2014 World Hockey Championship not to be held in Belarus unless all political prisoners are released. | Belarusian President Aleksandr Lukashenko snuffed out Belarus's modest progress toward democracy and a free market economy in the early 1990s and created an authoritarian, Soviet-style regime. Belarus has close historical and cultural ties to Russia. Russian policy toward Belarus appears to be focused on gaining control of Belarus's key economic assets while reducing the costs of subsidizing the Lukashenko regime. For many years, the United States has limited ties to the regime while providing modest support to pro-democracy organizations in Belarus. The United States and the European Union also imposed sanctions on Belarusian leaders. In March 2008, Belarus withdrew its ambassador from Washington and forced the United States to recall its ambassador from Minsk, in response to what Belarus perceived as a tightening of U.S. sanctions against Belneftekhim, the state-owned petrochemicals firm. Belarus also limited the number of U.S. diplomats in Belarus to five persons. From 2008 to 2010, the United States and European Union suspended some sanctions in exchange for very modest improvements on human rights issues. This policy suffered a setback in December 2010, when Belarus held presidential elections that observers from the OSCE viewed as falling far short of international standards. Moreover, in response to an election-night demonstration against electoral fraud in a square in central Minsk, the Lukashenko regime arrested over 700 persons, including most of his opponents in the election, as well as activists, journalists, and civil society representatives. Some of them were viciously beaten by police. In January 2011, the EU and the United States imposed enhanced visa and financial sanctions against top Belarusian officials. The United States re-imposed sanctions against two key subsidiaries of Belneftekhim. They also pledged enhanced support for Belarusian pro-democracy and civil society groups. Although Lukashenko has released most of the political prisoners, about a dozen remain imprisoned. In response, the United States and the EU have imposed sanctions against additional prominent Belarusian officials, and businessmen and firms associated with them. Congress has responded to the situation in Belarus with legislation. In January 2012, President Obama signed the Belarus Democracy and Human Rights Act. The legislation reauthorized the Belarus Democracy Act of 2004. It updated the provisions of the legislation to include the fraudulent December 2010 election and the ensuing crackdown. It also updated the report the Administration is required to file to include assistance provided by other governments or organizations to assist the Belarusian government's efforts to control the Internet. The legislation stated that it is the policy of the United States to call on the International Ice Hockey Federation to not hold the 2014 International World Ice Hockey championship in Minsk unless the government of Belarus releases all political prisoners. The move would be a serious blow to Lukashenko personally, as he is known to be an avid hockey fan. |
The U.S. Department of Agriculture (USDA) administers a number of agricultural conservation programs that assist private landowners with natural resource concerns. These include working land programs, land retirement and easement programs, watershed programs, emergency programs, technical assistance, and other programs. The number and funding levels for agricultural conservation programs have steadily increased over the past 60 years. Early conservation efforts undertaken by Congress were focused on reducing high levels of soil erosion and providing water to agriculture in quantities and quality that enhanced farm production. By the early 1980s, however, concern was growing that these programs were not adequately dealing with environmental problems resulting from agricultural activities (especially off the farm). In 1985, conservation policy took a new direction when Congress passed the Food Security Act of 1985 (1985 farm bill, P.L. 99-198 ), which established the first conservation programs designed to deal with environmental issues resulting from agricultural activities. Provisions enacted in subsequent farm bills, including in 1990, 1996, 2002, 2008, and 2014, reflect a rapid evolution of the conservation agenda, including the growing influence of environmentalists and other nonagricultural interests in the formulation of conservation policy, and a recognition that agriculture was not treated like other business sectors in many environmental laws. Congress also began funding many of these new programs through mandatory spending for the first time, using the borrowing authority of USDA's Commodity Credit Corporation (CCC) as the funding mechanism instead of annual appropriations. In addition to the original soil erosion and water quality and quantity issues, the conservation agenda has continued to expand to address other natural resource concerns, such as wildlife habitat, air quality, wetlands restoration and protection, energy efficiency, and sustainable agriculture. Lead agricultural conservation agencies within USDA are the Natural Resources Conservation Service (NRCS), which provides technical assistance and administers most conservation programs, and the Farm Service Agency (FSA), which administers the Conservation Reserve Program (CRP). These agencies are supported by others in USDA that supply research and educational assistance, including the Agricultural Research Service (ARS), the Economic Research Service (ERS), the National Institute of Food and Agriculture (NIFA), and the Forest Service (FS). In addition, agricultural conservation programs involve a large array of partners, including other federal agencies, state and local governments, and private organizations, among others, who provide funds, expertise, and other forms of assistance to further agricultural conservation efforts. USDA provides technical and financial assistance to attract interest and encourage participation in conservation programs. Participation in all USDA conservation programs is voluntary. These programs protect soil, water, wildlife, and other natural resources on privately owned agricultural lands to limit environmental impacts of production activities both on and off the farm, while maintaining or improving production of food and fiber. Some of these programs center on improving or restoring resources that have been degraded, while others seek to create conditions with the objective of limiting degradation in the future. Though programs in this report are listed alphabetically, agricultural conservation programs can be grouped into the following categories based on similarities: working land programs, land retirement and easement programs, watershed programs, emergency programs, compliance, technical assistance, and other programs and overarching provisions. The majority of conservation programs are funded through USDA's Commodity Credit Corporation (CCC) as mandatory spending. Congress authorizes mandatory programs at specified funding levels (or acreage enrollment levels for CRP and CSP) for multiple years, typically through omnibus legislation such as the farm bill. Mandatory programs are funded at these levels unless Congress limits funding to a lower amount through the appropriations or legislative process (or puts a ceiling on acreage that can be enrolled). Discretionary programs are funded each year through the annual appropriations process. Despite a steady increase in mandatory funding authority, select conservation programs have been reduced or capped through annual appropriation acts since FY2003. Many of these spending reductions were at the request of the Administration. The mix of programs and amount of reductions vary from year to year. Some programs, such as the CRP, have not been reduced by appropriators in recent years, while others, such as EQIP, have been repeatedly reduced below authorized levels. Authorized mandatory funding for conservation programs has been reduced by a total of more than $4 billion over the past 10 years. FY2018 marks the first time in 15 years that an appropriations act does not reduce mandatory conservation program funding. Sequestration has also had an effect on conservation programs. Sequestration is a process of automatic, largely across-the-board reductions that permanently cancel mandatory and/or discretionary budget authority to enforce statutory budget goals. Discretionary accounts have avoided sequestration in recent years through adjustments to spending limits, although sequestration continues on mandatory accounts. Most all mandatory conservation programs were subject to sequestration in FY2014 through FY2018. Even with sequestration and appropriations act reductions, total annual mandatory funding for conservation programs has grown from a total of $3.9 billion in FY2008 to over $5 billion in FY2018. Before the 1985 farm bill, few conservation programs existed, and only two would be considered large by today's standards. In contrast, leading up to the debate on the 2014 farm bill, there were over 20 distinct conservation programs with total annual spending greater than $5 billion. The differences and number of these programs created general confusion about the purpose, participation, and policies of the programs. Discussion about simplifying or consolidating conservation programs to reduce overlap and duplication, and to generate savings, continued for a number of years. The Agricultural Act of 2014 ( P.L. 113-79 , 2014 farm bill), contained several program consolidation measures, including the repeal of 12 active and inactive programs, the creation of two new programs, and the merging of two programs into existing ones. A number of conservation programs were repealed by the 2014 farm bill or have gone unfunded by Congress in recent years. Table 1 lists these programs and the most recent congressional action taken. The tabular presentation that follows provides basic information covering each of the USDA agricultural conservation programs, including administering agency or agencies within USDA; brief program description; major amendments to the program in the Agricultural Act of 2014 ( P.L. 113-79 ), commonly referred to as the 2014 farm bill; national scope and availability, including participation levels and acres enrolled; states with the highest level of funds obligated or acres enrolled; volume of application backlog or public interest in each program; authorized funding levels, whether mandatory spending or discretionary appropriations, and any funding restrictions; FY2018 funding level in the Consolidated Appropriations Act of 2018 ( P.L. 115-124 ), or, if applicable, the authorized level in the Agricultural Act of 2014 (sequestration and carryover not included unless noted); FY2019 funding level requested by the Administration (sequestration and carryover included where known); statutory authority, recent amendments, and U.S. Code reference; expiration date of program authority unless permanently authorized; and program's website link. Information for the following tables is drawn from agency budget presentations, explanatory notes, and websites; written responses to questions published each year in hearing records of the Agriculture Appropriations Subcommittees of the House and Senate Appropriations Committees; and spending estimates from the Congressional Budget Office. Further information about these programs may be found on the NRCS website at http://www.nrcs.usda.gov and on the "conservation programs" page of the FSA website at http://www.fsa.usda.gov . | The Natural Resources Conservation Service (NRCS) and the Farm Service Agency (FSA) in the U.S. Department of Agriculture (USDA) currently administer 20 programs and subprograms that are directly or indirectly available to assist producers and landowners who wish to practice conservation on agricultural lands. The differences and number of these programs have created general confusion about the purpose, participation, and policies of the programs. While recent consolidation efforts removed some duplication, a large number of programs remain. The programs discussed in this report are as follows Agricultural Conservation Easement Program (ACEP) Agricultural Management Assistance (AMA) Conservation Operations (CO); Conservation Technical Assistance (CTA) Conservation Reserve Program (CRP) CRP—Conservation Reserve Enhancement Program (CREP) CRP—Farmable Wetland Program CRP—Grasslands Conservation Stewardship Program (CSP) Emergency Conservation Program (ECP) Emergency Forest Restoration Program (EFRP) Emergency Watershed Protection (EWP) Environmental Quality Incentives Program (EQIP) EQIP—Conservation Innovation Grants (CIG) Grassroots Source Water Protection Program Healthy Forests Reserve Program (HFRP) Regional Conservation Partnership Program (RCPP) Voluntary Public Access and Habitat Incentive Program Water Bank Program Watershed and Flood Prevention Operations Watershed Rehabilitation Program This tabular presentation provides basic information covering each of the programs. In each case, a brief program description is followed by information on major amendments in the Agricultural Act of 2014 (P.L. 113-79, 2014 farm bill), national scope and availability, states with the greatest participation, the backlog of applications or other measures of continuing interest, program funding authority, FY2018 funding, FY2019 Administration budget request, statutory authority, the authorization expiration date, and a link to the program's website. |
Over the past 20 years, a number of commissions and task forces have examined the process by which the President makes appointments to certain positions with the advice and consent of the Senate (PAS positions). These groups have issued reports criticizing, among other things, the length of the process, the level of ethical and political scrutiny to which potential appointees are subjected, the complexity and quantity of the paperwork that appointees are required to complete and submit, and the procedural and political complications associated with some nominations during the Senate confirmation process. Rigorous studies have associated these perceived shortcomings of the process with longer vacancies, confusion and embarrassment of nominees, and difficulty in attracting a broad range of well-qualified candidates to top policymaking positions. These reports and studies have recommended a variety of reforms that might be instituted by Congress, the President, and the Senate. In addition to procedural remedies to perceived problems, some of these reports have called for a reduction in the overall number of PAS positions. For example, in 1996, the Twentieth Century Fund Task Force on Presidential Appointments recommended that the number of all positions to which the President makes appointments, including those requiring Senate confirmation, be reduced by a third. The task force further suggested that "[a]ppointments to most advisory commissions and routine promotions of military officers, foreign service officers, [and] public health services officers, except those at the very highest ranks ... cease to be presidential appointments and cease to require Senate confirmation." In 2001, as part of a proposal aimed at improving the process for making appointments to PAS positions, the Presidential Appointee Initiative (PAI) at the Brookings Institution also called for a reduction in the number of such positions. Rather than identifying which positions might be shed, the PAI focused on which appointments should continue to come before the Senate. It recommended that "Senate confirmation only be required of appointments of judges, ambassadors, executive-level positions in the departments and agencies, and promotion of officers of the highest rank." It further suggested a reduction of political appointees by a third, such that PAS positions would be limited to "the assistant secretary level and above in each department and to the top three levels only in independent agencies." The 9/11 Commission Report included a recommendation that the "Senate should not require confirmation of [national security team] executive appointees below Executive Level 3," which could eliminate advice and consent requirements for, among other positions, most assistant secretaries with national security responsibilities. One of the co-chairs of the PAI advisory board, former Senator Nancy Kassebaum Baker, elaborated on the expected benefit of a reduction in the number of PAS positions for the conduct of Senate confirmation business: I am a strong supporter of advice and consent—I think we all are—but the application of the confirmation requirement now extends to many thousands of positions, only a relatively small number of which benefit from the full attention or careful scrutiny of the Senate. I think this [proposal] would lessen the time that would be taken. By the time one arranges hearings, the paperwork comes through, there are a number of appointments that then take up an enormous amount of time of the hearing committees. So we think that a simpler, more focused set of confirmation obligations can only yield a more efficient and more consistent performance of the Senate's confirmation responsibilities. Other observers have suggested that by reducing the number of PAS positions, the perceived backlog of appointments might be eased. In essence, critics of the presidential appointment process contend that appointments to PAS positions are taking too long, and that a reduction in the number of these positions would lead to a more efficient confirmation process in the Senate and faster appointments to the remaining positions that are subject to advice and consent. Interest in reforming the PAS appointment process and possibly reducing the number of PAS positions led to the enactment of a provision that directs each agency head to submit an advice and consent position reduction plan, with specified contents, to the President, the Senate Committee on Homeland Security and Governmental Affairs, and the House Committee on Government Reform. During the 107 th Congress, Senator Fred Thompson introduced the Presidential Appointments Improvement Act of 2001 ( S. 1811 ), which, among other provisions, would have required such plans. The bill was referred to the Committee on Governmental Affairs and subsequently reported to the full Senate, but it was not acted upon by the full Senate during the 107 th Congress. Early in the 108 th Congress, Senator George Voinovich introduced legislation similar to Senator Thompson's bill from the previous Congress, and Representative Jo Ann Davis introduced a companion bill in the House. The reduction plan provision was incorporated into the Intelligence Reform and Terrorism Prevention Act of 2004, which was enacted on December 17, 2004. Congress might elect to make these agency plans the basis for future decisions concerning the reduction of PAS positions. This report provides background information and analysis of issues concerning possible congressional action to reduce PAS positions. The report begins with a discussion of the constitutional framework that guides congressional determinations about appointment authority. The next four parts of the report describe the various executive leadership appointment methods used in the federal government, the PAS appointment process, and trends in the length of the appointment process and the number of PAS positions. This descriptive information is followed by an evaluation of the assertions, discussed above, that a reduction in the number of PAS positions would likely lead to a more efficient confirmation process in the Senate and a faster appointment overall process. The last third of the report identifies potential congressional approaches to reducing the number of PAS positions, and analyzes the institutional and political considerations associated with each of these options. As part of its system of checks and balances, the Constitution provides a general framework for the appointment of officers of the United States: [The President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments. In a 1976 opinion, the Comptroller General reasoned that this provision indicates that all officers of the United States are to be PAS positions unless Congress affirmatively delegates that authority. In other words, the default appointment process under the Constitution for such officers is presidential appointment with the advice and consent of the Senate. With regard to which positions would be considered "offices" under this clause, the Supreme Court has held that "any appointee exercising significant authority pursuant to the laws of the United States is an 'Officer of the United States,' and must, therefore, be appointed in the manner prescribed" above. Although the Appointments Clause sets the advice and consent process as the default method for filling offices of the United States, only certain such officers must be appointed by that method. At the discretion of Congress, "inferior" officers may be appointed either under the default process or by the President alone, the courts, or agency heads. A clear line between principal and inferior officers has not been established, but guidance of the Justice Department's Office of Legal Counsel (OLC) in this area suggests that "[i]n determining whether an officer may properly be characterized as inferior, … the most important issues are the extent of the officer's discretion to make autonomous policy choices and the location of the powers to supervise and to remove the officer." Although the distinctions between officers and non-officers and between principal and inferior officers, as currently understood, are imprecise, they provide guidance that might assist Congress in identifying (1) which positions are not offices, and therefore need not be filled in accordance with the Appointments Clause; and (2) which offices are inferior, and therefore may be filled through appointment by the President alone, the courts, or agency heads, at the discretion of Congress. Arguably, many positions that are, at present, filled through the advice and consent process would fall into one of these categories. For each case in either of these categories, Congress might elect to maintain the present arrangement for reasons not related to constitutional requirements, or to provide for a different method of appointment. As the previous section indicates, under the Constitution, presidential appointment with the advice and consent of the Senate is just one of the ways in which officers of the United States may be appointed. In the executive branch, officers are appointed by the President, with or without Senate confirmation, or by the department or agency head. Some appointments, referred to as political appointments, are made at the discretion of the appointing authority, that is, the President, agency head, or court. Other appointments, referred to as career or competitive appointments, are made through a competitive process. The executive leadership of the federal bureaucracy consists of between 9,000 and 10,000 individuals. Of that number, approximately 3,500 are political appointees, often supporters of the President or party loyalists, and the balance are career members of the Senior Executive Service (SES). The political positions fall into four categories: PAS, presidential appointments not requiring confirmation (PA positions), noncareer SES, and Schedule C positions. Each of these categories is discussed below. If Congress removes a position from PAS status, it may continue the position, or its functions, as another kind of position. Congress may assign appointment authority to the President alone or direct that the position be filled by a member of the SES. If Congress is silent on the matter, agencies may create SES or Schedule C positions to carry out the particular functions. Each year the President submits more than 20,000 nominations to the Senate. Although these nominations include those to the highest unelected policymaking positions in the federal government, the great majority are routine armed forces officer appointments. The nominations also include large groups of presidential appointments to positions in the Coast Guard, the Foreign Service, the Public Health Service, and the National Oceanic and Atmospheric Administration (NOAA) officer corps. Nominations to positions in these groups are often submitted and considered en bloc . A smaller portion of the submissions to the Senate each year comprises nominations to high-level positions in the executive, legislative, and judicial branches. These include: more than 350 full-time positions in the executive departments; more than 150 full-time positions on regulatory and other collegial boards and commissions; more than 100 full-time positions in independent and other agencies; 674 district court judgeships; 179 circuit court judgeships; 93 U.S. attorney positions; 94 U.S. marshal positions; more than 150 ambassadors; and over 400 part-time positions in the executive branch. The persons filling these PAS positions are generally considered to be the top policy decision makers in the federal government, having the responsibility to implement statutes. Federal law specifies which positions must be filled this way. The nomination and confirmation process for PAS appointments is discussed below under " IV. The Appointment Process for PAS Positions ." Three other types of appointments are used to staff most of the other policymaking positions in the federal bureaucracy: PA and Schedule C positions, which are political; and SES positions, some of which are political and some of which are career. Approximately 125 full-time positions government-wide are PA positions. PA positions are rare in programmatic agencies; they are generally found in the White House Office and filled by persons who directly staff and advise the President. The Department of Homeland Security is an exception in this regard. Under the provisions of the Homeland Security Act, at least six officers in the department are appointed by the President alone. The ranks of program managers are most commonly filled by members of the SES. The Senior Executive Service includes both career and noncareer positions. Congress sometimes specifies, in statute, that a particular official shall be a career member of the SES, but most SES positions are established by the agencies. Career SES appointees are appointed competitively. They have civil service status and have had their executive qualifications reviewed and approved by the Office of Personnel Management (OPM). Noncareer SES appointees are not appointed competitively. Agency heads make noncareer appointments with the authorization of OPM and the approval of the White House Office of Presidential Personnel, and noncareer appointees serve at the pleasure of the appointing official. They occupy top-level supervisory and management positions throughout the executive branch that typically involve developing, promoting, and directing Administration policies. Congress has provided, through statute, a formula for the allocation of SES positions to political appointees, and so indirectly determines their number. As of September 2004, 6,203 SES positions were filled by career appointees and 691 were filled by noncareer appointees. Schedule C positions are created under the authority of Part 6 of Title 5 of the Code of Federal Regulations . Schedule C appointees are excepted from the competitive service, and occupy mostly positions of confidential assistant to higher-level officials, as well as some policy-determining positions, throughout the executive branch. Recent Schedule C appointments include, for example, the Confidential Assistant to the Deputy Assistant Secretary for Export Promotion Services in the Department of Commerce and the Director of Cargo and Trade Policy for Border and Transportation Security in the Department of Homeland Security. As of September 2004, 1,526 officials had Schedule C appointments. Most Schedule C appointees are paid at rates at the upper grades of the General Schedule but are lower in the hierarchy than presidential appointees and SES appointees. More than 40% of Schedule C appointees were paid at or above the highest grade level as of September 2004. An agency must get the approval of OPM in order to establish a Schedule C position. Positions authorized by OPM are revoked automatically when an incumbent leaves office. The options discussed above include both political and career appointments. Decreasing the number of PAS positions while increasing the number of other political positions might be seen by some as an imperfect solution. Since the mid-1980s, a number of federal government observers, scholars, and elected officials have expressed concerns about the increasing number of political appointments in the federal bureaucracy. In January 2003, for example, the second National Commission on the Public Service, chaired by Paul Volcker, recommended a one-third reduction in such positions. In recent years, several legislative initiatives have proposed maintaining or reducing the number of political appointments. In the Department of Transportation annual appropriations measures for nine of the last 13 fiscal years, statutory limits have been placed on the number of such positions. The balance between political and career leadership positions reflects the value, in the American government, of both political accountability and neutral managerial competence. Whereas political appointments are typically made by the President and agency heads as a means of pursuing a particular policy agenda, careerists are usually hired under the civil service system on the basis of merit to execute the laws in an unbiased manner. Public administration scholars and practitioners have long recognized that this process of implementing laws is both political and administrative. Managerial expertise is necessary during implementation, but accountability for the way in which the will of elected officials is carried out is also an important component of sound public administration. If Congress changes the appointment method for some PAS positions, the functions of the positions are likely to be placed, either by Congress, the President, or the agency, in the hands of either a career or political appointee. Since the appointee will no longer need to be confirmed by the Senate, it could be argued that a political official might be less accountable to Congress than a PAS appointee would be. What about careerists? Some have argued that career officials tend to be allied with Congress, while others have suggested that they respond to the political environment as a whole. Consequently, Congress might opt to specify that certain functions be carried out by career officials. On the other hand, Congress might elect to provide the Administration with greater management flexibility by allowing more positions to be filled by the President alone or agency heads. The appointment process consists of three stages—selection and nomination, confirmation, and appointment. The President has the authority to make a nomination to a position requiring confirmation, but, when making his selection, he must consider how it will fare in the confirmation process. The Senate confirms most nominations, but, considering the history of nominations, no President can safely assume that his nominees will be approved routinely. Although the formal appointment process is the province of the President and the Senate, other concerned parties, such as interest groups and other elected officials, may attempt to influence the outcome at various stages by providing information to the decision makers and the media. This is particularly the case for higher profile positions. A number of steps are involved in the President's selection for most Senate-confirmed appointments. First, with the assistance of the White House Office of Presidential Personnel, the President selects a candidate for the position. Generally, the candidate then prepares and submits several forms: the "Public Financial Disclosure Report" (Standard Form (SF) 278), the "Questionnaire for National Security Positions" (SF 86), and the White House "Personal Data Statement Questionnaire." The Office of the Counsel to the President oversees the clearance process, which often includes background investigations conducted by the Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), Office of Government Ethics (OGE), and an ethics official for the agency to which the candidate is to be appointed. If conflicts are found during the background check, OGE and the agency ethics officer may work with the candidate to mitigate the conflicts. Once the Office of the Counsel has cleared the candidate, the nomination is ready to be submitted to the Senate. For positions located within a state (U.S. attorney, U.S. marshal, and U.S. district judge), the White House, by custom, normally consults with the Senators from that state (if they are from the same political party as the President) prior to a nomination. If neither Senator is from the President's party, he usually consults with party leaders from the state. Occasionally, the President solicits recommendations from Senators of the opposition party because of their positions in the Senate. The White House may also consult with Senators, particularly leaders of the committees of jurisdiction, regarding other nominations. These consultations provide an opportunity for individual Senators to play a role in the recruitment of qualified office holders, and they also provide Senators with valuable political capital. For these reasons, the Senate may be reluctant to give up its role in appointments to these positions. The selection and vetting stage is often the longest part of the appointment process (see discussion below under " V. Length of the Appointment Process "). There can be lengthy delays, particularly if many candidates are being processed, as they are at the beginning of an Administration, or if conflicts need to be resolved. Candidates for higher-level positions are often accorded priority in this process. A nominee has no legal authority to assume the duties and responsibilities of the position; the authority comes with Senate confirmation and presidential appointment (the nominee's receipt of his or her commission and swearing in). A nominee who is hired as a consultant while awaiting confirmation may serve only in an advisory capacity. If circumstances permit and conditions are met, the President may give the nominee a temporary appointment under the Vacancies Act or a recess appointment to the position. Both types of appointment confer upon the appointee the legal authority to carry out the duties of the office. Temporary appointments under the Vacancies Act may last for 210 days after the date of the vacancy. This time restriction may be suspended or extended under certain conditions, however, and temporary appointments may last for more than two years. Recess appointments may last for less than a year or nearly two years, depending on when the appointment is made. Presidents have occasionally used these two types of appointments to circumvent the confirmation process. Such efforts have sometimes had political consequences, however. Senators have, at times, placed holds on other nominations or passed more restrictive legislation in response to perceived executive abuses of the appointment process. In the consideration stage, the Senate determines whether or not to confirm a nomination. The way the Senate acts on a nomination depends largely on the importance of the position involved, existing political circumstances, and policy implications. Generally, the Senate shows particular interest in the nominee's views and how they are likely to affect public policy. Nominations are referred to the appropriate committee, where they sometimes receive a hearing. They are then usually reported back to the Senate, where they are taken up and voted upon. Most nominations proceed through the process in a routine, timely fashion. During the 107 th Congress, for example, the median number of days taken to confirm a nomination to a full-time departmental position was 36. A large portion of the nominations received are military or other officer appointments, and these are typically handled through a routinized process. The Senate routinely confirms, en bloc , hundreds of these kinds of nominations at a time. Nominations to policymaking positions can stall, however, or, in effect, die at any point. This is more likely to happen to controversial nominations. Sometimes, however, Senators may block noncontroversial nominations through the use of holds to gain leverage as part of a strategy to move unrelated legislation or nominations. (See further discussion below under " Shortening the Appointment Process .") The Senate confirmation process is centered at the committee level. Some committees, such as Armed Services, Judiciary, and Foreign Relations, handle many nominations, while other committees handle relatively few. The rules and procedures of the committees frequently include timetables specifying minimum periods between steps in the process. Committee nomination activity generally includes investigation, hearing, and reporting stages. Action at the committee level tends to be at the discretion of the chair. There is no internal requirement that a committee act on any nomination. As part of investigatory work, committees may draw on information provided by the White House as well as information collected by the committees. For example, they have access to documents related to the Public Financial Disclosure Report completed during the nomination stage. Select Senators also may have, with the authorization of the President, access to FBI reports or report summaries. In addition, committees usually collect other personal and financial information from nominees. This process may include completion of standard committee forms as well as follow-up questionnaires tailored to specific nominations. As part of these forms and questionnaires, or during hearings, the Senate usually gains a commitment from the nominee to respond to requests to come before committees of the Senate. Hearings provide a public forum to discuss a nomination and any issues related to the program or agency for which the nominee would be responsible. Even if confirmation is thought to be a virtual certainty, hearings may provide Senators and the nominee with an opportunity to go on the record with particular views or commitments. Senators may use hearings to explore a nominee's qualifications, articulate a policy perspective, or raise related oversight issues. Some committees hold hearings on nearly all nominations; others hold hearings for only some. A committee may consider the importance of a nomination and the workload and schedule of the committee when determining whether or not to hold a hearing. The committee may discontinue acting on a nomination at any point—upon referral, after investigation, or after a hearing. If the committee votes to report the nomination back to the full Senate, it has three options. It may report the nomination favorably, unfavorably, or without recommendation. If it elects not to report a nomination, the Senate may, under certain circumstances, discharge the committee from further consideration of the nomination in order to bring it to the floor. Although the Senate confirms most nominations, some nominations are not confirmed. Rarely, however, does a rejection occur on the Senate floor. Nearly all rejections occur in committee, either by committee vote or by committee inaction. Rejections in committee occur for a variety of reasons, including opposition to the nomination, inadequate amount of time for consideration of the nomination, or factors that may have nothing to do with the merits of the nomination. If a nomination is not acted upon by the Senate by the end of a Congress, it is returned to the President. Pending nominations also may be returned automatically to the President at the beginning of a recess of 30 days or longer, but the Senate rule providing for this return is often waived. The most recent study of Senate confirmation action, which looked at the period between 1981 and 1992, found that the Senate failed to confirm 9% of all nominations to full-time positions in the executive departments, 11% of nominations to independent agencies, and 22% of nominations to boards and commissions. In the final stage, the confirmed nominee is given a commission signed by the President, with the seal of the United States affixed thereto, and is sworn into office. The President may sign the commission at any time after confirmation. Under unusual circumstances, he may not sign it at all, thus preventing the appointment. Once the appointee is given the commission and sworn in, he or she has full authority to carry out the responsibilities of the office. As discussed in the introduction to this report, some proponents of reducing the number of PAS positions have asserted that, over the last several decades, the appointment process has taken longer, and the number of PAS positions has grown, and that the longer process is due, in part, to the greater number of positions. This section and the next section assess the first two assertions. An assessment of the perceived benefits of reducing the number of PAS positions follows these sections. Data limitations have precluded CRS from providing a comparison, government-wide, of the length of the entire appointment process across different time periods, but comparisons based on more limited data can be made. Accurate and comprehensive data concerning the dates on which PAS positions become vacant, which would approximate the starting dates for refilling these positions, are not generally available. One instance in which it is possible to collect this information for many positions, however, is at the beginning of a new Administration, when many positions are vacated and filled simultaneously. G. Calvin Mackenzie calculated that the average time from inauguration to confirmation for initial PAS appointments grew from 2.38 months at the beginning of John F. Kennedy's presidency to 8.53 months at the beginning of William J. Clinton's presidency. Because of the inexperience of new presidential staff and the large number of appointments going through the system at the same time, these average times for new Administrations are probably longer than averages of all appointment times would be. Another instance in which it is possible to collect information about the length of the appointment process for a subset of PAS positions is in the case of initial appointments to newly created departments. In this case, the starting point for filling positions can be set at the time of the enactment of the enabling law. From 1965 to 2004, six new departments were created: Housing and Urban Development (1965); Transportation (1966); Energy (1977); Education (1979); Veterans Affairs (1988); and Homeland Security (2003). Table 1 provides a summary of the average length of time taken to nominate and confirm initial appointees to PAS positions in each of these departments. The last column in Table 1 shows the median numbers of days elapsed from enactment of the organic legislation to Senate confirmation. The latter figures range from a low of 77 days (about 2½ months) to 352 days (nearly a year). With the exception of the Department of Energy, the median times grew longer from 1965 (140 days) to 2004 (206 days). This is consistent with reports suggesting that, in general, the appointment process has grown longer and more complex over the last 40 years. Often in response to individual incidents, Congress and Presidents have increased scrutiny of potential appointees as insurance against scandals. In addition to this trend, the length of the process has been affected by particular circumstances. In the case of the Department of Veterans Affairs, for example, the organic legislation was signed into law in the last months of the Reagan presidency and implemented at the beginning of the presidency of George H. W. Bush. The incoming President had no authority to submit a nomination until his inauguration, which was 87 days after the bill-signing. In addition, many tasks, including a multitude of other appointments, confronted the new Administration, and this may have contributed to the relatively lengthy appointment process for the new department. Table 1 also shows that the time between enactment and nomination generally accounts for a far greater part of the appointment process than the time between nomination and Senate confirmation; the President generally takes much longer to submit a nomination than does the Senate to deliberate on the nomination. This generalization is further supported by a study of departmental appointments in 1981 and 1993. The report looked at the time required to fill PAS positions in the first year of the Reagan and Clinton Administrations. It showed that, on average, the time the Presidents took to submit a nomination accounted for more than 75% of the total time from inauguration to confirmation. This finding may not apply to nominations in general, since at least two factors characteristic of the beginning of a new Administration should not affect other nominations. A new President has lead time before his inauguration to begin the selection and vetting process. On the other hand, there might be a bottleneck in the vetting process, as the various offices involved attempt to complete the investigation and clearance process for the large numbers of potential nominees typical of the beginning of a new Administration. Has the number of PAS positions grown over the past several decades? Most observers agree that it has. Such positions have been counted in a variety of ways. Table 2 provides one measure of the number of full-time executive branch PAS positions with policymaking responsibilities at eight points over the last three decades. The table shows growth in the number of positions in the 1970s and 1980s, a slight decline in the 1990s, and additional growth between 2000 and 2004. Overall, the number of positions grew approximately 26% between 1972 and 2004. Although a number of new government organizations with PAS positions, including three of the departments discussed above (which had a total of 53 positions at their inception), were created during this time, most of the growth in the number of PAS positions can be attributed to an incremental increase across many agencies. For example, the Environmental Protection Agency (EPA) had seven PAS positions in 1972 and 14 such positions in 2004. In 1972, none of the positions at the Office of Management and Budget (OMB) was subject to the advice and consent process, while by 2004, six required Senate confirmation. As in the case of OMB, in most cases the creation of new PAS positions probably reflects the importance of the policymaking functions of particular offices and the perceived need for congressional influence in their leadership. Proponents of a reduction in the number of PAS positions have suggested that such a reduction would be expected to "yield a more efficient and more consistent performance of the Senate's confirmation responsibilities" and to reduce the overall the length of the appointment process. Would an improvement in the Senate confirmation process result from a reduction in the number of PAS positions? Nearly all the potential gains in efficiency and performance probably would be found at the committee level, since, unless a nomination is controversial, confirmation on the Senate floor is usually accomplished by unanimous consent with minimal debate. To varying degrees, depending on the committee and the nominee, committee activity related to nominations may include review of Federal Bureau of Investigation reports and Executive Personnel Financial Disclosure Reports (SF-278), collection and review of additional financial and personal background information, meetings with nominees, and hearings. Committees usually follow more routinized procedures for lower-level nominations, while spending more time reviewing and investigating high-level nominees more closely. Consequently, if the Senate were to consider only nominations to top policymaking positions, the measured Senate efficiency and performance might not noticeably improve. If Congress changed the appointment method for higher-level PAS positions, however, reduced workload might allow the Senate to execute its confirmation responsibilities more efficiently. The Senate also might incur costs, however, were the appointment method for higher-level PAS positions to be changed. For example, Senators would lose the opportunity to review and pass on presidential appointees' qualifications and potential conflicts of interest. Senators also would lose the opportunity to use the confirmation process to influence policy. With appointments to PAS positions, they may do this by not confirming a nominee or by extracting a commitment on some action from a nominee during the confirmation process. In addition, Senate committees might have greater difficulty obtaining testimony from appointees who have not been confirmed by the Senate, and the Senate's efficiency and performance in its oversight role might, therefore, decrease. As noted above, the Senate usually gains a commitment from the nominee, during the confirmation process, to respond to requests to come before its committees. If advice and consent requirements were discontinued for some state-level appointments, such as U.S. attorneys and marshals, some Senators, particularly those of the same party as the President, might lose the opportunity to consult with the President on suitable candidates for these positions. Would a reduction in the number of PAS positions shorten the overall process for appointments to PAS positions? Although the evidence, discussed above, suggests that both the number of PAS positions and the length of the appointment process have grown in the past three decades, it is not clear that the greater number has caused or contributed to a longer appointment process. If Congress were to reduce the number of PAS positions, doing so would, of course, shorten the process for those appointments that no longer needed to go through the confirmation process. It is unclear, however, whether or not the average length of the appointment process would be reduced for the remaining PAS positions. As previously discussed, the process includes three stages: selection and nomination, which, on average, takes the longest period of time; Senate consideration; and appointment, which may take place at the pleasure of the President. The appointment process could be shortened if either the presidential vetting process or Senate consideration, or both, were shortened. Selecting and investigating the background and finances of potential nominees often takes a considerable amount of time. This process sometimes can be completed quickly for top nominees, such as department secretaries, when greater resources are committed to the task. Completion of the vetting process for most other nominees, however, usually takes longer. If fewer people had to go through the process, it might proceed more quickly for the remaining applicants. If the appointees who were no longer subject to the advice and consent of the Senate still needed to be vetted by the White House, just as many applications would need to go through the pipeline. Consequently, it is unclear that converting some PAS positions to other types of positions would reduce delays at the selection stage of the appointment process. The Intelligence Reform and Terrorism Prevention Act of 2004 included several provisions that might reduce some appointment process delays in the selection stage. For example, the law directs the Office of Personnel Management (OPM) to provide each major party presidential candidate, soon after his or her nomination, with certain information concerning presidentially appointed positions. Access to such information allows the potential president to begin the selection process as much as half a year before taking office. The statute also amended the Presidential Transition Act of 1963 to recommend that the President-elect submit "names of candidates for high level national security positions through the level of undersecretary" for national security clearance as soon as possible after the presidential election and to require expeditious background investigations of these candidates, among other things. Title III of the act made government-wide changes to the national security clearance process that are designed to consolidate and streamline this function. Because most presidential appointees are subject to this clearance process, these changes may have an impact on the duration and difficulty of the selection stage of the appointment process. In addition, the Intelligence Reform and Terrorism Prevention Act contained a provision that requires a report from the Office of Government Ethics (OGE) regarding potential improvements to the financial disclosure process for executive branch employees. A similar report sent to Congress by the Office of Government Ethics in 2001 recommended changes to the Ethics in Government Act to "(1) reduce the number of valuation categories; (2) shorten certain reporting time-periods; (3) limit the scope of reporting by raising certain dollar-thresholds; (4) reduce details that are unnecessary for conflicts analysis; and (5) eliminate redundant reporting." The findings of the newly mandated report might serve as a basis for legislation that would streamline the financial disclosure process and thereby, on average, shorten the duration of the appointment process. Would a reduction in the number of PAS positions decrease the length of the Senate confirmation process? The most time-consuming activities in this process are the investigatory activities and preparation for hearings. As discussed above, committee investigations include the review of documents and reports collected during the selection and nomination stage, as well as the collection and review of committee-specific personal and financial forms. In some cases, committees prepare, and nominees complete, individually tailored followup questionnaires as well. Preparation for, and scheduling of, hearings may also lengthen the average confirmation time. If the positions removed from PAS status were among those that involve significant investigations or hearings, their removal might result in shorter appointment times, on average. Congress also might opt to address any delays possibly resulting from investigations and the hearing process by increasing committee staffing or reducing the number of nominations that receive hearings. Although the average length of time that a nomination is pending in the Senate may be related to Senate workload, other factors may play a more significant role. Policy differences, either related or unrelated to particular nominations, may lead Senators to delay or block nominations through the use of holds or other procedures. For example, Senator Hillary Rodham Clinton placed a hold on a nomination in connection with concerns about air quality around Ground Zero after the collapse of the World Trade Center. On the floor of the Senate, she stated: When Governor Leavitt was nominated for the position of Administrator of the EPA [Environmental Protection Agency], I made it clear to Governor Leavitt, to my colleagues on the Environment and Public Works Committee, and to the public I would put a hold on Governor Leavitt's nomination. At that moment it was the only means available to a single Senator to get the attention of the White House and to demonstrate the seriousness I believed these issues demanded. Other reasons nominations may be blocked or delayed include retribution for actions by other Senators or the President ("tit-for-tat"), efforts to "trade" confirmation of one nomination for confirmation for another (packaging together several nominations), efforts to gain a policy commitment from a nominee, or a need for more time to gain or review information on a nomination. In 2004, Congress acted to hasten Senate consideration of a subset of nominations at the beginning of a new Administration. The Intelligence Reform and Terrorism Prevention Act expressed "the sense of the Senate" about a timetable for submission and consideration of high-level national security nominations during transitions. Under this timetable, nominations to such positions should be submitted by the President-elect to the Senate by Inauguration Day, and Senate consideration of all such nominations should be completed within 30 days of submission. The analysis in the preceding section suggests that a decrease in the number of PAS positions might ease the workload of Senate committees, facilitate a faster average confirmation time, and reduce the overall length of the appointment process. It further suggests that these benefits could be contingent on which positions are converted to another appointment method. The greatest effect could come from the conversion of higher-level positions, just the kind of positions that Congress might be most reluctant to convert. If Congress elected to reduce the number of PAS positions for these or other reasons, this activity could be considered as part of a larger congressional task: determining the appropriate number and distribution of PAS positions. To a considerable extent, the Constitution gives Congress discretion over the determination of which officers will be subject to the advice and consent of the Senate, and which may be appointed by the President alone, the courts, or agency heads. This determination is likely to have consequences for Congress, the President, agency heads, and other interested parties. Given the potential impact of congressional decisions about the number and distribution of PAS positions, how might Congress go about making these determinations? What institutional and political considerations are relevant in the decision making process? What are some alternative ways for approaching this task? Although the President's role has evolved into that of chief manager of the federal bureaucracy, Congress has a clear and longstanding role as co-manager of the national administration. The role of the Senate in the appointment process is just one of the ways Congress is involved in shaping the organization and activities of federal governmental entities and programs. Congress establishes departments and agencies, and, to whatever degree it chooses, the internal organization of agencies. Congress, through law, also determines the missions of agencies, defines the parameters of personnel systems, provides funding through the appropriations process, and ultimately determines, through the authorization process, whether agencies and programs shall continue in existence. Congress also co-manages the federal bureaucracy through its oversight role. Senators sometimes use confirmation hearings as one venue for conducting oversight. When Congress delegates the authority for the appointment of an inferior officer to the President alone or to an agency head, it cedes some power over the federal bureaucracy to the executive. In such a case, Congress, particularly the Senate, may have reduced influence over the selection of the individual, and it gives up the opportunity to consider the individual's merits. In addition, congressional committees may have greater difficulty obtaining testimony from an appointee who has not been confirmed by the Senate. As previously mentioned, the Senate usually gains, during the confirmation process, a commitment from the nominee to respond to requests to come before committees of the Senate. This commitment may not be necessary, under most circumstances, to obtain testimony. An argument could be made that Congress has the authority to call most officers with operational duties, regardless of appointment status, before its committees. As a practical matter, however, the commitment obtained at the time of confirmation may make this process easier for Congress. Congress could strengthen its oversight ability by stipulating, in law, that all officers with operational responsibilities are obligated to respond to congressional committees of jurisdiction. Several participants in the political process, including Congress, the President, agency heads, and interest groups, have a political stake in the arrangements by which the number and distribution of PAS positions are determined. Although certain high-level policymaking positions, such as secretary and administrator, are routinely subject to the advice and consent of the Senate, many subordinate PAS positions require confirmation because Congress asserted its constitutional prerogative. That is, some Members of Congress saw a need, at some point, to establish each PAS position as an advice and consent position. Thus, it might be difficult to change the appointment method for such positions if the interest in asserting that prerogative is ongoing. It could be argued that the confirmation process, in general, provides the Senate with leverage during negotiations with the President over related and unrelated matters. The perception that a reduction in the number of PAS positions might reduce this leverage might add difficulty to the process of changing the appointment method for positions presently filled through the PAS process. It might also be perceived, however, that the reduction in the number of PAS positions would be limited and that the remaining PAS positions might provide Congress with nearly the same level of leverage as now exists. If the appointment method for some positions were changed, Members of Congress, particularly Senators, might have less influence in the selection of appointees to these positions than they now enjoy. The perception that congressional influence might be diminished in this way might lead to difficulties in selecting PAS positions for reduction. This might be particularly true for state-level positions, such as U.S. attorney, U.S. marshal, and district judge, because of the significant role that home-state Senators often play in their selection. The President stands to gain if PAS positions are converted into political appointments by him alone or by agency heads. Political appointees of this type, who do not need Senate confirmation, could be more responsive and accountable to the President than they would otherwise be. With their primary allegiance to the President or agency head, they might be more likely to implement energetically the President's management and policy priorities. Such appointees would not have made commitments to the Senate during the confirmation process, nor would they necessarily have developed relationships with Senators and congressional staffers during the appointment process. The Administration would have more latitude in determining if, and under what circumstances, appointees would be permitted to testify before congressional committees. This discretion would not be absolute, however, since Congress would continue to have other points of political leverage, such as the appropriations process. Although agency heads are aligned politically with the President, they are likely to prefer, where possible, to have significant leeway in the selection of appointees to positions within their organizations. This would permit them to exercise the greatest control over the implementation of policy and management goals in their agencies. The White House often consults with agency leaders when making appointments to presidentially appointed positions. If PAS positions are to be filled through another appointment method, however, agency heads might benefit most when such positions are converted to noncareer SES positions, to which individuals are appointed by the agency head. Various politically active groups seek to influence the selection of federal policymaking officials. The political considerations for these groups are likely to vary depending on several factors. To the degree that a group is more strongly aligned with, and has greater influence with, one party or another, it is likely to prefer that the appointment process be centered where its preferred party is in power. Because of the rights accorded the minority in the Senate and the power of individual Senators, some interest groups might prefer the advice and consent process even if the party with which they are affiliated does not control the chamber. Senate allies could serve to check the appointment power of the President, as the Constitution contemplates. The preference of an interest group for a particular appointment method might be influenced also by the political advantage associated with a certain level of visibility. In some cases, an interest group might prefer the greater visibility of Senate hearings for a nominee, because they might serve to highlight certain policy issues. Furthermore, even if the preferred candidate of the group is not confirmed, rejection in the Senate can sometimes serve to galvanize the supporters of the policies of the rejected nominee. In other cases, however, an interest group might prefer to work "behind the scenes," at the agency level, to support a particular appointment. Congress could maintain the current number and distribution of PAS positions. Under this option, the number of PAS positions would not be systematically reduced, and the primary means by which Congress would determine which positions would be subject to advice and consent would be through the legislative process. The present arrangements are firmly grounded in the Constitution and provide institutional and political benefits to Congress, especially the Senate. Arguably, appointees who are confirmed by the Senate could be more responsive to Congress than those who are not. As noted above, during confirmation, most nominees agree to testify, as requested, before committees of Congress, making such cooperation somewhat easier to obtain than it would be otherwise. In addition, relationships may be built between the nominee and committee staffers or Senators during the confirmation process, relationships that may be helpful in resolving substantive issues arising at a later date. Senators also may obtain, during confirmation, a nominee's commitment to a particular action. Senators also may use the confirmation process as a vehicle for oversight. Nomination hearings offer an opportunity to review programs in depth. Under the present arrangements, Senators also gain political leverage, through the use of holds, for example, that they can use during negotiations with the President or other Senators. Senators enjoy, as well, significant influence in the appointment of home state officials (e.g., U.S. attorneys, marshals, and district court judges) when the President is of the same party. Finally, continuation of the status quo would avoid the process of selecting positions to be filled through other appointment methods, which might prove politically difficult. Although continuation of the status quo appears to offer many institutional and political benefits to Senators, there are potential drawbacks for the Senate. As noted at the beginning of this report, commissions and task forces, as well as some Members of Congress, have been calling for changes in the appointment process. The salience of this issue might grow as agencies submit statutorily required PAS position reduction plans. To the degree that the Senate becomes identified with the problems in this process, it could lose some prestige as an institution. In addition, the committee consideration process, particularly for higher-level nominations, consumes significant time and resources that might be used for other important matters. Each of these drawbacks might be magnified if, as has happened in the past, the number of PAS positions increases. The status quo has disadvantages for the President as well. The President is held accountable, by the public and Congress, for the day-to-day management of the federal bureaucracy. Sharing appointment power with Congress may hinder the President's ability to carry out management reforms, as well as his political agenda, if his appointees are accountable both to Congress and to him. Congress could create an advisory commission to study the number and distribution of PAS positions and make recommendations on an agency-by-agency basis for the reduction (or increase) of positions. Such an advisory commission might study, from a congressional perspective, the PAS position reduction plans provided by agency heads, or it might make an independent assessment without consideration of those plans. Congress then could consider the commission's recommendations and implement them as appropriate. One benefit of this approach is that the subject could be studied outside of the immediate political process, providing for a more objective assessment of how Congress might proceed. In addition, in the short term, Congress might be seen as responding to perceived problems with the appointment process. Furthermore, when the commission reported its findings, Congress would retain control over which, if any, of the recommendations to pursue. Finally, if Congress did not act on the recommendations at the time of their release, the report could remain available and provide a basis for future action to change the appointment process. The existence of a report with recommendations, however, might provide political momentum that would favor congressional action. There are several drawbacks to this option. One common complaint about the creation of congressional commissions is that their findings are sometimes ignored or marginalized. Congress probably could create a commission more easily than implement its recommendations, because the institutional and political concerns associated with a reduction in positions probably would still exist at the point of implementation. Congress might increase the likelihood of eventual implementation if the commission comprised high-profile members and if it were charged with considering institutional and political issues during its deliberations. One further drawback to this option is that, although the commission would be removed from the immediate political process, it might be vulnerable to outside influence from political leaders and interest groups. This potential drawback might be mitigated by balanced representation of a variety of interested parties, including the President, on the commission. Congress could establish an expedited, or "fast-track," procedure to facilitate the selection of PAS positions for reduction. Such a procedure could be modeled on the one established by law, during the 1980s and 1990s, for military base closure and realignment. This process was used several times in the 1990s, and a new round of base closures in 2005 was authorized by the FY2002 defense authorization act. The current process involves the Secretary of Defense, the President, Congress, and a commission whose members are appointed by the President with the advice and consent of the Senate. Some of the nominees are recommended by the Speaker of the House, the House minority leader, and the Senate majority and minority leaders. The process, in brief, begins with the submission to congressional defense committees, by the Secretary, of proposed and then final criteria to be used by the secretary in forming recommendations regarding closure or realignment. These criteria become final unless Congress disapproves. The Secretary then submits recommendations, based on these criteria, to the commission. Following this, the commission modifies the recommendations and submits them to the President, who can either approve the recommendations, as drafted, and transmit them to Congress, or not approve them and explain his reasons to the commission and Congress. Under the latter circumstance, the commission then sends the President revised recommendations for his approval, and transmission to Congress, or his rejection. The only way Congress can block implementation of the recommendations at this point is to pass a joint resolution of disapproval within 45 days of receiving them. During that 45-day period, constraints on congressional activity included time limits on committee consideration, time limits on debate, and a prohibition on amendments. If Congress were to develop a similar procedure for reducing the number of PAS positions, it might include provisions specifying, among other things, the following: the role of the Administration in the process; the structure, role, and authority of a commission; the role of congressional committees; the role of agencies, including the role, if any, of statutorily mandated PAS position reduction plans; limits on debate and amendments; and time limits on various portions of the process. If Congress were to pursue this option, the procedure that was established would need to provide for legislative adoption of any recommended changes, since advice and consent requirements, unlike military bases, are set in statute. Expedited procedures have sometimes proven effective in accomplishing goals that are politically difficult but important to Congress. The specifics of expedited procedures vary, but while they generally include a role for the President and for Congress, the provisions usually limit the ability of Members to block the process once it is underway. Nonetheless, Congress as a whole retains the power, in the end, to defeat objectionable legislative proposals. Some observers of Congress argue that the slow, deliberative, and selective nature of the legislative process acts as a check against hasty and unwise laws. Most expedited procedures limit Members' rights to debate and amend legislation and thereby sidestep two of the hallmarks of congressional process. In addition to frustrating Members' ability to address their individual concerns, it could be argued that these limitations close off an important avenue of legislative refinement. In particular, this option would give the Senate less control over the process than it now has or than it probably would have under some other options. Congress could opt to use categories, such as military, foreign service, and public health officer positions, judgeships, ambassadorships, and executive-level positions, when selecting which offices to continue as PAS positions. This is essentially the approach suggested by the Presidential Appointee Initiative in one of its recommendations: The Congress should enact legislation providing that Senate confirmation only be required of appointments of judges, ambassadors, executive-level positions in the departments and agencies, and promotions of officers to the highest rank (0-10) in each of the service branches. In testimony before the Senate Committee on Governmental Affairs, former Director of the White House Office of Presidential Personnel Robert J. Nash also recommended categories for reduction: I also think we should consider reducing the number of part-time board and commission members who are confirmed by the Senate. ... Examples could include the National Endowment for the Humanities and agencies that don't have security, national defense, those kinds of responsibilities. This method has been used before. For example, collectors of internal revenue, collectors of customs, and postmasters were all converted from PAS positions to competitive service positions during reorganizations of the agencies within which they resided. Two of these three reorganizations were accomplished through presidential reorganization authority, which is currently dormant. The Constitution uses categories—"Ambassadors, other public Ministers and Consuls, Judges of the supreme Court" —to specify which positions must be filled through appointment by the President with the advice and consent of the Senate. Congress might elect, for example, to remove categorically from PAS status all military, Coast Guard, foreign service, public health, or NOAA officer appointments and promotions below the top ranks. Removing any one of these categories would greatly reduce the number of PAS positions but probably lead to little loss of political and institutional benefit. Such an action might have symbolic, as well as real, impact, and might build political momentum for further changes. In addition, it might lead to greater efficiency in carrying out promotions at agencies and in the armed forces. Retaining top officer positions in PAS status arguably could provide Congress with more focused, and, therefore, meaningful, control and accountability than it has at present. Because of routinized approaches to these categories of nominations, which are usually considered en bloc , this option may be least likely to have any impact on the issues of concern to commissions and task forces—namely, that the appointment process is too long and inefficient. In addition, some officer corps and other appointees may value Senate confirmation as a matter of tradition or prestige, and the use of alternative methods for such appointments might have a negative impact on morale. Congress could elect to reduce the number of PAS positions according to the functions of the positions. For example, assistant secretaries for policy might continue to be PAS positions, while assistant secretaries for public affairs could be appointed by departmental secretaries. Under the assumption that, in general, officers in programmatic positions exercise more policymaking discretion than those in non-programmatic positions, Congress might opt to require advice and consent for the former and not the latter. Some would argue, however, that there are few purely non-policymaking, apolitical functions at the leadership levels of agencies. For example, an argument could be made that general counsels are staff positions that involve providing neutral legal advice. From this point of view, agency heads should be entitled to appoint neutral, competent senior executives to such positions. But in some cases, general counsels may have considerable influence in the policy arena. For example, offices of general counsel are often involved preparing legislation, commenting on legislation to OMB, conducting regulatory and legislative clearance, defending the agency against legal challenges, helping to draft agency testimony, and briefing those who deliver it, all of which involve policymaking discretion. Approaches of general counsels range from providing information about whether or not action is legal to "devis[ing] plans that will achieve the objective, identifying risks and developing options for pursuing and obtaining policy goals." Congress also could approach the effort to reduce the number of PAS positions by attempting to distribute PAS positions in relation to the size of each agency. Under this approach, those departments with a greater number of career employees and non-PAS political appointees would have a greater number of PAS positions. The logic behind this option is that Congress, as co-manager of the federal bureaucracy, should have a proportional number of accountable appointees throughout the agencies, analogous to the span of control in traditional management hierarchies. At present, the distribution of PAS positions across agencies varies widely. For example, as of January 2003, the Department of Education employed 269 people for every full-time PAS position, while the Department of Defense ratio was 13,151 to one. To the degree that PAS appointees are more accountable to Congress, this option might help to make accountability across the agencies more uniform. It appears to be a rational approach to administering the federal government, if Congress sees itself as a co-manager of the bureaucracy. This method has potential drawbacks as well, however. First, Members may have particular policy areas of greater concern than others, and may prefer to have more PAS appointees in these areas. In addition, the interest in strong oversight and accountability might be stronger in some areas than others. Some arenas may be seen as more the province of the President, and, therefore, Congress may expect less direct accountability. It should also be noted that this approach might be more likely to result in an increase in the number of PAS positions. Members might see the need for greater numbers of PAS positions to mitigate high ratios and be reluctant to give up such positions where lower ratios already exist. Finally, the workload for Senate committees with jurisdiction over large departments, such as the Armed Services Committee, could be greatly increased. Congress might ask congressional committees, which are likely to have the closest experience with particular positions, to suggest which PAS positions would be appropriate to appoint through another method. This approach could provide more focused congressional control over the reduction process. It would place the first step in the decision making process where it is likely to serve Congress's institutional interests. Committees are familiar with oversight and accountability needs and might be most able to assess where less direct control through the confirmation process might be workable. In addition, proponents of a reduction in the number of PAS positions might be more likely to get cooperation on the Senate floor if committees have had significant input into their areas of greatest concern. This option has several potential drawbacks, however. First, committees do not have an incentive to suggest significant reductions in the number of PAS positions. It could be argued that they would be giving up some authority, while the only benefit might be a possible reduction in workload. Second, this approach has no explicit avenue of input for the President. An approach that is rational from the point of view of congressional committees might not yield an outcome that is rational from the point of view of the President's priorities or management goals. Finally, it could prove difficult to determine a target number of positions to convert for each committee, and it might, therefore, be difficult to provide committees with specific targets. Some committees have jurisdiction over many appointments; others, few. Congress could change the appointment method for a number of PAS positions and then restrict the President's appointment authority for some of those positions. For example, Congress could specify, in statute, qualifications required for the holders of certain positions. Current law includes a number of examples of such requirements, including the provisions for appointment of the controller at the head of the Office of Federal Financial Management: The Controller shall be appointed from among individuals who possess - (1) demonstrated ability and practical experience in accounting, financial management, and financial systems; and (2) extensive practical experience in financial management in large governmental or business entities. Alternatively, Congress could specify a process for determining the appropriate qualifications for the position. Either approach could allow Congress to retain some control over the qualities of the appointed individual while reducing the number of PAS positions. Another way for Congress to restrict the President's appointment power might be to specify that he must appoint from among nominees submitted to him by particular organizations or offices. For example, the 11 members of the Nuclear Waste Technical Review Board "shall be appointed by the President ... from among [the not less than 22] persons nominated by the National Academy of Sciences." The nominees, in turn, must meet a number of qualifications, including being "eminent in a field of science or engineering." To the degree that Congress's concern is to influence the qualifications of PAS appointees and prevent unqualified people from being appointed, this option offers a possible way of doing so without going through the advice and consent process. The option does not address other institutional and political concerns, however, including the potential loss of political leverage, oversight, and accountability. Congress could reduce the number of PAS positions and require that the President notify appropriate Members of Congress (e.g., leaders in each chamber, relevant committee chairs) upon appointment of an individual to some or all of these positions. The notification could be required to include the qualifications of the appointee and the reasons for his or her selection. A notification period also could be specified. This requirement would be similar to present statutory requirements for removal of incumbents from certain positions. For example, the U.S. Code provides that if the President dismisses the Director of the Mint, "the President shall send a message to the Senate giving the reasons for removal." This option might mitigate the loss of congressional authority with regard to certain positions. It would provide Congress with an intermediate level of involvement in the appointment process for certain positions. Although Senators might lose the opportunity to evaluate qualifications before the appointment and the political leverage associated with the confirmation process for the particular position, this approach could maintain a greater level of accountability from the President for his appointment choices than would be the case if no notification were required. The options delineated above reflect different approaches to congressional determination of the number and distribution of PAS positions in the federal bureaucracy. Each balances the range of institutional and political considerations differently. The first option, maintaining the status quo, is the default option. Since it continues the present appointment arrangements, it probably offers the least institutional and political risk for Members, particularly Senators. This choice may have political consequences, however, if observers blame Congress, particularly the Senate, for a lengthening appointment process for increasing numbers of important positions. Already, commissions, such as those mentioned above, have drawn attention to perceived shortcomings in the appointment process for positions subject to Senate confirmation. As noted above, the submission of PAS position reduction plans by agency heads, as required by the Intelligence Reform and Terrorism Prevention Act, might increase the salience of this issue. If political momentum for changes to the appointment process grows in the future, Congress might, at some point, have less political control over the reform agenda than it now has. For this reason, Congress might benefit politically from a reduction in the number of PAS positions, even if the benefits to the appointment process of such a reduction are not clear. It is unclear to what degree such benefits might offset the potential political drawbacks. If Congress opts to reduce the number of PAS positions, a functional or proportional distribution approach might best protect its institutional interests. A functional approach would allow Congress to maintain a greater role in, and give closer attention to, higher-priority functions. A proportional distribution approach might lead to more uniform accountability to Congress across departments and agencies. Alternatively, it could be argued that committees with oversight responsibilities are in the best position to determine where Congress needs the most accountability, and that their recommendations should be given the greatest weight in a reduction process. Any perceived loss of senatorial authority resulting from reductions under these methods might be mitigated by the establishment of restrictions or notification procedures for certain positions no longer subject to advice and consent requirements. The adoption of an expedited procedure might afford Congress the least control over the process and serve its institutional interests least well. The institutional interests of the President, as manager-in-chief, may be best served when positions involve political appointments without the advice and consent of the Senate, and have no associated qualifications or other restrictions. Political appointees who are not confirmed by the Senate might be more responsive to the President than they would be if they were approved by the Senate as well. Increased allegiance from such appointees might strengthen the President's ability to "take Care that the Laws be faithfully executed." From this perspective, any of the options that convert PAS positions to positions involving political appointments not subject to advice and consent would be preferable to the status quo. The establishment of an expedited procedure might be the most preferred option, if the President were accorded a significant role in selecting which positions should no longer require Senate confirmation of nominees. Two of the options identified above address potential political challenges associated with PAS position reductions. First, the reduction process might be centered in the committees, so that committees would suggest lists of positions for consideration. Committees might be best able to suggest which PAS positions could be converted to non-PAS status at the lowest political cost. Nonetheless, it might prove too politically difficult, in this way, to select a significant number of positions for conversion, since Senate committees have a vested interest in continuing to participate in the confirmation of appointees to positions within their jurisdiction. Alternatively, the political difficulties associated with selecting PAS positions for reduction could be circumvented by centering the selection process outside Congress in a commission, with or without an expedited procedure. Although this method might be the most politically feasible option, it arguably might have significant institutional costs, as discussed above. If Members of Congress envision the reduction of the number of PAS positions as a first step toward comprehensive reform of the appointment process, the magnitude of the reduction might not be as important as it would be if such a reduction were viewed as an end in itself. Even if the reduction achieved did not significantly improve the functioning of the Senate or reduce the length of the appointment process, it might establish a coalition of proponents of reform who could work together for further changes. Such an achievement also could serve to provide a precedent and momentum for further PAS position reductions or reform of various parts of the vetting process. When institutional and political factors are considered, Congress might choose to develop a process that combines several of the options above. For example, the initial process might involve a group of representatives from various congressional committees, so that political considerations could be incorporated. The process might begin with a categorization of the pool of PAS positions into principal officers and inferior officers. The former group would be exempt from the remainder of the process, for constitutional reasons. The remaining pool might be further categorized in other ways. It could be divided into routine and non-routine or full-time and part-time appointments, for example. These groups of positions could be further assessed along functional lines to see if there is common agreement that certain functions do not require the closest attention of Congress. Positions also could be assessed by department and agency to determine whether Congress would be weakened as an institution by a decrease in the number of PAS positions in a particular organization. In some cases, the statutorily required PAS position reduction plans or further specified study by a commission or task force might assist Congress in its determinations. If such a process proved to be politically untenable, Congress might opt to create an expedited procedure for the reduction of positions. For some of the positions with changed appointment methods, Congress might establish statutory qualifications or other restrictions on the President's appointment authority. In addition, or instead, Congress might establish appointment notification requirements for newly converted positions. This is just one example of the way the options discussed above might be combined. Whatever additional legislative action it might elect to pursue with regard to determining the number and distribution of PAS positions in the federal bureaucracy, Congress might include a sunset provision so that appointment provisions would revert to their pre-existing status after some period of time unless Congress acted to make the changes permanent. If some Members were uncertain about the impact of certain changes, this provision could provide a trial period to allow Congress to assess whether the benefits of the changes outweighed any drawbacks. | This report provides background information and analysis of issues concerning possible congressional action to reduce the number of positions to which the President makes appointments with the advice and consent of the Senate (PAS positions). Among other topics, the report discusses the constitutional framework that guides congressional action in this area, identifies potential congressional options, and analyzes associated institutional and political considerations. The Constitution provides Congress with considerable discretion over which officers of the United States will be in PAS positions, and which may be appointed by the President alone, the courts, or agency heads. At present, more than 2,000 high-level officials across the three branches are appointed by the President with the advice and consent of the Senate. The appointment process includes presidential selection and nomination, Senate consideration, and formal presidential appointment. In general, the number of PAS positions has grown and the appointment process has gotten longer over the last three decades. It is not clear, however, that the larger number is responsible for the lengthier process. Other factors, such as stricter vetting requirements, also play a role. Proponents of a reduction in the number of PAS positions have suggested that it might lead to an improvement in the efficiency and performance of the Senate confirmation process and to a decrease in the length of the appointment process, but this will probably be the case only if the positions removed from PAS status are those for which appointments consume the most time. Some argue that removing advice and consent requirements from such positions might have undesirable political and institutional consequences for Congress. A recently enacted provision directs each federal agency head to submit a PAS position reduction plan to the President and Congress. Congress might elect to make these plans the basis for future decisions concerning the reduction of PAS positions. Alternative options for Congress include maintaining the status quo; creating a commission to make recommendations for reductions of PAS positions; establishing a "fast track" procedure for these reductions; reducing the number of positions by category or function; distributing PAS positions in proportion to agency size; and delegating reduction choices to committees of jurisdiction. In lieu of maintaining PAS status for certain positions, Congress might continue to influence the appointment process by legislatively establishing qualifications or notification requirements for appointments to those positions. Congressional action on PAS positions would involve a number of institutional and political considerations. For example, participation in the appointment process through advice and consent gives Senators influence over the selection of nominees and facilitates obtaining testimony from appointees during oversight hearings. In addition, the confirmation process arguably provides the Senate with leverage during negotiations with the President over unrelated matters. This report will be updated as warranted by events. |
Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the amount that a debtor in bankruptcy could exempt as equity in a homestead was generally limited by two factors: (1) whether the domiciliary state allowed the debtor to choose between the federal and state exemptions and (2) the amount the domiciliary state allowed as an homestead exemption. A third factor was added by BAPCPA in cases in which a debtor had purchased the property within approximately three years and four months before filing a petition for bankruptcy. Additionally, BAPCPA restricts debtors' options for determining their domiciliary state and, thus, the state exemptions that will apply. Prior to BAPCPA, an individual anticipating filing for bankruptcy protection might, shortly before filing for bankruptcy, move to a state whose exemptions were more favorable than those in the state where the individual was currently living and benefit from the more favorable exemption amounts. This report discusses the federal homestead exemption, the effect BAPCPA has on a debtor's homestead exemption and, in Table 1 , provides a survey of the current homestead exemptions in the fifty states and the District of Columbia. The table also indicates whether state residents may choose between the state and federal exemptions. Section 522 of the Bankruptcy Code addresses the extent to which an individual debtor may elect to exempt equity in certain property from becoming part of the bankruptcy estate. Property exempted from the bankruptcy estate is not available to satisfy creditors. Among the exemptions explicitly provided in the Bankruptcy Code—the federal exemptions—are a homestead exemption in the amount of $21,625 and a "wildcard" exemption of $1,150 that can also be applied to the homestead if the debtor chooses so long as the federal exemptions are available to the debtor. To the extent allowed under state law, the Bankruptcy Code allows debtors to choose between using the federal exemptions or those available under applicable state law. This is an "either/or" choice—debtors are not allowed to choose to use some state exemptions and some federal exemptions. When a petition is filed jointly by husband and wife or where the individual cases of a husband and wife are ordered to be jointly administered, each spouse must choose the same set of exemptions. However, debtors in many states have no choice to make because their state law prohibits the use of the federal exemptions. These federal exemptions are available to debtors only to the extent they are not prohibited by the applicable state. Nonetheless, while the homestead exemption in many states is greater than the federal homestead exemption, provisions were introduced in BAPCPA that impose limitations on the extent to which debtors can avail themselves of a state's homestead exemption. BAPCPA established a maximum homestead exemption for all debtors in all states unless a minimum period for property ownership was met. Subsection 522(p) of the Bankruptcy Code generally prohibits exempting an equity interest in the property that was acquired by the debtor during the 1215-day period immediately preceding the bankruptcy filing to the extent that the interest exceeds $146,450 in value. This limit may also apply in some cases in which the debtor has been convicted of a felony or has a debt resulting from violations of securities laws, fraud in a fiduciary capacity, or as the result of certain acts that caused serious physical injury or death. Additionally, if any part of the debtor's value in the residence is attributable to property disposed of in the 10-year period preceding the bankruptcy, the debtor's value in the residence must be reduced if all or part of the value in the previously owned property could not have been exempted in bankruptcy if the property were still owned when the debtor filed for bankruptcy. BAPCPA also restricts debtors' options for determining their domiciliary state, which may effectively place limits on their homestead exemption. Debtors must have lived in their current state for at least two years before they are eligible for that state's exemptions. Debtors who have not lived in the same state for at least two years prior to filing for bankruptcy must look back at where they lived for the 180-day period immediately preceding that two years. If the debtor lived in more than one state during that 180-day period, the domiciliary state is the one in which the debtor lived for the greater part of that 180-day period. Thus, through the changes made to § 522, BAPCPA limits the extent to which a debtor might plan for bankruptcy and maximize exempt assets. To effectively choose which state's exemptions will apply, a debtor must move to the chosen state approximately two years before filing for bankruptcy. To plan for a homestead exemption of more than $146,450, the debtor must acquire the interest approximately three years and four months before filing a bankruptcy petition. State laws were reviewed on both the Westlaw and LEXIS computer databases. In the table, the entry for each state first provides a brief synopsis of the homestead exemption available to debtors in bankruptcy as well as the extent to which debtors may elect to use federal rather than state exemptions. In some cases, de minimis "wildcard" exemptions that may be used for either real or personal property are noted, but the survey is not comprehensive with respect to them. They are more likely to be noted when a state has an extremely limited homestead exemption. Relevant excerpts of the state's statutory language is provided after the synopsis. Except as it is included in the excerpted statutory language, the survey does not address whether there is an exemption for proceeds after the sale of a homestead, nor does it address exemptions established by case law for homesteads held as tenancies by the entirety. Except as noted, state law provisions that constitute exceptions to the homestead exemption are not included in the survey. | When debtors file for bankruptcy protection under Title 11 of the U.S. Code, they may exempt the value of certain property; in many cases, this includes their homestead. In practical terms, to the extent that the property's value does not exceed the allowed exemption amount, the debtor may keep the property rather than its becoming part of the bankruptcy estate and thereby being available to satisfy creditors. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced additional limitations on the extent to which debtors could exempt value in their residences when filing for bankruptcy protection. This report surveys the homestead exemption laws of the 50 states and the District of Columbia with an emphasis on the amount of the exemptions and the extent to which debtors may choose between federal and state exemptions. It also describes the limitations on state homestead exemptions in 11 U.S.C. § 522(o)-(q) that were imposed by BAPCPA. The amounts states allow debtors to exempt in bankruptcy run the gamut. A few states (New Jersey, Pennsylvania, and Virginia) have no specific homestead exemption. Several jurisdictions allow debtors to exempt unlimited value in their homestead (the District of Columbia, Florida, Iowa, Kansas, Oklahoma, South Dakota, and Texas), but some states allow an unlimited homestead exemption only in specific circumstances (Kentucky, Louisiana, Nevada, and Washington). In states with a specific dollar amount that is allowed as a homestead exemption, the majority of states allow an exemption that is more than $10,000, but less than $200,000. However, more than 10% of the states with a limited homestead exemption allow no more than $10,000. Only 10% allow $200,000 or more without imposing restrictions not related to residency. In some states, the amount of the available exemption is dependent upon age or disability. In others, marital status affects the available exemption. Some allow additional exemption amounts if there are dependent children in the home. In a few states, the exemption is lower for a mobile home than for a residence that is real property. In New York, the maximum available exemption is determined by the county in which the homestead is located. Massachusetts recently changed its laws to create two classes of homestead exemption—an automatic homestead exemption and a declared homestead exemption. The declared homestead exemption requires written formalities and is of greater maximum value than is the automatic exemption. Some states appear to use their homestead exemptions to address issues not directly related to the home. West Virginia generally allows debtors to exempt up to $25,000. That amount increases to $250,000 if the debtor is a physician with malpractice insurance coverage for at least $1 million per occurrence and the bankruptcy is, at least in part, a response to a medical malpractice verdict or judgment. Washington State generally limits debtors to exempting $125,000 for their homestead; however, if another state has gotten a judgment against the debtor for income taxes due to that other state on retirement benefits that were paid to the debtor while the debtor was a resident of Washington, the homestead exemption is unlimited. This report will not be routinely updated. |
Since 1966, the federal government has provided guarantees and subsidies to approved private lenders or state government entities that make student loans. The aim: making higher education more affordable. Because college graduates' enhanced human capital is generally not viewed as collateral, without federal subsidies and guarantees, lenders would probably charge interest rates more in line with other unsecured loans, such as credit card debt, that could push the financial costs of higher education beyond the reach of many students. Recent changes in the federally guaranteed loan programs, outlined below, have raised concerns that the supply of student loans could be disrupted for the 2008-2009 academic year, prompting Congress and the Administration to take steps to forestall possible disruptions that might affect students' education plans. Overview of the Student Loan Market Two major student loan programs exist federally: the Federal Family Education Loan (FFEL) program and the William D. Ford Federal Direct Loan (FDLP) program. These programs provide loans to undergraduate, graduate and professional students, and the parents of undergraduate dependent students, to help finance the costs of postsecondary education. The FFEL program is the largest student loan program. Subsidized and "unsubsidized" FFEL Stafford loans are made to students. FFEL PLUS loans are made to parents of students, as well as to graduate and professional students. Loan volumes for the PLUS program are much smaller than FFEL loan volumes. The federal government absorbs interest costs of students in school or in deferment for subsidized loans, which are available to students meeting certain financial need tests. For "unsubsidized" loans, which are not need-based, interest costs that accrue while a student attends school or is in deferment are either paid by the borrower or folded into the loan itself. The William D. Ford Federal Direct Loan Program, created in 1993, allows students enrolled in participating institutions of higher education to obtain Stafford and PLUS loans directly from the federal government. Loan Volumes Federal student loans (FFEL, FDLP, and Perkins) are projected to provide $74 billion of the estimated $258 billion cost of higher education in the 2007-2008 academic year. In recent years, FFEL loan volume has been about four times greater than FDLP loan volume. Private student loans are projected to provide another $18 billion of that total. Contributions from students and their parents are projected to cover $71 billion, with scholarships and grants covering the remaining $95 billion. Figure 1 shows Stafford loan volumes for undergraduate students attending four-year or two-year public institutions, and Figure 2 shows the same data for students attending four-year or two-year private institutions. Total Stafford loan volumes for both the FDLP and FFEL programs are much higher for four-year colleges and universities than for two-year institutions, and are substantially higher than loan volumes for proprietary institutions. In particular, student loan volumes for two-year private institutions are very low compared to volumes for four-year private institutions. Direct Loans Schools, or their subunits, choose to participate in the FFEL program or the FDLP program. Thus, the FDLP program could provide loans in the event that private FFEL lending was insufficient to satisfy student loan demand, if school financial aid officials made participation decisions that would allow that to occur. Some have expressed concern that a rapid increase in FDLP loans, which might occur were a significant proportion of FFEL lenders to exit the market, would present significant administrative challenges to the Department of Education. On May 21, 2008, the Education Secretary, Margaret Spellings, sent a letter to student lenders stating that the department had the ability, if need be, to double the volume of FDLP loans. Figure 1. Stafford Loans for Students in Public Colleges & Universities, 1987-2006 (in billions of dollars)Source: Data provided by Department of Education.Note: Totals for 50 states and D.C. Foreign loans excluded. Figure 2. Stafford Loans for Students in Private Colleges & Universities, 1987-2006 (in billions of dollars)Source: Data provided by Department of Education.Note: Totals for 50 states and D.C. Foreign loans excluded. The College Cost Reduction and Access Act The College Cost Reduction and Access Act ( P.L. 110-84 ), enacted in September 2007, cut interest rate subsidies to lenders and increased the proportion of default costs borne by lenders. Some have argued that reductions in Federal Family Education Loan (FFEL) subsidies, as well other changes in the FFEL program, would lead some student loan providers to exit the market. Lender Withdrawal Announcements In early 2008, some student lenders announced plans to restrict loans in response to tightening credit conditions and cuts in federal subsidies put in place by the College Cost Reduction and Access Act. In February 2008, the Pennsylvania Higher Education Assistance Program (PHEAA) announced they would suspend making federally guaranteed loans. Since then, many other lenders announced plans to suspend participation in federally guaranteed student loan programs. According to Finaid.org, as of July 14, 2008, 96 lenders had indicated that they would suspend originating FFEL loans and an additional 24 indicated that they would only suspend originating consolidation loans. In addition, 27 lenders announced that they would suspend new private loans. In total, as of July 14, 2008, 125 lenders had indicated that they would suspend participation in private loans and some part of the FFEL program. The Secretary of Education, in a March 4, 2008, letter to financial aid professionals, requested that financial aid offices relay information on lenders' intentions to curtail student loans to the U.S. Department of Education. Some analysts maintain that difficulties in the market for student loans stem from wider problems in credit markets or from student loan industry attempts to create pressure to reverse subsidy cuts. Further, some student loan providers have encountered financial problems not directly related to the student loan market. For example, Sallie Mae (SLM Corp.) took a $1.5 billion write-down stemming from financial positions it took that would have increased in value had its stock price risen. Some observers contend that student lenders have overstated their recent troubles and that loans remain available through the Federal Direct Lending Program (FDLP). The following sections describe key provisions of the FFEL loan program and outline changes made by the College Cost Reduction and Access Act. Although reductions in interest rate subsidies for FFEL lenders have attracted the most attention, other legislative changes may also have important effects on the student loan market. Lender Subsidy Formulae The formulae determining interest rates that student borrowers pay and the yields (including certain subsidies) received by FFEL lenders for various types of federally guaranteed loans are set by legislation. These formulae have been changed many times since 1981. Other changes in program details, such as higher origination fees paid to the federal government, have reduced lenders' profit rates. On the other hand, new information and communication technologies have sharply increased productivity in the banking industry, reducing servicing costs for student loans, and other things equal, increasing lender profits. Lenders participating in federal guaranteed loan programs receive subsidy payments that, according to language of the Higher Education Act, ensure holders of FFEL loans receive at least "equitable" returns, compared to other financial opportunities available to those lenders. Under current law, these lenders receive a yield equal to a short-term commercial paper (CP) rate plus a legislatively determined add-on, which can vary by type of loan and by type of lender. When borrower interest rates fall below the sum of the CP rate and the add-on, the government makes Special Allowance Payments (SAP) to lenders. Special Allowance Payments are determined quarterly. During some periods in the past, when the fixed borrower rate exceeded the sum of the SAP add-on and the base interest rate, lenders would collect the difference, known as "floor income" or "excess interest." The Higher Education Reconciliation Act of 2005 (HERA; P.L. 109-171 ; Sec. 8006(b)(1)) changed Stafford student loan rules so that floor income on loans disbursed on or after April 1, 2006, is now returned (i.e., rebated) to the federal government. The College Cost Reduction and Access Act ( P.L. 110-84 ) reduced lender subsidies in several ways. For new loans originated after October 1, 2007, lender origination fees increased from 0.5% to 1% of loan value. SAP add-on rates for Stafford loans and consolidation loans were cut by 0.55% (55 basis points) for for-profit lenders and by 0.40% (40 basis points) for not-for-profit lenders. SAP add-on rates for PLUS loans were reduced by 85 basis points for for-profit lenders and by 70 basis points for not-for-profit lenders. Default Costs The act also increased the proportion of default costs borne by lenders. For loans originated after October 1, 2012, lender insurance rates will be cut from 97% to 95%. As of October 1, 2007, the "exceptional performer" status enjoyed by lenders that met certain federal regulatory requirements, which gave those lenders access to faster processing of default paperwork and a 99% insurance rate, was eliminated. On the other hand, average default rates have decreased sharply since the early 1990s, thus generally reducing the financial risks to lenders of defaults. The total default rate for FFEL and FDLP loans for the FY2005 cohort (calculated in July 2007) was 4.6%, well below the peak default rate of 22.4% reached by the FY1990 cohort. FY2005 cohort default rates for four-year institutions were even lower, averaging 3.0% for public four-year institutions and 2.3% for their private counterparts. Borrower Rates The College Cost Reduction and Access Act also specified a gradual reduction in borrower interest rates for subsidized Stafford loans to undergraduates. Borrower interest rates for new subsidized Stafford student loans, which had been fixed at 6.8% since July 1, 2006, are scheduled to decline gradually to 3.4% in July 2011. From July 1, 1988, through June 30, 2006, borrower rates were based on interest rates for 91-day Treasury bills plus an interest margin, subject to a cap. Conditions and rules for borrower interest rates have changed many times, and the rate a given student has paid depends on when a student's first loan originated, how many years the loan has been in repayment, and how promptly the student has made payments, among other factors. Lenders of Last Resort Eligible borrowers can also receive FFEL program loans from a lender of last resort if they cannot obtain a loan from another lender. Each state has a designated federal student loan guarantor, which is responsible for administering a lender-of-last-resort program. The lender of last resort may be the guarantor itself or an eligible private FFEL lender. The federal government guarantees 100% of loans issued by lenders of last resort. The Ensuring Continued Access to Student Loans Act of 2008 ( P.L. 110-227 ) made several changes to the lender-of-last-resort program. The Department of Education, in spring 2008, has been requiring guarantee agencies to update their lender-of-last-resort programs. Were many lenders to leave the student loan market due to lower profits, more students might use lenders of last resort. In past years, lender-of-last-resort loans have comprised a tiny share of the student loan market. According to the Department of Education, lender-of-last-resort loans have never accounted for more than 1% of total federal student loan volume in a fiscal year. In recent years, such loans have accounted for about one-fourth to one-half of 1% of Stafford loan volume. To understand how recent legislative changes might affect the market for student loans, a basic supply and demand model is presented below. The standard economic model of supply and demand provides a starting point for analysis of the student loan market, although federal intervention and the particular characteristics of the student loan market also play important roles. The supply for student loans is mainly determined by the cost of capital, the costs of marketing and of originating loans, the costs of administering loans and repayments, and the costs associated with prepayment or default. For a firm in a competitive market, the supply curve is the firm's marginal cost curve, which relates the incremental cost of each additional unit of output to the volume of output. A supply curve for student loans shows the relationship between the volume of loans lenders are willing to make and the lender interest rate. Student lenders obtain capital in ways similar to other commercial lenders. In a traditional banking model, banks use deposits to make student loans that they can hold on their own books. Lenders can also obtain funds by borrowing in the short- and medium-term commercial paper market. In the past two decades, however, securitization has become an increasingly important source of funds for lenders. Many lenders, in the student loan market as elsewhere, use securitization procedures that allow them to sell packages of thousands of individual loans to outside investors. Most student lenders transform many of the loans they originate into student loan asset-backed securities (SLABS), which can be sold to investors or financial institutions. According to one market expert, about 85% of student loans are typically securitized. Securitization allows lenders to concentrate on originating loans if they choose not to hold those loans in their own portfolios. Most financial analysts have viewed such securitization strategies as a way to reduce the costs of lending, although some lenders, such as Sallie Mae, the largest issuer of guaranteed student loans, hold a substantial portion of the loans they originate in their own portfolios. Many other firms "warehouse" some loans that are in the process of being securitized. Securitization procedures, which provide student lenders access to broader capital markets, also can subject student lenders to risks associated with global capital movements and developments. In particular, a severe tightening of credit in international capital markets has had significant effects on student lenders. As interest rate spreads increased in late 2007 and early 2008, the cost of funds to commercial borrowers, including student lenders, has increased. Origination costs include not only fees paid to the federal government for guaranteed loans, but also the administrative costs of transactions with students and their schools. Student loan marketing costs have increased sharply as lenders have attempted to expand their market shares, especially in the private loan market. On the other hand, new information and communication technologies have sharply increased productivity in the banking industry, reducing servicing costs for student loans. According to the Department of Education, average student loan servicing costs range from approximately 30 basis points for larger, more efficient lenders, to about 60 basis points for smaller lenders and some not-for-profit lenders. A typical student loan origination costs larger, more efficient lenders about $25 per loan and costs smaller lenders about $75 per loan. Student loan defaults typically rise during economic downturns. Although some young graduates may be able to draw upon family resources, others may struggle in a weak job market and become unable to pay loans. Lenders are largely insulated from the costs of default on guaranteed student loans, although the College Cost Reduction and Access Act (as noted above) raised the proportion of default costs that lenders must bear, in large part due to the elimination of the "exceptional performer" status. Lenders or those holding loan-backed assets bear the costs of private loan defaults. According the most recent data, defaults among students attending proprietary schools are higher than among students attending public or private institutions, and default rates for students at four-year institutions are lower than for students at two-year programs. Lenders face prepayment risks when borrowers can consolidate or refinance loans at lower interest rates, which can reduce lender profit margins. For example, when students consolidate loans, one or more existing loans are paid off using funds from a new loan. Lenders who had held those existing loans receive early repayment, and thus receive no additional interest payments. Prepayment trends are highly dependent on changes in interest rates: when interest rates fall more borrowers with variable-rate loans find it worthwhile to prepay. In the past year, benchmark interest rates have fallen sharply, which may encourage some borrowers to prepay loans. Federal laws, however, restrict consolidation options of students. The introduction of a fixed 6.8% borrower rate for Stafford loans at the beginning of July 2006, as well as the scheduled reduction in borrower rates enacted in the College Cost Reduction and Access Act may reduce the value of consolidation options for many borrowers, and thus may reduce prepayment risks to lenders. Demand for student loans largely depends on the costs of higher education, the perceived value of obtaining higher education, and the value of alternatives to attending college, such as working. A demand curve for student loans shows the relationship between the volume of loans borrowers are willing to take and the price of those loans, that is, the borrower interest rate. A change in any of the factors underlying student loan demand will cause the demand curve to shift. For example, the college premium, defined as the difference between average wages of college graduates and those who did not attend college, has increased over the last quarter century, giving students and their families greater incentive to invest in higher education. An increase in the college premium, other things equal, causes the demand curve to shift, so that a larger volume of student loans is demanded at a given borrower interest rate. An Appendix explains shifts in demand and supply curves in more detail. Other changes may have ambiguous effects on the demand for student loans. The cost of college attendance has increased in real terms over the past few decades, which may discourage some students from enrolling, but may increase demand for loans among those students who do enroll. Economic conditions might also have ambiguous effects on demand for student loans. During economic downturns, students' ability to pay for higher education may decrease, although the opportunity cost of going to college may fall if other options, such as working or non-academic training programs, become less attractive. Interest rates paid by borrowers and those received by lenders for federally guaranteed loans are set legislatively. Because interest rates, which act as the price of a loan, are not set by a market mechanism, the student loan market will not clear: either lenders will be willing to supply more loans at the legislatively set lender interest rate than borrowers are willing to accept at the borrower interest rate, or more borrowers will want loans (at their interest rate) than lenders are willing to supply (at their interest rate). Figure 3 illustrates two cases. In the first diagram, demand for student loans (Q D ), given the borrower interest rate, falls short of loan supply (Q S ) at the lender rate. Lenders' profits are then represented by a trapezoid below the lender interest rate and above the supply curve, comprising regions A, C, and E. The triangle below the supply curve and above the demand curve represents deadweight loss (DWL). When loans are originated above the socially efficient level, indicated by the intersection of demand and supply curves, so that the social costs of some loans exceed the benefits gained by society, the resulting reduction in economic well being is called deadweight loss. An inefficiently low volume of student loans would also generate deadweight loss. Lenders earn economic rents (rectangle E) because they receive a price that exceeds their costs. An economic rent is a payment above the minimum needed to induce a given amount of supply. A small reduction in the lender interest rate shrinks rectangle E, hence squeezing lenders' rents, without reducing loan supply. In the second case, demand for student loans (Q D ), given the borrower interest rate, exceeds loan supply (Q S ) at the lender rate. Lenders earn no economic rents and some would-be borrowers are unable to obtain FFEL loans. These borrowers might obtain loans from the Direct Loan Program, if their school participated in that program, or from a lender of last resort. Otherwise, students may obtain non guaranteed private loans or might go without student loans altogether. In past discussions of changes in federal student loan subsidies, lender organizations warned that subsidy cuts could either reduce the flow of private capital into student lending, or increase the costs of student loans to borrowers. Furthermore, some lenders and their representatives warned that subsidy cuts or other program changes that reduced lenders' profitability would lead some lenders to exit the student loan market. On the other hand, if lenders do receive rents, then a small reduction in the lenders' interest rate squeezes those rents, but has no effect on output decisions, as shown in Case 1 in Figure 3 . Some economists and political scientists have argued that other market participants or political actors would try to capture some portion of those rents. In the guaranteed student loan market, many lenders provide colleges and universities with logistical and administrative support. The provision of such services to schools could stem from schools' ability to capture a portion of lenders' economic rents, presumably due to their control over preferred lender lists. Many colleges and universities develop preferred lender lists, based on lenders' perceived customer service quality, ability to offer borrower benefits, proximity, administrative convenience, or according to other criteria set by the institution. Preferred lender lists typically give contact information for a small (4-10) number of lenders. Students are not required to deal with lenders on the preferred list, but preferred lists are considered an important determinant of students' lender choices. Some student borrowers have been eligible for "borrower benefits," such as lower interest rates or the waiver of some fees. Only about one in 10 students, however, has been able to take full advantage of available borrower benefits. Some news reports in 2003 claimed that some lenders had struck deals with some university officials to switch school participation from FDLP to the FFEL. In 2007, the attorney general of New York State, Andrew Cuomo, uncovered numerous cases of conflicts of interest between college financial aid officials and student loan lenders. One Senate committee report concluded that "some FFEL lenders provided compensation to schools with the expectation, and in some cases an explicit agreement, that the school will give the lenders preferential treatment, including placement on the school's preferred lender list." The existence of such practices may suggest that at least some lenders were earning profits above the minimum level necessary to induce them to supply guaranteed student loans. The Department of Education estimated in July 2008 that pre-tax FFEL lender yield net of servicing and financing costs was 44—74 basis points above the commercial paper benchmark rate for for-profit lenders and 59—89 basis points above that rate for not-for-profit lenders. Student loan providers may react to recent market and legislative changes in several ways. Lenders may provide fewer benefits to students and schools, or may redirect resources to other markets, or may leave the loan market altogether. Banking, along with the student loan industry, has changed dramatically in the last decades. Mergers and acquisitions among banks and other financial institutions, claimed to have increased banking sector efficiency, also helped consolidate student lending. Lenders in the student loan market, like firms in any competitive market, have different cost structures, and some lenders may have competitive advantages in specific types of loans or in dealing with specific types of students. As margins narrow, either because legislative action has raised fees and cut subsidies or because of more difficult economic conditions, less-efficient firms could face strong pressures to leave segments of the student loan market. If other firms can serve those markets more efficiently, those firms will gain market share at the expense of exiting firms. If no firm can earn profits, however, firms exit and loan supply shrinks. If economic and legislative changes affect guaranteed student loan markets, some market segments are more likely to be affected than others. The average size of loans for students at four-year colleges and universities are larger than for two-year college students, which reduces the ratio of loan servicing costs relative to loan value. If the paperwork costs of originating and servicing a $5,000 loan are the same as for a $500 loan, then the latter loan is more costly to the lender. Lenders may perceive that some types of students or some areas of study are more prone to default or require higher servicing costs. Also, legislative changes may interact with financial-market conditions to affect particular market segments. For example, Salle Mae announced in April 2008 that it would stop offering federal consolidation loans, claiming that a combination of lower federal subsidies and a credit crunch made such loans unprofitable. Economic theory cannot predict exactly how student loan providers react to changes in financial markets and/or legislation because some factors have ambiguous effects and because magnitudes of key parameters can affect the size and direction of effects on market outcomes. Such issues can only be resolved by empirical research. A few studies have examined how lenders have reacted to past changes in SAP subsidy levels, and have found no measurable effects on the supply of guaranteed student loans. A 1994 study found that the supply of student loans did not respond to changes in subsidy levels. A CRS analysis conducted in 2007 also found that changes in SAP subsidy levels from 1997 through 2006 had no statistically significant effect on the supply of student loans. The analysis did find some statistically significant effects suggesting that lower interest rates for borrowers increased the demand for student loans. Analyses of historical data, however, may not reflect lender responses to recent subsidy cuts or during what some have termed an unusually severe credit crunch. Developments in financial markets, especially those associated with mortgage securities, have led many investors to become more cautious and less willing to accept risk. Investors, therefore, have been demanding greater compensation for taking risks in the form of higher interest rate spreads. Figure 4 shows the spread (difference) between 3-month AA-rated financial commercial paper securities and the 3-month constant maturity Treasury rate. This spread reflects financial markets' assessment of the riskiness of one key class of securities issued by financial institutions relative to Treasury securities of the same maturity. Higher interest spreads, in turn, raise the cost of capital for lenders. Although financial liquidity has fallen mostly due to developments in the real estate market in the United States and in other countries, wider concerns about economic and financial conditions have affected all credit markets. Because the lender interest rates for federally guaranteed Stafford loans disbursed since the start of 2000 are based on a commercial paper rate, student lenders are cushioned from risks associated with the spread between Treasury bill and commercial paper rates. Issuers of private student loans, which are not guaranteed, are not protected from those risks. Moreover, the design of federal guaranteed loan subsidies does not protect student lenders from other financial risks. For example, Figure 5 shows the spread between 3-month U.S. Dollar LIBOR (London Interbank Offer Rate) and an index of 3-month rates for financial commercial paper. Because many financial instruments are based on LIBOR interest rates, increased volatility in the difference between LIBOR and the commercial paper rates used in student lender subsidy formulae could expose those lenders to higher levels of financial risk. Finally, some student lenders have structured their finances in ways that have exposed them to financial risks generated by a wider credit crunch. In particular, many student lenders have raised funds through the auction-rate securities market, which has been strongly affected by the credit crunch. Some lenders have packaged student loans into securities whose interest rates are set at given intervals by an auction procedure. These auction-rate securities have been widely used in municipal finance and other financial markets. Interest rates for auction-rate securities are effectively tied to short-term market interest rates, even though the securities typically have long maturities. In past decades, variable-rate securities have required lower interest rates than fixed-rate securities on average. The theory of finance implies that investors require higher interest rates to hold fixed-rate securities that force them to bear more interest-rate risks. Many borrowers, such as municipalities and student loan originators, therefore viewed auction-rate securities as a cheaper way of raising funds, compared to alternative borrowing strategies. Widespread auction failures starting in mid-February 2008, however, left those markets with very little liquidity, casting doubt on the future viability of auction-rate securities. An issuer of auction-rate securities, such as a student lender, typically engages a broker/dealer, usually a major investment bank, to underwrite and distribute securities. The broker/dealer and issuer choose an auction agent, typically a bank, who oversees operation of the auction mechanism. The period between auctions is not standard, but is often 7, 28, or 35 days. Before each auction, interested investors state how much of an issue they wish to hold and specify the lowest interest rate they are willing to accept. The auction agent then compiles these bids and parcels out holdings to investors with the lowest interest rates until the entire issue is taken up. The interest rate of the last bidder assigned a portion, termed the "clearing rate," is then paid to holders until the next auction. Bidders who specified an interest rate above the clearing rate receive none of the issue. If bidders' requests are insufficient to take up the whole issue then the auction fails. The interest rate is set by terms of the securitization contract, and investors holding a portion of the issue retain their stake. For issuers, failure of an auction often raises interest costs well above prevailing short-term commercial paper rates. For investors holding portions of auction-rate securities, an auction failure often results in an attractive interest rate, but with severely constrained liquidity. Many investors, according to court documents, told that auction-rate securities were "cash equivalents," were left with illiquid investments with maturities of 10 years or more. On the other hand, some financial institutions had warned investors in previous years of possible liquidity risks in auction-rate securities markets. In the past, some broker/dealers have supported auction-rate markets by bidding on their own accounts to avoid auction failures, which could have reduced their ability to attract new underwriting clients. Before fall 2007, failures of interest auctions were considered unusual. In August 2007, interest rate spreads between government securities and money market rates (see Figure 4 ) exploded as concerns emerged that mortgage-backed liabilities could threaten the survival of some financial institutions. The scramble for liquidity put pressure on auction-rate securities, in which investors lacked a guaranteed option to sell holdings back to issuers or broker/dealers, so that liquidity for those securities depended on successful interest auctions. According to some sources, many large investment banks began to reduce holdings of auction-rate securities and began to market those securities more aggressively to small investors. Sales to small investors, however, provided an insufficient increase in demand to allow many auctions to run without broker/dealer support. When broker/dealers support auctions to avoid failures they absorb auction-rate securities onto their own balance sheets. In late 2008, some broker/dealers had accumulated substantial inventories of auction-rate securities as a result of supporting auctions. For example, court documents indicated that UBS increased its holdings of auction-rate securities by about 500% from June 2007 to January 2008. In the first half of 2007, UBS holdings of auction-rate securities had fluctuated between $1 billion and $2 billion. By February 8, 2008, UBS held nearly $10 billion in auction-rate securities, raising serious risk-management concerns at a time of mounting mortgage-backed securities losses. On February 13, 2008, most major broker/dealers ceased their support of interest auctions, leading to failures in the vast majority of auctions held that day. As a result, the auction-rate securities market has largely seized up, leaving investors with illiquid investments in long maturities. When auctions fail, interest rates are set by terms of the securization contract. In some cases, default interest rates revert to high levels that have caused some issuers financial stress, while in other cases interest rates are more in line with normal short-term rates. While many investors earn interest rates higher than usual money market rates, the lack of liquidity has decreased the value of many of those holdings. Small investors locked into auction-rate securities who have had to borrow to meet short-term obligations typically pay much higher rates than what those securities return. Auction failures have occurred for asset-backed securities that have little obvious relation to mortgage markets, such as student loans and municipal debt, where the financial risks embedded in the loans themselves appear minimal. Even though federal guarantees for student loans protect lenders or their assignees from most losses due to default, administrative and legal procedures required by the default process could delay payments to asset holders. That is, federal guarantees ensure eventual payment of most lost earnings due to default, but not prompt payment. In some cases, bond insurers provide guarantees of timely payment to holders of asset-backed securities. Concerns about the financial condition of bond insurers, therefore, might trigger investor concerns about timely payment, even if eventual repayment were federally guaranteed. Problems in the vast majority of auction-rate markets, however, probably stem from how auction-rate securities are structured, rather than from the quality of underlying assets. In particular, auction-rate securities provide investors with substantial liquidity so long as auctions function normally. When potential investors fear that auctions may fail, however, which would lock them into illiquid positions, they may hesitate to bid, especially when short-term credit has become more difficult or costly to obtain. Fears of auction failure may be self-fulfilling: concerns that auctions may fail will deter bidders, thus increasing the chance of a failure. The collapse of the auction-rate securities market put substantial strains on investors who had thought they were investing in highly liquid cash equivalents that then became highly illiquid. Many investors and financial professionals claim that they were not alerted to possible liquidity risks due to auction failures. Furthermore, many financial professionals claim that they were led to believe that dealers would play a more active role in preventing auction failures. One survey found that about two thirds of corporate treasurers in firms that held auction-rate securities, said that dealers had implied that support for auction securities to avoid auction failures, and 17% of treasurers said that dealers had explicitly promised such support. Unwinding of the auction-rate securities market will probably be complex, even when the quality of underlying assets, such as federally guaranteed student loans, is high. Some municipalities have restructured auction-rate securities debt and some other issuers have redeemed portions of security issues. Litigation initiated by state attorneys general and by class-action suits may play an important role in this restructuring. Citibank bought back about $7.5 billion in auction-rate securities from small investors as part of an agreement with the New York State Attorney General, and committed to unwind auction-rate securities holdings of larger investors as well. Some issuers of debt have viewed auction-rate securities as a less expensive means of borrowing funds compared to other variable-rate securities, such as variable rate demand obligations (VRDOs). In light of recent experience many debt issuers and investors will seek alternatives to auction-rate securities. As signs that student lenders might contract the supply of loans emerged in early 2008, Members of Congress have taken several actions intended to ensure that college students would be able to obtain loans necessary to financing their educations. On February 28, 2008, shortly after the Pennsylvania Higher Education Assistance Agency announced that it planned to halt issuing federal loans, the chairs of the House and Senate Education and Labor Committees (Representative George Miller and Senator Edward Kennedy) wrote to Secretary of Education Margaret Spellings, urging her to take steps to avoid any possible disruptions of the federal student loan programs. The Ranking Member of the House Education and Labor Committee (Representative Howard "Buck" McKeon) wrote to Secretary Spellings on February 15, 2008, asking her to monitor trends in the student loan market. On April 14, 2008, the House Education and Labor Committee reported H.R. 5715 , the Ensuring Continued Access to Student Loans Act of 2008 which would raise loan limits for Stafford loans, provide new options for parent borrowers, expand certain lender-of-last-resort options for borrowers and schools, and would allow the Secretary of Education to purchase FFEL student loan assets from lenders. The bill also raised the possibility of using federal financial institutions, such as the Federal Financing Bank, Federal Home Loan Banks, and the Federal Reserve, to assist in ensuring the smooth functioning of student loan finance. H.R. 5715 passed the House on April 17, 2008. Senator Kennedy introduced a similar bill ( S. 2815 ) on April 3, 2008, that would raise loan limits and take steps to ensure smooth functioning of the secondary (i.e., securitized) market for student loans. On April 30, the Senate passed an amended version of H.R. 5715 that the House accepted the next day. The President signed the measure ( P.L. 110-227 ) on May 7. On May 21, 2008, the Secretary of Education Margaret Spellings, using authority granted by the Ensuring Continued Access to Student Loans Act of 2008, announced plans to offer FFEL lenders the option of selling loans originated for the 2008-2009 academic year to the government. In addition, the government may buy a portion of student loan asset-backed securities (SLABS) and hold them up to the end of September 2008 in order to provide liquidity to lenders that have relied on securitization methods of finance. The Secretary has stressed her intention to ensure that the program, which aims to "protect lenders against losses on new loans for one year," will result in no net cost to the government. Details of the initiative, entitled the "Loan Purchase Commitment" and the "Loan Participation Purchase Program" were published in the Federal Register on July 1, 2008. Designing and administering programs that provide insurance benefits to sophisticated financial institutions that have access to modern risk-management and hedging techniques, and that would impose no net economic cost on the federal government would seem a challenging task, especially if FFEL lender yields were aligned closely with lender costs and if the costs of using federal funds were fully accounted for. The Department of Education, however, contends that these loan purchase programs could save the federal government money, because the reduction in interest subsidies paid to lenders would more than offset, according to its calculations, the costs of administering these programs and the costs of financial and operational risks that these programs might incur. Several Members of Congress and major student lenders have called for consideration of measures that might provide additional liquidity to the student loan market. Government decisions on whether to supply liquidity to financial markets in times of systemic financial stress have typically started with a consideration of Bagehot's Rule, which is explained below. Central banks for over a century have accepted responsibility for providing liquidity to markets during credit contractions, to avoid serious harm to solvent financial institutions that might affect the stability of financial markets as a whole. Central bankers, however, typically do not wish to reward financial institutions for having taken unwise or overly risky decisions. In the phrase of the English writer Walter Bagehot, central banks should "lend freely at a penalty rate on good collateral." In other words, central banks, according to Bagehot's law, should stand willing to exchange high quality but illiquid assets for highly liquid securities, such as Treasury bonds, but on such terms that provide incentives for prudent behavior in the future. Some proposals to inject liquidity into student loan markets reflect, at least in part, the logic of the Bagehot Rule. While few believe that difficulties in the student loan market, which comprises a small part of world financial markets, are a threat to the stability of national or international capital markets, a disruption of the student loan market could inflict substantial hardship on students or their families, as well as upon colleges and universities. Thus, offering loans or other forms of liquidity to student lenders during a credit contraction can help avoid harming students and higher education institutions. If such disruptions of the student loan market are due entirely to external forces, then there is little need to impose a penalty rate on lending to ensure prudent behavior in the future. On the other hand, if the availability of government liquidity on generous terms might encourage lender behavior that might lead to future financial disruptions, then some financial economists would argue that lending at a penalty rate would improve financial stability in the student loan market. In April 2008, Senator Dodd called on Ben Bernanke, Chairman of the Federal Reserve Board, and Treasury Secretary Henry Paulson to consider measures that might provide additional liquidity to the student loan market. Senator Dodd proposed that Secretary Paulson consider using the Federal Financing Bank (FFB) to play a role in the student loan market and that Chairman Bernanke consider allowing the Federal Reserve's newly created Term Securities Lending Facility (TSLF) to accept high-quality SLABS as collateral. On April 29, 2008, Representative Kanjorski introduced H.R. 5914 , the Student Loan Access Act, which would let the FFB buy certain securities backed by federally guaranteed loans. The Federal Financing Bank Act of 1973 ( P.L. 93-224 ,12 U.S.C. 2281 et seq.) created the Federal Financing Bank (FFB) to centralize and streamline federal debt management policies. FFB is a government corporation, but acts as an arm of the U.S. Treasury. The FFB provides a means for federal agencies to finance their credit programs by borrowing directly from the Treasury, and replaces earlier arrangements that allowed agencies to issue their own off-budget debt. In 1985, the Gramm-Rudman-Hollings Act ( P.L. 99-177 ) introduced additional controls on federal credit programs financed through FFB. The Federal Credit Reform Act of 1990 (FCRA) requires that the reported budgetary cost of a credit program equal the estimated subsidy cost at the time the credit is provided. The FCRA defines a subsidy cost as "the estimated long-term cost to the government of a direct loan or a loan guarantee, calculated on a net present value basis, excluding administrative costs." For a proposed credit program, Congressional Budget Office (CBO) must estimate the subsidy cost, and the Office of Management and Budget (OMB) becomes responsible for estimating the subsidy cost once legislation containing a federal credit program is enacted. In the view of OMB, FCRA requires that any estimated subsidy amount ( even if zero ) be covered by an enacted appropriation of budget authority. Therefore, under OMB's interpretation of FCRA, allowing the FFB to purchase student loans or assets backed by student loans would require legislation providing budget authority to cover any subsidy or administrative costs that the federal government might incur. In the past, FFB has only purchased assets that are 100% guaranteed by the federal government. While FFEL and FDLP loans carry federal guarantees, those guarantees are not complete, except in certain, limited circumstances. While securities backed by federally guaranteed student loans may carry other guarantees for investors, those securities are not fully guaranteed by the federal government. Thus, proposed FFB purchases of student loans or securities backed by student loans would represent a significant change in FFB practices. The Federal Reserve's Term Securities Lending Facility, established March 11, 2008, provides liquidity to financial markets by allowing primary dealers (i.e., banks and securities brokerages that trade in U.S. government securities with the Federal Reserve System) to exchange high quality but illiquid assets for Treasury securities, which are widely considered cash equivalents. The Federal Reserve announced on May 2, 2008 that primary dealers may pledge AAA/Aaa-rated asset-backed securities as collateral in upcoming Term Secured Lending Facility auctions, a measure intended to provide liquidity to various financial markets, including the market for securitized student loans. On July 30, 2008, the Federal Reserve said it would extend the TSLF until January 30, 2009. Since the inception of the federal guaranteed student loan program, Congress has sought to allow lenders an "equitable" return on capital to ensure an adequate supply of student loans and to avoid disruptions that would interfere with the educational plans of students. As financial markets have evolved and banking practices have become more efficient, however, lender yields that were once perceived to be "adequate" may have, over time, allowed student lenders to earn rents (that is, receive a price above their costs). From time to time, Congress has adjusted lender subsidy formulae with the aim of bringing lender yields more in line with lender costs, thus reducing costs to taxpayers or making funds available for other priorities while avoiding supply disruptions. Because the true economic costs of lenders are not easily observed, and because costs in different segments of the student loan market differ, achieving a precise alignment of lender yields and lender costs is difficult. Moreover, lenders have different cost structures, so that a cut in lender interest rate subsidies that would allow a highly efficient, low-cost lender to earn a profit might put considerable pressure on another lender with higher costs. The latest legislation to adjust lender yields for guaranteed student loan programs, the College Cost Reduction and Access Act of 2007, according to its sponsors, was intended to reduce "excess" subsidies to student lenders. Student lenders and industry associates have claimed that those subsidy reductions would force many student lenders from the market, potentially disrupting loan supply and complicating financial arrangements of many students and their families. Since early 2008, several dozen lenders have announced plans to leave the student loan market in part or in full, raising concerns that inadequate supply of student loans could disrupt financial aid arrangements in the 2008-2009 academic year. Evaluating the effects of subsidy reductions and changes in lender insurance provisions, however, is difficult to separate from the effects of episodes of turmoil in global financial markets that emerged about the same time as the last stages of congressional consideration of the College Cost Reduction and Access Act of 2007. Congress, by passing the Ensuring Continued Access to Student Loans Act of 2008 and through other initiatives, has sought to put in place mechanisms that would avoid or at least mitigate any such disruption in the near term. The need for other measures or for more thorough going changes in federal student loan policy in the longer term may depend on how the current economic slowdown develops, and how financial markets react and evolve in the face of challenging economic conditions. This appendix explains how economic, demographic, and other factors can affect the demand for student loans and the supply of student loans using basic microeconomics. A demand curve shows a relationship between price and the quantity of a good or service that consumers want to buy at that price, holding other factors constant. In a market for loans, the interest rate is the price and the volume of loan originations is a typical measure of quantity. Demand Shifts Demand for student loans is a derived demand , meaning that students and their families presumably value the benefits of higher education, which loans help finance, rather than the loans themselves. That is, the willingness of students and their families to take student loans depends on the attractiveness of higher education. When some factor that helps determine the demand curve changes, the demand curve shifts. For example, when the number of graduating high school students increases, the demand curve ( DD in Figure A-1 ) shifts to the right ( D ' D ' ), so that at any given price, a higher quantity of loans is demanded. Conversely, a decrease in the number of new high school graduates would shift the demand curve to the left. Changes that most economists believe would cause the demand for student loans to shift to the right include the following: increases in the college premium (the average difference between wages earned by college graduates and those earned by those who have not attended college), increases in the size of traditional college-age cohorts (18-21), increases in the number of non-traditional students. Some factors could arguably increase or decrease demand for student loans. For example, an increase in the unemployment rate may reduce income, which could reduce demand for higher education and student loans. Alternatively, higher unemployment could reduce the amount of income a student would lose by attending school, which could increase demand for higher education. Thus, the effect of rising unemployment on demand for student loans is ambiguous. The cost of higher education also may have an ambiguous effect on demand for student loans. Higher tuition costs could increase the demand for loans, or could discourage some students from attending. Similarly, family income could also have an ambiguous effect on the demand for student loans. At some income levels, an increase in income could increase the probability of attending college, while at higher income levels, additional income might reduce the need for loans. The effect of unemployment, higher tuition, and family income on demand for higher education, therefore, can only be resolved by empirical research. Supply Shifts Similarly, a supply curve shows the relationship between price and the quantity of a good or service that firms are willing to supply, holding other factors constant. The lender interest rate or the yield lenders receive acts as the price in loan markets. A competitive firm's supply curve is its marginal, or incremental, cost schedule. The supply curve shifts when something changes lenders' costs. For example, if lenders' cost of funds, then profit-maximizing lenders will be willing to offer fewer loans at a given price, so that the supply curve shifts to the left (from SS in Figure A-1 to S ' S ' ). For FFEL lenders, who receive a yield based on increases relative to an index of commercial paper rates, the cost of funds rises if market interest rates used to finance loans rise relative to commercial paper rates, which may occur in periods of high financial volatility. On the other hand, if lenders find more efficient ways to service loans, thus lowering their costs, then the supply curve shifts to the right. Other factors that economists believe would shift the supply of student loans to the left include the following: increased default rates, higher loan servicing costs (especially in comparison to loan size), higher marketing costs. Student Loan Markets Differ From Other Markets As noted in the Introduction, student loan markets differ from other markets in important ways. In many types of loan markets, lenders and borrowers have imperfect information about each other, which may lead to problems of adverse selection and moral hazard. Adverse selection occurs when lenders cannot distinguish between more and less risky borrowers, which can prevent less risky borrowers from obtaining loans on terms that reflect their low risk of default. Moral hazard occurs when lenders cannot monitor borrowers, so that some borrowers may take actions that increase risk to the lender. For example, moral hazard would occur if students were less careful with borrowed funds than with their own earnings. Both adverse selection and moral hazard can cause loan markets to function inefficiently or to shut down completely. While some loan markets mitigate such problems via collateral requirements or the use of credit score information, those approaches are not easily applied to student loan markets. The aim of federal student loan guarantee programs, according to many economists, is to support a competitive loan market by mitigating potential adverse selection and moral hazard problems. By guaranteeing loans, the federal government greatly reduces lenders' risk exposure, lessening adverse selection problems. Enforcing standards and procedures on lenders and institutions of higher education, and requiring lenders to retain a small portion of default risk, many analysts would argue, reduces moral hazard problems. | Since 1966, the federal government has provided guarantees and subsidies to approved private lenders or certain state government entities that make student loans. College graduates' enhanced human capital is generally not viewed as collateral. Lenders, without federal subsidies and guarantees, would charge interest rates more in line with other unsecured loans, such as credit card debt, that could push the financial costs of higher education beyond the reach of many students and their families. Although federal subsidies for student lenders have probably expanded access to higher education, some observers have contended that subsidy rates were higher than necessary to ensure students' access to educational loans. The College Cost Reduction and Access Act (P.L. 110-84), enacted in September 2007, was motivated, in part, by the impression that lender subsidies within the Federal Family Education Loan (FFEL) program had been higher than necessary. The act cut interest rate subsidies to lenders and increased the proportion of default costs borne by lenders. Starting in February 2008, some student lenders encountered difficulties in the secondary loan market—a market in which securities backed by bundles of student loans, often called SLABS (student loan asset-backed securities), are sold to investors. Turmoil in world capital markets in late 2007 and 2008 appears to have raised interest costs to some student lenders. Specifically, widespread failures of auction-rate securities markets beginning in mid-February 2008 have raised costs of funds for some student lenders. In early 2008, some FFEL program lenders announced plans to make fewer student loans within certain market segments in response to a tightened credit market and recent legislation. In particular, some lenders have announced plans to reduce the number of loans to students attending certain institutions, such as two-year and proprietary schools. Some observers contend that student lenders have overstated their recent troubles. Nonetheless, loans remain available through the William D. Ford Federal Direct Lending Program (FDLP). In response to growing concerns about the availability of student loans for the 2008-2009 academic year, Congress passed Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715; P.L. 110-227), which was signed into law on May 7, 2008. The act raises loan limits for Stafford loans (which some claim would reduce demand for private student loans), provides new options for parent borrowers, expands the lender-of-last-resort program, and allows the Secretary of Education to purchase FFEL student loan assets from lenders. The Secretary has announced plans to purchase student loans originated for the 2008-2009 school year. Some Members of Congress and participants in the student lending market have called for consideration of additional measures that might introduce liquidity into the market for securitized student loans using the Federal Financing Bank or other federal entities. This report will be updated as warranted. |
This report discusses the FY2017 budget request, related congressional actions, and appropriations (discretionary budget authority) for the Bureau of Economic Analysis (BEA) and Bureau of the Census (Census Bureau). These entities make up the Economics and Statistics Administration (ESA) in the U.S. Department of Commerce, which is funded under annual appropriations for the Departments of Commerce and Justice, and science and related agencies (CJS). The report focuses primarily on the Census Bureau, whose budget justification is published separately from ESA's and whose budget is far larger. Table 1 , below, shows the FY2016-enacted and FY2017-requested amounts for ESA, BEA, and the Census Bureau, with its two major accounts. Also shown are the amounts recommended by the House and Senate Committees on Appropriations for ESA (with no separate breakouts provided for BEA) and the Census Bureau, as well as the FY2017-enacted amounts. The Economics and Statistics Administration provides policy support and, through the Commerce Department's Under Secretary for Economic Affairs, management oversight for the Bureau of Economic Analysis and Census Bureau. ESA's policy support staff conducts economic research and analyses "in direct support of the Secretary of Commerce and the Administration." ESA "monitors and interprets economic developments," together with "domestic fiscal and monetary policies," and "analyzes economic conditions and policy initiatives of major trading partners." The Bureau of Economic Analysis, like the Census Bureau, is one of 13 principal federal statistical agencies, each of whose primary mission is statistical work. According to the Administration's budget justification for ESA, "BEA's national, industry, regional, and international economic accounts present valuable information on key issues such as U.S. economic growth, regional economic development, inter-industry relationships, and the Nation's position in the world economy." The statistical measures produced by BEA include "gross domestic product (GDP), personal income and outlays, corporate profits, GDP by state and by metropolitan area, balance of payments, and GDP by industry." The Census Bureau conducts the decennial census under Title 13 of the U nited S tates Code , which also authorizes the bureau to collect and compile a great variety of other demographic, economic, housing, and governmental data. The bureau's activities include the production of Current Economic Statistics that provide wide-ranging, detailed data about the U.S. economy; Current Demographic Statistics—among which are intercensal demographic estimates, population projections, and Current Population Reports ; and, in addition to the decennial census, the American Community Survey and two quinquennial censuses, the economic census and the census of governments. The Administration's FY2017 budget request for the Economics and Statistics Administration (including BEA but not the Census Bureau) was $114.6 million, $5.6 million (5.2%) above the $109.0 million enacted for FY2016. Of the $114.6 million, $4.0 million was to fund ESA's policy support and management oversight. The request exceeded the $3.9 million FY2016 appropriation by $83,000 (2.1%). The rest of the FY2017 request, $110.7 million, was to go to BEA and would have been $5.6 million (5.3%) more than the agency's $105.1 million FY2016-enacted funding level. The FY2017 budget justification for BEA noted that the Census Bureau's "economic indicators program provides the essential data building blocks" for measures like GDP, gross domestic income, corporate profits, and GDP by industry. The two agencies proposed working together to improve the timeliness and accuracy of the key economic indicators and expand their coverage, such as by including the real estate, health care, accommodations and food services, and administrative and waste management sectors in the Census Bureau's Quarterly Financial Report. Another new initiative for FY2017 would have involved BEA's development of a "regional economic dashboard" featuring county-level GDP measures. The Administration's FY2017 budget request for the Census Bureau was $1,633.6 million, $263.6 million (19.2%) more than the FY2016-enacted amount of $1,370.0 million. As discussed later in this report, the increase was largely due to heightened preparations for the 2020 Decennial Census. Requested funding for the decennial census, by far the bureau's most costly and visible endeavor, rises steadily throughout each decade, peaks in the census year, and decreases steeply thereafter. The FY2017 request was divided between the bureau's two major accounts: Current Surveys and Programs would have received $285.3 million, a $15.3 million (5.7%) increase over the $270.0 million enacted for FY2016, and 17.5% of the total requested for the bureau; Periodic Censuses and Programs—the account that funds the decennial census—would have received $1,348.3 million, $248.3 million (22.6%) more than the $1,100.0 million approved for FY2016, and 82.5% of the bureau's total request. Of the entire budget request for ESA—$1,748.2 million if the Census Bureau is included—fully 77.1% was for Periodic Censuses and Programs; another 16.3% was for Current Surveys and Programs. The amounts for BEA and ESA's policy support and management oversight constituted relatively small proportions of the whole request, 6.3% and 0.2%, respectively. Figure 1 , below, shows the percentage allocations for all these components of ESA. The Current Surveys and Programs account consists of Current Economic Statistics and Current Demographic Statistics. The FY2017 request for Current Economic Statistics was $194.7 million, $10.5 million (5.7%) more than the $184.2 million approved for FY2016. These statistics, from the major sources noted below, provide wide-ranging, detailed data about the U.S. economy. Business statistics come from sources including current retail, wholesale, and service trade reports and "are important inputs" to BEA's estimates of gross domestic output and to "the Federal Reserve Board and Council of Economic Advisers for the formulation of monetary and fiscal policies and analysis of economic policies." The budget request for business statistics in FY2017 was $44.0 million, $1.4 million (3.4%) more than the $42.6 million enacted for FY2016. Construction statistics "provide national performance indicators for the construction sector of the economy." They are derived from data on building permits, housing starts, and "construction put in place," which refers to the estimated total dollar value of construction work done in the nation each month. The FY2017 request for construction statistics was $16.8 million, $4.0 million (31.6%) above the $12.7 million enacted for FY2016. Manufacturing statistics come from sources such as the Annual Survey of Manufactures and the Annual Capital Expenditures Survey of capital investments by private nonfarm businesses. They supplement data from the economic census and, by measuring "the overall performance of the U.S. manufacturing sector," provide a "critical economic benchmark." The $21.3 million requested for manufacturing statistics in FY2017 was $2.1 million (10.9%) more than the FY2016-enacted amount of $19.2 million. General economic statistics originate with certain administrative records of, for example, the Internal Revenue Service, as well as surveys conducted by the Census Bureau, including the Quarterly Financial Report survey on the finances of U.S. corporations. General economic statistics, according to the Administration's budget justification for the Census Bureau, "are essential to understanding the changing economic structure of the United States." The FY2017 request for general economic statistics was $64.0 million, $1.1 million (1.7%) above the $62.9 million enacted for FY2016. Foreign trade statistics , from sources such as U.S. Customs and Border Protection and Canadian agencies, "provide official monthly statistics on imports, exports, and balance of trade for all types of merchandise moving between the United States and its international trading partners." The amount requested for foreign trade statistics in FY2017 was $34.9 million, $110,000 (0.3%) more than the $34.8 million enacted for FY2016. Government statistics are compiled from surveys of state and local governments. They cover the "revenues, expenditures, debt, and financial assets" of these governments, as well as government employment. The $13.8 million FY2017 request for government statistics was $1.8 million (14.6%) above the FY2016-enacted amount of $12.0 million. For Current Demographic Statistics in FY2017, the budget request was $90.6 million, $4.8 million (5.6%) above the $85.8 million FY2016 funding level. These statistics include the following collections and analyses of demographic data. Foremost among the household surveys under Current Demographic Statistics is the monthly Current Population Survey (CPS) of about 58,000 U.S. households that the Census Bureau has conducted for the Bureau of Labor Statistics (BLS) "for more than 50 years," with about two-thirds of the funding supplied by BLS. Although the CPS's primary purpose is "to provide detailed labor force characteristics of the civilian non-institutional population and the monthly unemployment rate, a leading economic indicator," the survey also produces housing vacancy data and includes regular supplements that gather additional data. As examples, the CPS conducts the Annual Social and Economic Supplement every March, a Fertility Supplement every other June, a School Enrollment Supplement every October, and a Voting and Registration Supplement every other November. Further, "other agencies sponsor supplements to the CPS in other months." These supplements cover topics such as "child support and alimony, tobacco use, volunteers, and food security." The FY2017 request for household surveys was $57.8 million, $1.2 million (2.1%) more than the FY2016-enacted amount of $56.6 million. The bureau's population and housing analyses include the Current Population Reports on various characteristics of the U.S. population; research concerning income, poverty, and wealth in the United States; and housing statistics compiled from the Housing Vacancy Survey. To fund population and housing analyses in FY2017, the request was $10.4 million, $991,000 (10.6%) more than the $9.4 million enacted for FY2016. The bureau's intercensal demographic estimates provide, between the decennial censuses, a series of population estimates by age, sex, race, and Hispanic ethnicity for the total United States, states, and counties; estimated population totals for sub-county areas and metropolitan areas; estimates by age and sex for Puerto Rico and the municipios; and national-, state-, and county-level estimates of housing units. The FY2017 budget request proposed combining under intercensal estimates the production of population projections as well as estimates. Projections analyze administrative data and population trends to indicate the future sizes of the U.S. and state populations. The FY2017 request for intercensal demographic estimates, perhaps reflecting their proposed broader scope, was $11.9 million, $1.8 million (18.0%) above the $10.1 million FY2016-enacted amount. The bureau's demographic surveys sample redesign provides improved sampling methods, sample designs, and data processing systems "essential to maintain the relevance, accuracy, and quality" of "the major household surveys" that the bureau conducts under the sponsorship of other federal agencies. The FY2017 request for demographic surveys sample redesign was $10.5 million, $796,000 (8.2%) above the $9.7 million enacted for FY2016. Under this account—with an FY2017 budget request that, as previously mentioned, constituted 82.5% of the total for the Census Bureau and 77.1% of the entire amount for ESA—the bureau identified certain programs considered critical for creating "a data-driven government." They included the 2020 Decennial Census, American Community Survey (ACS), 2017 Economic Census, and 2017 Census of Governments. Below is a discussion of each program, followed by information about the bureau's new IT initiative, the Census Enterprise Data Collection and Processing System (CEDCaP), which will affect multiple data collections. The U.S. Constitution requires a population census every 10 years, to serve as the basis for apportioning seats in the House of Representatives. Decennial census data also are used for within-state redistricting and in certain formulas that determine the annual distribution of more than $450 billion in federal funds to states and localities. In addition, census numbers are the foundation for constructing intercensal demographic estimates and population projections. The Administration requested $778.3 million for the 2020 Decennial Census in FY2017, a $179.4 million (30.0%) increase from the $598.9 million enacted for FY2016. The 2020 census request, which was 57.7% of the total for the Periodic Censuses and Programs account and 47.6% of the total for the Census Bureau, reflected the cyclical "ramp-up" of preparations for the next census and its designation by the bureau as a major initiative for FY2017. In presenting this request, the budget justification also proposed amending the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended, to "allow an adjustment to the discretionary spending limits for the cyclical increase in decennial census operations." The document noted that "without adequate funding in the decade's middle years," the bureau "is less able to test and implement cost-saving innovations; the result is an increase in any potential costs that might occur in later years from operational failures due to lack of sufficient testing." With respect to the next census, a "cap adjustment" could avoid "either a large emergency appropriation for a predictable funding need in 2020" or "trade-offs in other discretionary programs as Census needs squeeze out other spending." Such an adjustment "would begin no later than 2018." It was "not included as an adjustment to the proposed 2017 Budget caps at this time in order to present its merits first." Mandate to Control the Cost of the Census . As directed by Congress, the Census Bureau is attempting to design and conduct the 2020 census at a lower inflation-adjusted cost per housing unit than in 2010. In April 2015 congressional testimony, the Government Accountability Office (GAO) stated that the cost to enumerate each housing unit "escalated from around $16 in 1970 to around $94 in 2010, in constant 2010 dollars (an increase of over 500 percent)." At a total life-cycle cost approaching $13 billion, the 2010 census was the most expensive in U.S. history. Its cost was about 56% greater than the 2000 census total of $8.1 billion, in constant 2010 dollars. The bureau is focusing on 2020 census cost-control innovations in four major areas: Before past censuses, the bureau conducted address canvassing to try to ensure that it had the correct addresses and map locations of all U.S. residences. For the 2020 census, the bureau proposes canvassing the whole nation, as in previous censuses, but, insofar as possible, adding new addresses to the "address frame using geographic information systems and aerial imagery instead of sending Census employees to walk and physically check 11 million census blocks." The 1970 through 2010 censuses were primarily mail-out, mail-back operations. The bureau proposes replacing as much of the mail phase of the 2020 census as possible by offering the public an online response option. In past censuses, the bureau generally followed up with nonrespondents by telephoning them or visiting their homes. The bureau proposes using administrative records, "data the public has already provided to the government," as well as "information from commercial sources," to reduce the extent of nonresponse follow-up in 2020. For whatever nonresponse follow-up remains necessary, the bureau proposes "using sophisticated operational control systems" to send employees into the field and "track daily progress." The bureau estimates that these innovations could save more than $5 billion. Its current estimate of the cost to repeat the 2010 design in the 2020 census is $17.8 billion, compared with $12.5 billion for a reengineered census. FY2017 Activities in Preparation for the 2020 Census . Summarized below are activities the bureau intended to undertake in FY2017. The budget justification cautioned that insufficient funding for these activities will prevent the bureau from conducting the 2018 census end-to-end test "with planned systems and operations integration." The 2018 test will be the final one before "2020 production" begins. If—according to what the budget justification maintained—the bureau cannot prepare adequately for this test and thus cannot reduce the risk inherent in redesigning 2020 census operations, especially the technology supporting field work, it will have to opt for a less innovative, more expensive census. The bureau planned to conduct a nationwide 2016 address canvassing test early in FY2017. It was to involve procedures for both in-office and in-field canvassing and "ensure the address quality and housing unit coverage" required for a successful census. It also was to "demonstrate the feasibility of collecting address and spatial data on devices that range from laptops to smartphones," running on "multiple operating systems." The 2017 test of the decennial census was to "mirror key dates and milestones" for the 2020 census. One 2020 operation that was to undergo its first field test in FY2017 was "update enumerate," in which the bureau was to update certain addresses in the Master Address File/Topologically Integrated Geographic Encoding and Referencing System and enumerate the corresponding housing units simultaneously, and was to use the nonresponse follow-up strategy planned for 2020. Part of the 2017 test was to occur "in an urban site with representative groups" whose English-language proficiency is limited and who historically have been difficult to enumerate. The bureau was to examine as well "comprehensive data capture solutions for paper-based data collection operations" and test responses via the Internet and real-time data processing "using cloud services." The 2017 test was to focus, too, on developing systems to make field operations more efficient, including "automated enumeration instruments" on handheld computers and "dynamic case management" for streamlining field operations. More broadly, the test was to focus on integrating operations and systems, particularly with the bureau's new information technology (IT) system, CEDCaP. Because of funding uncertainties, the bureau announced on October 18, 2016, that it would scale back the 2017 test, retaining the test of census compliance with a national sample, but ceasing plans to test field operations in three Puerto Rican municipios, the Standing Rock Indian Reservation in North and South Dakota, and the Colville Indian Reservation and Off-Reservation Trust Land in Washington State. At the time, the bureau stated that it would consider including these areas in the 2018 census test. In FY2017, the bureau was to continue researching and testing various administrative records to determine their suitability for the 2020 census. This work was to include "testing the coverage and quality of the records for obtaining information from non-responding housing units." Taking another "significant" step in FY2017, as the budget justification stated, the bureau was to begin the "very long and arduous" process of leasing space for six regional centers to support 2020 census operations. In addition, the bureau was to start "planning the 2020 Census Communications and Partnership Programs" in FY2017. The 2020 paid advertising campaign will be a major part of the communications strategy, and the partnership program will seek to engage census stakeholders in communicating the importance of the enumeration to the public. Also, as required under Title 13, Section 141 (f)(1), of the United States Code , the bureau delivered the 2020 census topics to Congress on March 28, 2017. The topics include gender, age, race, Hispanic or Latino ethnicity, relationship of each household member to the person filling out the census form, and whether the housing unit is owned or rented. The American Community Survey, which the Census Bureau implemented nationwide in 2005 and 2006, is the replacement for the decennial census long form. From 1940 to 2000, the bureau used the long form to collect detailed socioeconomic and housing data from a representative sample of U.S. residents in conjunction with the once-a-decade count of the whole resident population. The ACS covers about 3.5 million households a year. It is sent monthly to small samples of the population, and the results are aggregated to produce data at regular intervals, ranging from yearly for areas with at least 65,000 people to every five years for areas with fewer than 20,000 people. The survey is conducted in every county of the 50 states, the District of Columbia, and all Puerto Rican municipios. The bureau releases more than 11 billion ACS estimates every year on more than 40 topics. For rural areas and small groups within the population, the ACS is the sole source of data on many of these topics. The Administration's FY2017 request for the ACS was $251.1 million, $20.2 million (8.7%) above the FY2016-enacted amount of $230.9 million. According to the budget justification, the Census Bureau's planned use for part of the FY2017 ACS funding was to develop or restore several operations designed to enhance data quality and secure cooperation from those selected to fill out the survey. Field representative refresher training gives ACS field workers additional classroom instruction in interacting respectfully with respondents, clarifies difficult survey concepts, and explains field procedures. The budget justification stated that the absence of this annual training since FY2012 had heightened the risk of reduced ACS data quality, schedule delays, cost increases, and respondent complaints. The bureau proposed to develop and conduct the same annual refresher training for its ACS contact center staff as it sought to reinstate for its field representatives. General performance reviews of field workers by regional office supervisors reinforce correct ACS interviewing techniques, field procedures, and conduct with respondents. The budget justification stated that "continued failure to conduct these reviews," which had been "deferred due to resource constraints," risked the same negative consequences as noted above concerning the suspension of field representative refresher training. In addition, at congressional direction, the bureau proposed to conduct new research, such as on data collection procedures, intended to reduce ACS "respondent burden" and increase "program efficiency"; and continue an ongoing "comprehensive review," of all ACS questions, which could result in alternative data sources being used for certain information or some questions being reworded. The economic census originated in the early 19 th century, when "Congress responded to a rapid increase in industrial activity" by instructing 1810 census enumerators to "'take an account of the several manufactures within their several districts, territories and divisions.'" As the budget justification stated, the modern economic census, conducted every five years, is "the primary source of facts about the structure and functioning of the U.S. economy." Data from this census "provide the foundation for other key measures of economic performance," including GDP and the Bureau of Economic Analysis's national income and product accounts. Indeed, "practically all major federal government economic statistical series are directly or indirectly dependent on the economic census." The Administration requested $127.3 million for economic census activities in FY2017, a $2.0 million (1.6%) increase over the $125.2 million enacted for FY2016. FY2017 was the third year of the six-year funding cycle for the 2017 Economic Census, which was to "collect data on over 29 million establishments." FY2017 activities, building toward the 2017 census, were to center on a test of the CEDCaP system for collecting and processing data from all sectors of the economy, together with a test of response tracking. As a cost-control measure, the bureau planned a 2017 census with "100% Internet" reporting. The bureau's plans called for using administrative records to supply information for establishments that did not respond electronically and to reduce the reporting burden on businesses. The census of governments is the Census Bureau's other major quinquennial census. It has been conducted since 1957 in conjunction with the economic census. The budget justification stated that these two censuses "cover nearly all" of GDP. The census of governments is the principal source of information about the structure and functioning of state and local governments. It provides information about government organization and intergovernmental relationships; the number of full-time and part-time government employees; and finances, including revenues, expenditures, and assets of public pension systems. In non-census years, the bureau compiles government statistics from a sample of state and local governments. The Committee on National Statistics at the National Academies of Sciences, Engineering, and Medicine has "identified Census Bureau data on state and local governments as the only comprehensive source on the fiscal welfare" of these governments, which, the budget justification noted, account for about 12% of GDP and 15% of the civilian labor force. The Administration's FY2017 request for the census of governments was $12.3 million, $3.4 million (38.1%) more than the FY2016-enacted amount of $8.9 million. The request reflected the collection and initial processing of 2017 census data. To control expenses and reduce the reporting burden on governments, the bureau proposed substituting administrative records and "central collection methods among the states" for field work, insofar as possible, and expanding the use of electronic state-level data collection. FY2017 was the third year for the Census Enterprise Data Collection and Processing initiative, funded under the Periodic Censuses and Programs account. CEDCaP is an overarching IT system, encompassing such major data collections as the decennial census, ACS, economic census, and census of governments. According to the budget justification, CEDCaP "will create an integrated and standardized system of systems that will offer shared data collection and processing across all censuses and surveys." This initiative is expected to "consolidate costs by retiring unique, survey-specific systems and redundant capabilities and bring a much greater portion of the Census Bureau's total IT expenditures under a single, integrated and centrally managed program." The bureau also will "halt the creation of program-specific systems and put in place a solution that will be mature and proven for the 2020 Census." In contrast to CEDCaP, the bureau currently has "six unique systems" to manage survey samples; "twenty unique systems to manage the different modes of data collection, data capture, and field control; and five major unique survey and census data processing systems." The Administration requested $104.0 million for CEDCaP in FY2017. The budget justification did not give the FY2016 funding level for this initiative. The bureau's FY2017 plans for CEDCaP included the delivery of several systems to support the 2017 Economic Census and the Company Organizational Survey/Annual Survey of Manufactures, as well as the 2017 test of the decennial census. In April 2015 congressional testimony, the Government Accountability Office identified CEDCaP as "an IT investment in need of attention" and "projected to cost about $548 million through 2020." Two months earlier, GAO had reported that CEDCaP consists of 14 projects, 4 of which are related to the 2020 Decennial Census Internet response option. Particular attention to this area is warranted in order to avoid repeating the mistakes of the 2010 Decennial Census, in which the bureau had to abandon its plans for the use of handheld data collection devices, due in part to fundamental weaknesses in its implementation of key IT management practices. On April 21, 2016, the Senate Appropriations Committee reported S. 2837 , the Departments of Commerce and Justice, Science, and Related Agencies Appropriations Bill, 2017, with recommended funding of $109.0 million for the Economics and Statistics Administration (showing no separate breakout for BEA). The recommendation was identical to the FY2016 funding level for ESA and $5.6 million (4.9%) below the FY2017 request of $114.6 million. As reported by the Senate Appropriations Committee, S. 2837 recommended $1,518.3 million for the Census Bureau in FY2017, $148.3 million (10.8%) above the FY2016 funding level of $1,370.0 million and $115.3 million (7.1%) below the $1,633.6 million requested for FY2017. Current Surveys and Programs would have received $270.0 million, the same as the FY2016-enacted amount and $15.3 million (5.4%) below the FY2017 request of $285.3 million. Periodic Censuses and Programs would have been funded at $1,248.3 million, $148.3 million (13.5%) more than the $1,100.0 million enacted for FY2016 and $100.0 million (7.4%) less than the $1,348.3 million FY2017 request. The bill provided that $2.6 million of the amount for Periodic Censuses and Programs was to be transferred to the Commerce Department's Office of Inspector General (OIG) for continued "oversight and audits of periodic censuses" and "independent recommendations" to improve 2020 census operations. The Senate committee directed that the bureau should "continue to work to bring down the cost of the 2020 Decennial Census to a level less than the 2010 Census, not adjusting for inflation." The committee further directed the bureau to "work with Federal, State, tribal, local, and other partners" to obtain the administrative records necessary for conducting a less expensive, "more efficient" nonresponse follow-up in 2020; maintain "cost estimates and implementation timelines" for the CEDCaP initiative; and make CEDCaP "fully secured against cyber attacks and intrusions" before putting any of it into operation. Expressing support for the ACS, the committee noted that it "is often the primary or only source of data available to States, localities, and Federal agencies that need adequate information on a wide range of topics," but directed the bureau to provide the committee with "an update" about efforts to reduce, if possible, the number of ACS questions and ensure that the survey "is conducted as efficiently and unobtrusively as possible." The House Committee on Appropriations approved the House version of the FY2017 CJS appropriations bill, H.R. 5393 , on June 7, 2016. The bill recommended $107.0 million in funding for ESA (with no separate breakout for BEA), $2.0 million (1.8%) less than the $109.0 million enacted for FY2016 and approved by the Senate Appropriations Committee for FY2017, and $7.6 million (6.7%) below the $114.6 million FY2017 request. H.R. 5393 , as reported by the House Appropriations Committee, was to fund the Census Bureau at $1,470.0 million in FY2017, $100.0 million (7.3%) above the $1,370.0 million FY2016 funding level, $163.6 million (10.0%) less than the $1,633.6 million requested for FY2017, and $48.3 million (3.2%) below the Senate committee's recommended $1,518.3 million. The $270.0 million approved for Current Surveys and Programs, which equaled the FY2016-enacted and FY2017 Senate committee-recommended amounts, was $15.3 million (5.4%) under the $285.3 million FY2017 request. Funding for Periodic Censuses and Programs was to be $1,200.0 million, $100.0 million (9.1%) above the $1,100.0 million FY2016-enacted level, $148.3 million (11.0%) less than the FY2017 request of $1,348.3 million, and $48.3 million (3.9%) below the $1,248.3 million approved by the Senate committee. The House bill, like its Senate counterpart, provided that $2.6 million of the appropriation for this account was to be transferred to the Commerce Department's OIG for Census Bureau oversight. In addition, H.R. 5393 would have withheld 50% of the funds for 2020 census IT work, including CEDCaP, until the Secretary of Commerce gave the House and Senate Appropriations Committees and GAO an expenditure plan for CEDCaP. The House committee directed the bureau to improve its estimate of the 2020 census life-cycle cost and, within 60 days of the bill's enactment, provide the committee and GAO with a report on the steps the bureau would take to meet this directive. The House committee also expressed concern about the "burdensome nature of the ACS" and directed the bureau "to focus on its core, constitutionally mandated decennial Census activities." FY2017 CJS appropriations legislation was not enacted by the end of FY2016. The Census Bureau, BEA, and rest of ESA were funded through December 9, 2016, at the FY2016 level, with a 0.496% reduction, under the Continuing Appropriations Act, 2017. The act was Division C of the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act, H.R. 5325 , P.L. 114-223 , which was signed into law on September 29, 2016. Division A of the Further Continuing and Security Assistance Appropriations Act, 2017, H.R. 2028 , P.L. 114-254 , enacted on December 10, 2016, provided funding at the FY2016 level, minus a 0.1901% reduction, through April 28, 2017. Under Section 152 of the legislation, however, the Census Bureau could draw on money from Periodic Censuses and Programs—an account that includes the decennial census and other major programs discussed in this report, such as the economic census, the census of governments, and intercensal demographic estimates, together with geographic and data-processing support—at the rate necessary for conducting operations to maintain the 2020 census schedule. The Consolidated Appropriations Act, 2017, H.R. 244 , P.L. 115-31 , became law on May 5, 2017. Division B of the legislation funded ESA at $107.3 million (with no separate amount shown for BEA), $1.7 million (1.6%) less than enacted for FY2016 and recommended by the Senate Appropriations Committee, $7.3 million (6.4%) below the FY2017 request, and $300,000 (0.3%) more than the House Appropriations Committee approved. The $1,470.0 million provided for the Census Bureau in the Consolidated Appropriations Act, 2017, included $270.0 million for Current Surveys and Programs and $1,200.0 million for Periodic Censuses and Programs. These amounts matched the House committee's recommendations. The act, like S. 2837 and H.R. 5393, stipulated that $2.6 million of the appropriation for Periodic Censuses and Programs would be transferred to the Commerce Department's OIG for Census Bureau oversight. | This report discusses FY2017 appropriations (discretionary budget authority) for the Bureau of Economic Analysis (BEA) and Bureau of the Census (Census Bureau), which make up the Economics and Statistics Administration (ESA) in the U.S. Department of Commerce. The report will not be updated. The Administration's FY2017 budget request for ESA (except the Census Bureau, whose budget justification is published separately from ESA's) was $114.6 million, $5.6 million (5.2%) above the $109.0 million FY2016-enacted funding level. Of the $114.6 million, the $110.7 million requested for BEA exceeded the $105.1 million FY2016-enacted amount by $5.6 million (5.3%); the $4.0 million requested to fund ESA's policy support and management oversight was $83,000 (2.1%) more than the $3.9 million approved for FY2016. The FY2017 request for the Census Bureau was $1,633.6 million, $263.6 million (19.2%) above the $1,370.0 million FY2016-enacted amount. The FY2017 request was divided between the bureau's two major accounts: $285.3 million for Current Surveys and Programs and $1,348.3 million for Periodic Censuses and Programs. Two key programs under this account are the 2020 Decennial Census, with an FY2017 request of $778.3 million, $179.4 million (30.0%) above the $598.9 million enacted for FY2016; and the American Community Survey (ACS), with a request of $251.1 million, $20.2 million (8.7%) above the $230.9 million FY2016-enacted amount. On April 21, 2016, the Senate Committee on Appropriations reported S. 2837, the Departments of Commerce and Justice, Science, and Related Agencies Appropriations Bill, 2017 (CJS), with recommended funding of $109.0 million for ESA (showing no separate breakout for BEA). The amount was identical to ESA's FY2016 appropriation and $5.6 million (4.9%) below the FY2017 request. S. 2837, as reported, recommended $1,518.3 million for the Census Bureau, $148.3 million (10.8%) above the FY2016 appropriation and $115.3 million (7.1%) below the FY2017 request. Current Surveys and Programs was to receive $270.0 million, the same as in FY2016 and $15.3 million (5.4%) below the FY2017 request. The $1,248.3 million for Periodic Censuses and Programs would have exceeded FY2016 funding by $148.3 million (13.5%) and been $100.0 million (7.4%) less than requested for FY2017. The House Committee on Appropriations approved the House FY2017 CJS appropriations bill, H.R. 5393, on June 7, 2016. Recommended funding for ESA was $107.0 million (with no separate breakout for BEA), $2.0 million (1.8%) less than enacted for FY2016 and approved by the Senate committee, and $7.6 million (6.7%) below the FY2017 request. The Census Bureau was to receive $1,470.0 million, $100.0 million (7.3%) more than in FY2016, $163.6 million (10.0%) less than requested for FY2017, and $48.3 million (3.2%) below the Senate committee's recommendation. The $270.0 million recommended for Current Surveys and Programs equaled the FY2016-enacted and FY2017 Senate-committee-recommended amounts and was $15.3 million (5.4%) less than requested. The $1,200.0 million for Periodic Censuses and Programs was $100.0 million (9.1%) above the FY2016-enacted level, $148.3 million (11.0%) less than the FY2017 request, and $48.3 million (3.9%) below what the Senate committee approved. The Consolidated Appropriations Act, 2017, H.R. 244, P.L. 115-31, became law on May 5, 2017. It provided ESA with $107.3 million (showing no separate amount for BEA), $1.7 million (1.6%) less than enacted for FY2016 and recommended by the Senate committee, $7.3 million (6.4%) below the FY2017 request, and $300,000 (0.3%) more than the House committee approved. The $1,470.0 million for the Census Bureau in FY2017, including $270.0 million for Current Surveys and Programs and $1,200.0 million for Periodic Censuses and Programs, matched the House committee's recommendations. |
The Organic Foods Production Act of 1990 (OFPA) regulates the marketing of organic products by setting national standards for production and processing (handling). To be labeled or sold as "organic," an agricultural product must be produced and handled without the use of synthetic substances, such as chemical pesticides, and in accordance with an organic plan agreed to by an accredited certifying agent and the producer and handler of the product. Products meeting these standards may be labeled as "organic" and may bear a U.S. Department of Agriculture (USDA) seal. Exceptions to the OFPA's general prohibition on the use of synthetic substances in organic products appear on a National List of Allowed and Prohibited Substances. The OFPA requires the Secretary to establish a National Organic Standards Board (NOSB) to develop the National List and to recommend exemptions for otherwise prohibited substances. The OFPA contains guidelines for the inclusion of substances on the National List. The OFPA also requires the Secretary to promulgate regulations "to carry out" the Act. The Secretary published the National Organic Program Final Rule (Final Rule) in December 2000 and it became effective on October 21, 2002 (codified at 7 C.F.R. pt. 205). Among other things, the Final Rule sets forth a four-tier labeling system for organic foods. Under this system, the type of labeling permitted on a product varies according to the percentage of organic ingredients it contains. The labeling scheme distinguishes: products containing 100% organic ingredients, which may be labeled "100 percent organic"; (2) products containing 94 to 100% organic ingredients, which may be labeled "organic"; (3) products containing 70 to 94% organic ingredients, which may be labeled "made with organic (specified ingredients or food group(s))"; and (4) products containing less than 70% percent organic ingredients, which may identify each organic ingredient on the label or in the ingredient statement with the word "organic." In October 2002, Mr. Arthur Harvey filed a pro se suit against the USDA in the U.S. District Court for the District of Maine, alleging that multiple provisions of the Final Rule were inconsistent with the OFPA and the Administrative Procedures Act. The district court ruled in favor of the USDA (i.e., granted summary judgment) on all nine counts brought by Harvey. Harvey subsequently appealed the case to the First Circuit and was supported by a number of public interest groups that filed "friends of the court" or Amici Curiae briefs. The First Circuit sided with Harvey on three counts and remanded the holdings to the district court for further action. In brief, the court found that: nonorganic ingredients not commercially available in organic form but used in the production of items labeled "organic" must have individual reviews in order to be placed on the National List of Allowed and Prohibited Substances; synthetic substances are barred in the processing or handling of products labeled "organic"; and dairy herds converting to organic production are not allowed to be fed feed that is only 80% organic for the first nine months of a one-year conversion. The three holdings did not invalidate OFPA provisions, but rather, qualified or invalidated agency regulations, thereby affecting the implementation of the National Organic Program. On June 9, 2005, the district court issued an order pursuant to the circuit court's instructions that established a two-year time frame in which the Secretary of Agriculture was to create and enforce new rules for the implementation of the National Organic Program in compliance with the circuit court's ruling. Under the order, the Secretary was to issue new regulations within a year (June 9, 2006) but has an additional year to start enforcing them (June 9, 2007). The phase-in implementation was selected by the court in an effort to prevent consumer confusion, commercial disruption, and unnecessary litigation. The rulings in Harvey and subsequent requirements for new regulations, however, were superceded in part, as a result of amendments made to the OFPA by the FY2006 agriculture appropriations act ( P.L. 109-97 , §797). On June 7, 2006, the USDA published revised final rules based on Harvey and the amended OFPA. The amendments made in the appropriations measure address many of the legal concerns (e.g., lack of authority for agency action) observed by the First Circuit. The following paragraphs examine each holding where the court determined that a provision of the Final Rule was inconsistent with the OFPA and then discuss the effect of the applicable provisions from the appropriations act. Each section ends with the USDA's latest regulatory action. Plaintiff challenged the portion 7 C.F.R. §205.606 which permits the introduction of nonorganically produced agricultural products as ingredients in, or as substances on, processed products labeled as "organic" when the specified product is not commercially available in organic form. The regulation lists five specific products—Cornstarch, Gums, Kelp, Lecithin, and Pectin—and also allows for any other nonorganically produced agricultural product when the product is not commercially available in organic form. The OFPA, however, requires all specific exemptions to the Act's prohibition on nonorganic substances to be placed on the National List following notice and comment and periodic review. Harvey claimed that §205.606 provided a blanket exemption to the OFPA's review requirements and allowed ad hoc decisions to be made regarding the use of synthetic substances. The USDA, on the other hand, maintained that the regulation does not establish a blanket exemption, but rather, only permits the use of the five products specifically listed in the section. The court found the USDA's interpretation plausible; however, because the district court did not clarify the regulation's meaning, the circuit court also found Harvey's interpretation potentially credible. Accordingly, the court remanded the count to the district court for entry of a declaratory judgment that would interpret the regulation in a manner consistent with the National List requirements of the OFPA. A declaratory judgment stating that §205.606 does not establish a blanket exemption to the National List requirements in statute for nonorganic agricultural products that are not commercially available was issued on June 9, 2005. The USDA, in compliance with the order, issued a Notice in the Federal Register clarifying the meaning of the regulation on July 1, 2005. However, because of the potential for confusion, the order states that the clarified meaning of §205.606 will not become effective and enforceable until two years from the date of the judgment (June 9, 2007). In the FY2006 agriculture appropriations act, Congress amended 7 U.S.C. §6517(d)—titled "Procedure for Establishing a National List"—to authorize the Secretary of the USDA to develop emergency procedures for designating agricultural products that are commercially unavailable in organic form for placement on the National List for a period of no longer than 12 months. The amendment does not define what an "emergency procedure" would entail; thus, the Secretary would appear to have the authority to describe the term's parameters and to select the substances subject to it. While this amendment creates an expedited petition process for commercially unavailable organic agricultural products, it does not appear to alter the ruling described above. The new rule published on June 7, 2006, did not clarify the conditions of "emergency procedure." However, it clearly restated that the five listed substances were the only nonorganically produced products that could be used as ingredients in organic products, subject to agency restriction when that ingredient is not commercially available in organic form. Plaintiff challenged 7 C.F.R. §205.600(b) and the portion of §205.605(b) that permits synthetic substances as ingredients in, or as substances on, processed products labeled as "organic." Section 205.600(b) provides that synthetic substances may be used "as a processing aid or adjuvant" if they meet six criteria; §205.605(b) lists 38 synthetic substances specifically allowed in or on processed products labeled as "organic." The court found that 7 U.S.C. §6510(a)(1) and §6517(c)(B)(iii) forbid the use of synthetic substances during the processing or handling of a product, unless otherwise required by law. The court noted that the OFPA contemplates the use of certain synthetic substances during the production or growing of organic products, but not during the handling or processing stages. By allowing the use of certain synthetic substances "as processing aids," the court concluded that the regulations contravened the plain language of the OFPA. The circuit court reversed the district court's grant of summary judgment and remanded the count to the district court for entry of summary judgment in Harvey's favor. On remand, the district court ordered the Secretary of the USDA to publish new rules implementing the circuit court's judgment within one year of the date of the judgment (June 9, 2006), but allowed the Secretary to exempt nonconforming products placed in commerce as "organic" for up to two years after the date of the judgment (June 9, 2007). The FY2006 agriculture appropriations act amended §6510(a)(1) and strikes §6517(c)(B)(iii)—provisions that the First Circuit relied upon to emphasize that synthetics were not allowed during the processing or handling of a product. Before the amendment, §6510(a)(1) barred a person on a handling operation from adding any synthetic ingredient during the processing or postharvest handling of a covered product. The amendment added the phrase "not appearing on the National List" after "ingredient," thereby apparently allowing the use of synthetics on the National List during processing or postharvest handling of a covered product. Section 6517(c) establishes guidelines for placing substances on the National List and in subsection (B) sets forth specific requirements with regard to the types of substances that may be exempted for use in production and handling. Specifically subpart (iii) of §6517(c)(B) states that the substance "is used in handling and is non-synthetic but is not organically produced" (emphasis added). This provision, which the court noted "specifically requires the exempted substances be nonsynthetic [sic]," was deleted by the amendment. As there no longer appears to be any general prohibition (though there are other requirements that must be met) against the placement of synthetics on the National List for use during the processing or handling of a covered product, the First Circuit's ruling in count three is likely moot. The USDA determined that there was no need to revise §205.600(b) and §205.605(b) because Congress sufficiently addressed the contradiction and approved the necessary legislative changes. Plaintiff challenged the Final Rule's exception to the OFPA's requirements for dairy herds being converted to organic production. Pursuant to 7 U.S.C. §6509(e)(2), a dairy animal whose milk or milk products will be sold or labeled as organically produced must be raised and handled in accordance with the OFPA for not less than the 12-month period immediately prior to the sale of such milk or milk products. Section §205.236(a)(2) of the Final Rule, however, allows whole dairy herds transitioning to organic production to use 80% organic feed for the first nine months and 100% organic feed for the final three months (i.e., "80-20" rule). The court found the OFPA's requirement for a single type of organic handling for twelve months and the Final Rule's bifurcated approach in direct conflict. The court determined that nothing in the OFPA's plain language permits the creation of an "'exception' permitting a more lenient phased conversion process for entire dairy herds," and consequently, found the regulation invalid. The circuit court reversed the district court's grant of summary judgment and remanded the count to the district court for entry of summary judgment in Harvey's favor. On remand, the district court ordered the USDA to promulgate regulations implementing the circuit court's decision within one year of the date of the judgment (June 9, 2006) and to start enforcement by June 9, 2007. In the FY2006 agriculture appropriations act, Congress amended 7 U.S.C. §6509(e)(2) by adding an exception to the general feeding requirement listed in the provision (i.e., raised and handled in accordance with the OFPA for not less than the 12-month period immediately prior to sale). The new provision, titled "Transition Guideline," allows crops and forage from land included in the organic system plan of a dairy farm that is in the third year of organic management to be consumed by the dairy animals of the farm during the 12-month period immediately prior to the sale of the organic milk or milk products. Generally, crops or forage intended to be sold or labeled as "organic" can not have prohibited substances applied to them for the three years immediately preceding harvest of the crop. Accordingly, while this amendment allows feed for dairy animals to come from land that is still transitioning to "organic" status, it would not appear to allow dairy cows to be fed prohibited substances or genetically modified organisms. Congress' amendment to §6509 likely made the court's ruling in count seven moot. The Secretary revised 7 C.F.R. §205.236 to create two exceptions to the general rule that milk labeled as "organic" must come from cows under continuous organic management for no less than 12 months. First, animals may consume crops and forage from the producer's land that is in the third year of organic management (i.e., the transition guideline). Second, producers converting entire herds to organic production who were still using the "80-20" feed rule before the publication of the new regulation may continue to do so, provided that no milk may be labeled as "organic" by this method after June 9, 2007. This exception allows a period of transition to occur in accordance with the court's order for enforcement of new regulations by the same date. | The First Circuit's ruling in Harvey v. Veneman brought much attention and uncertainty to the U.S. Department of Agriculture's National Organic Program. In the case, Harvey alleged that multiple provisions of the National Organic Program Final Rule (Final Rule) were inconsistent with the Organic Foods Production Act of 1990 (OFPA). The First Circuit sided with Harvey on three counts, putting into question the use of synthetics and commercially unavailable organic agricultural products, as well as certain feeding practices for dairy herds converting to organic production. On remand, the district court ordered a two-year time frame for the implementation and enforcement of new rules consistent with the ruling; however, in the FY2006 agriculture appropriations act (P.L. 109-97), Congress amended the OFPA to address the holdings of the case. This report describes the OFPA, discusses those holdings where the court determined that a provision of the Final Rule was inconsistent with the OFPA, and analyzes the most recent legislative action as well as new regulations from the USDA. This report will be updated as warranted. |
The First Amendment of the U.S. Constitution prohibits the government from establishing religion (the Establishment Clause), which the U.S. Supreme Court has interpreted to include a prohibition on official support or endorsement of religion. It also prohibits the government from interfering with individuals' exercise of religion (the Free Exercise Clause). The balancing of these constitutional provisions often leads to questions regarding the extent to which religious activities may occur at public events or within public institutions. On one hand, it may be argued that permitting prayer as a part of publicly sponsored events or activities suggests official support for religion. On the other hand, restricting religious expressions at events or activities may appear to interfere with individuals' ability to exercise their religious beliefs. The Court has addressed these questions in a variety of contexts and drawn important distinctions regarding the constitutionality of such prayers. In particular, the Court's major decisions have focused on two categories of public prayers: prayer in schools and legislative prayers. Lower courts have considered the constitutionality of publicly sponsored prayers in other contexts, including the military chaplaincy as well as invocations and other religious commemorations at public events. This report will analyze the Court's approach to each of these categories and examine the relevant distinctions used to determine whether a public official or entity may engage in prayer activity or other religious commemorations. The Court's interpretation of the Establishment Clause's prohibition on publicly sponsored prayer arises from the historical roots of the founding of the United States. The Court has noted that the "practice of establishing governmentally composed prayers for religious services was one of the reasons which caused many of our early colonists to leave England and seek religious freedom in America." Accordingly, the Court has held that "the constitutional prohibition against laws respecting an establishment of religion must at least mean that in this country it is no part of the business of government to compose official prayers for any group of the American people to recite as a part of a religious program carried on by government." However, the Court has also recognized the significance of the role of religion in the history of the nation and has upheld some religious messages in selected public contexts. As a general rule, the Court has permitted public displays of religious symbols, including in one case a display of the Ten Commandments, if the display is set in a diversified context. The Court also has allowed privately donated displays of religious messages on public grounds, although these cases were not resolved under the Establishment Clause. Despite the Court's decisions upholding public displays with religious messages, it is important to note that these cases are distinguishable from its public prayer decisions. As a general rule, publicly sponsored prayer is prohibited by the Establishment Clause. Legal challenges to public prayers have arisen most frequently in the context of school prayers, and the U.S. Supreme Court consistently has struck down school policies that implement official acts of prayer in school settings. Supreme Court jurisprudence explains that neither neutrality of a prayer, nor its voluntary nature, can cure the constitutional violation of a publicly adopted prayer program in schools. The Court struck down a New York school district's policy that adopted the following prayer for daily recitation: "Almighty God, we acknowledge our dependence on Thee, and we beg Thy blessings upon us, our parents, our teachers and our Country." Finding "no doubt" that the daily invocation was a religious activity, the Court rejected the school district's justification of the prayer as a nondenominational, voluntary activity. According to the Court, "the Establishment Clause … does not depend upon any showing of direct governmental compulsion and is violated by the enactment of laws which establish an official religion whether those laws operate directly to coerce nonobserving individuals or not." Similarly, the Court struck down Pennsylvania and Maryland state policies that required passages from the Bible be read aloud daily in public schools. The passages were chosen from the Christian Bible and students were permitted to be excused during the exercise. The Court again rejected the voluntary nature of the exercise as a justification of adopting a religious activity under the Establishment Clause. Although students may have been permitted to be excused from the exercise, their attendance at school was required by law and they remained confined to the building in which the activity took place and under the supervision of school employees who participated in the exercise. When considering challenges to school programs that include public prayers, the Court has emphasized the importance of a secular purpose. Programs that clearly indicate an intent to promote prayer in schools do not comport with the Establishment Clause. In 1981, Alabama amended a statute authorizing a moment of silence "for meditation" to authorize a moment of silence "for meditation or voluntary prayer." The sponsor of the legislation stated in the legislative record that the change was intended to return prayer to schools. Because there was no evidence of a secular purpose, the Court held that the legislature's action was unconstitutional, explaining that "the legislative intent to return prayer to the public schools is, of course, quite different from merely protecting every student's right to engage in voluntary prayer during an appropriate moment of silence during the schoolday." The Court has extended the constitutional restrictions on prayer during the school day to other school-related activities, such as graduations and sporting events. Underlying this rule is the Court's understanding that "the Constitution guarantees that government may not coerce anyone to support or participate in religion or its exercise." In Lee v. Weisman , the Court struck down a school's policy to invite local clergy to deliver nonsectarian prayers at school graduation ceremonies because of the state's involvement in the prayer and the coercive effect that the practice would have on students. The Court noted that the school decided whether to have a prayer at the graduation; which religious participant would deliver the prayer; and what the guidelines for the content of the prayer would be. The Court interpreted the school's involvement in each step of this process to mean that the prayer was attributable to the state. According to the Court, the school's actions were unconstitutional regardless of the steps it took to maintain neutrality in the prayer and its delivery. Because of the heightened concerns related to the First Amendment in elementary and secondary schools, the Court has noted that prayer activities in schools "carry a particular risk of indirect coercion." This risk was an underlying factor in the Court's earlier school prayer decisions that involved daily prayers and scripture readings. Just as the Court rejected attempts to justify those activities through their voluntary nature, it likewise rejected arguments that a student's attendance at his or her graduation ceremony was actually voluntary. Noting the social significance of one's graduation, the Court explained that "[a]ttendance may not be required by official decree, yet it is apparent that a student is not free to absent herself from the graduation exercise in any real sense of the term 'voluntary,' for absence would require forfeiture of those intangible benefits which have motivated the student through youth and all her high school years." The pressure on students to conform through attendance at and participation in the ceremony, "though subtle and indirect, can be as real as any overt compulsion." Accordingly, the Court distinguished the legitimacy of other public prayers that it had held constitutional from those offered in school settings "because the State has in every practical sense compelled attendance and participation in an explicit religious exercise at an event of singular importance to every student, one the objecting student had no real alternative to avoid." The Court later considered whether the constitutional restrictions on prayer at school events would extend to prayers at extracurricular football games. A Texas high school adopted a prayer policy that allowed two student elections, which determined, first, whether invocations would be delivered at football games and, second, who would deliver such invocations. Once the students voted to deliver invocations and chose their preferred speaker, that speaker was designated to deliver the invocation at every game for the entire season. The Court distinguished the case from others in which it had upheld government support for religious speech because the school did not open the practice "to indiscriminate use … by the student body generally." The Court explained that "the majoritarian process implemented by the District guarantees … that minority candidates will never prevail and that their views will effectively be silenced." The Court noted that the school's involvement was equally impermissible as in the case of prayer during a graduation ceremony and again rejected the school's justification that it had attempted to include a majority of the audience subjected to the prayer exercise. The Court emphasized the constitutional requirement for a secular purpose, noting that the secular purpose must be sincere and that the history of the school's actions regarding the policy indicated "that the District intended to preserve the practice of prayer before football games." The nature of a high school football game as an extracurricular activity did not resolve the Court's concern that students may feel indirectly coerced to participate. The Court recognized that for some students attendance at a football game may be required for class credit and even for those who attend without any official commitment, attendance at such events is "part of a complete educational experience." Those who disagree with the Court's decisions limiting school prayer have argued that restricting religious activities in schools carries its own risk of violating the First Amendment. These concerns suggest that such restrictions may violate requirements of the Establishment Clause by demonstrating a disapproval or hostility to religion or the requirements of the Free Exercise by interfering with individuals' ability to exercise their beliefs at public events. One of the Court's standards for considering potential Establishment Clause violations requires that government actions are neutral between religions and between religion and non-religion. The Court has explicitly addressed this argument, explaining that the drafters included individuals with "faith in the power of prayer who led the fight for adoption of our Constitution and also for our Bill of Rights with the very guarantees of religious freedom that forbid the sort of governmental activity" that adopts an official prayer. However, according to the Court, "by no means do [the religion clauses] impose a prohibition on all religious activity in our public schools." The restriction is imposed only on the school sponsoring a religious practice, but students remain free to pray voluntarily "at any time before, during, or after the schoolday." Such a rule avoids constitutional concerns because it not only prevents the government from adopting an official position related to religious practice, but also ensures that individuals may practice their religious beliefs without interferences if they initiate such activity voluntarily. Although a number of restrictions apply to official prayers, the Court has recognized that in certain public contexts, official prayer or religious expression may be permissible, e.g. , the legislative prayer exemption. Legislative prayers generally are permissible provided that such prayers do not indicate a government preference for one religion over another. In 1983, the Court interpreted the Establishment Clause in the context of prayers in legislative bodies of government. In Marsh v. Chambers , a state legislator challenged the Nebraska legislature's practice of opening legislative sessions with a prayer by a state-funded chaplain. The Court allowed the practice, emphasizing the long history and tradition of legislative prayer in the United States that dated back to the nation's founding. In doing so, the Court created a standard that relied on the historical nature of the practice, stating that "[i]n light of the unambiguous and unbroken history of more than 200 years, there can be no doubt that the practice of opening legislative sessions with prayer has become part of the fabric of our society." The Court noted that prayers like the one at issue in Marsh were typical practices in various government contexts and recognized the standard judicial practice in federal courts to open with an announcement stating "God save the United States and this Honorable Court." Furthermore, the Court examined the history of the U.S. Congress itself, noting a tradition of opening sessions with prayer that dated back to 1774. The Court's historical study of the practice of legislative prayers indicated that Congress authorized the use of publicly funded legislative chaplains within days of approving the First Amendment as part of the Bill of Rights. Although the issue in Marsh involved a state legislature's prayer activity, the Court's rationale indicated that it would not distinguish between whether actors were state or federal bodies, or between which branch of government conducted the prayer. After holding that the legislature's prayer was constitutional, the Court addressed additional questions raised by the case regarding its implementation. The Court held that the long tenure of a chaplain of a particular denomination did not invalidate the practice by itself. Even though a Presbyterian chaplain had held the position for 16 years, other chaplains had been used as substitutes over that period. According to the Court, "absent proof that the chaplain's reappointment stemmed from an impermissible motive, we conclude that his long tenure does not in itself conflict with the Establishment Clause." The Court declined to hold the content of the prayer unconstitutional, given the lack of evidence that the prayer was an attempt to advance or disparage a particular religion. The Court noted that specific references to Christ had been removed at the request of a Jewish legislator years before the litigation and that the prayer was nonsectarian. Furthermore, the Court relied on historical interpretations of invocations and found that the chaplain's prayer was an action that "harmonize[d]" tenets from various religions and as such did not violate the Establishment Clause. The Supreme Court has emphasized that legislative prayer cannot be deemed constitutional merely because of its long-standing historical practice. Rather, if a legislative prayer goes beyond the acceptable limits implied in Marsh , a court may find that prayer to be unconstitutional. The purpose of legislative prayer, as explained by the Court, is to acknowledge widely held religious beliefs, not to reflect one particular religious perspective. Accordingly, legislative prayer may be unconstitutional if it is "exploited to proselytize or advance any one, or to disparage any other, faith or belief." A number of courts have considered issues related to the delivery of legislative prayers since the Court decided Marsh , shedding light on factors relevant to the constitutional analysis. Federal courts have encountered a number of questions related to the selection of, and consequently the regulation of content delivered by, the speaker of legislative prayers. For instance, some questions that have been raised include whether the government may choose (or alternatively) reject a particular speaker, what restrictions may apply to that selection process, and whether the restrictions interfere with the speaker's Free Exercise rights. The U.S. Court of Appeals for the 10 th Circuit has held that it is constitutional for a city to choose individuals to deliver prayers at city council meetings. A Utah city council opened its meetings with a prayer after soliciting volunteers from local religious communities. Tom Snyder, a local individual who opposed the practice of legislative prayers, requested permission to recite a prayer before the city council, which refused his request. The proposed prayer "[called] on public officials to cease the practice of using religion in public affairs" and was deemed "unacceptable" by the city council. Snyder challenged the council's refusal to select him to deliver the prayer as a violation of the Establishment Clause, claiming that "in branding his particular prayer 'unacceptable' … [the city] has impermissibly preferred one religion over another." The court explained that Marsh established legislative prayer as a constitutional practice of government religious activity. The court reasoned that as a consequence of the fact that this genre of government religious activity cannot exist without the government actually selecting someone to offer such prayers, the decision in Marsh also must be read as establishing the constitutional principle that a legislative body does not violate the Establishment Clause when it chooses a particular person to give its invocational prayers. Similarly, there can be no Establishment Clause violation merely in the fact that a legislative body chooses not to appoint a certain person to give its prayers. Under the court's rationale, the constitutionality of legislative prayers does not appear to require that any willing participant be given equal access to participate in the prayers. The Supreme Court issued its only decision on legislative prayer since Marsh in 2014, clarifying whether legislatures must limit the content of prayers by outside speakers. In Town of Greece, NY v. Galloway, a 5-4 majority of the Court rejected the assumption that legislative prayer must be nonsectarian to satisfy Marsh 's requirement that prayer not advance a particular religion. Despite the predominance of Christian prayers delivered at monthly town board meetings, the Court held that sectarian references alone do not violate the Establishment Clause. Instead, the Court wrote, "[s]o long as the town maintains a policy of nondiscrimination, the Constitution does not require it to search beyond its borders for non-Christian prayer givers in an effort to achieve religious balancing." Over several decades, the town invited local clergy to deliver an invocation before the monthly board meeting, selecting speakers first from a local directory and later from a compilation of past participants. As the Court noted, "the town at no point excluded or denied an opportunity to a would-be prayer giver," although in practice the vast majority of the town's congregations and the clergy participants were Christian. The town did not instruct participants on tone or content, nor did it review the prayers prior to delivery. Individuals attending the town board meetings challenged the sectarian nature of the prayers and lack of diversity among the participants, alleging that the practice was unconstitutional under the Establishment Clause. The Justices' opinions in Town of Greece illustrated significant divisions among the Court on the framework for analyzing legislative prayer. Despite those divisions, a narrow majority of Justices agreed that "[a]bsent a pattern of prayers that over time denigrate, proselytize, or betray an impermissible government purpose, a challenge based solely on the content of a prayer will not likely establish a constitutional violation." The Court's opinion, authored by Justice Kennedy, reaffirmed that the constitutional analysis of legislative prayer is rooted in the historical "fabric of society" test reflected in Marsh , but it also recognized that historical practice alone cannot justify government activity that otherwise would violate the First Amendment. The Court clarified that " Marsh stands for the proposition that it is not necessary to define the precise boundary of the Establishment Clause where history shows that the specific practice is permitted." Accordingly, the majority refused to adopt a nonsectarian standard for legislative prayer, indicating that religious diversity can be achieved "by welcoming ministers of many creeds," and does not require proscribing certain content in public prayers. The Court explained that establishing a nonsectarian standard would require legislatures to regulate religious speech and consequently create additional risks of First Amendment violations (e.g., Free Exercise and Free Speech concerns, discussed below). The Court's decision also reflects a tendency to avoid defining religious content, noting that identifying a prayer that is "inclusive beyond dispute" would be impossible, and "the next-best option" of identifying a prayer that is acceptable to a majority would violate the First Amendment rights of the minority. After holding that the content of a legislative prayer is not dispositive in constitutional analysis, the majority noted that the prayer practice must not coerce religious observance. None of the Justices comprising the majority found that the prayers offered before the board constituted coercion, but they were divided in the application of the coercion test. Justice Kennedy, joined by Chief Justice Roberts and Justice Alito, wrote that whether a prayer practice is coercive is "a fact-sensitive [inquiry] that considers both the setting in which the prayer arises and the audience to whom it is directed." These Justices explained that the prayer was offered on behalf of the board members, not the public; that the prayer was offered independently by non-board members; and that there was no evidence of preferential or discriminatory treatment by the board based on attendees' participation. Separately, Justices Thomas and Scalia wrote that unconstitutional coercion must be "actual legal coercion ... not the 'subtle coercive pressures' allegedly felt ... in this case." They defined such coercion as requiring financial support of religious institutions, compelling religious observance, or controlling religious doctrine. Accordingly, the standard for coercion to be applied in future cases remains unclear. However, both opinions agreed that individuals being offended by a particular prayer practice is not sufficient to demonstrate unconstitutional coercion. The dissenting Justices criticized the Court's holding as disregarding the constitutional promise of pluralism and diversity among religions in public fora. Although the dissenters acknowledged the constitutional tradition of legislative prayer under Marsh , they disagreed that the prayer practice at issue in the case fit within that tradition, noting that the town board's function is both legislative (within the purview of Marsh ) as well as an opportunity "for ordinary citizens to engage with and petition their government, often on highly individualized matters." Because of this second function, the town, according to the dissent, had a higher duty to maintain neutrality and strive for inclusion. The dissent's critique explained the distinctions between the prayers permitted under Marsh and those delivered in Town of Greece , noting that a prayer before a state legislature differs from a prayer before a local town council because of the nature and purpose of the proceedings; the audience of the prayer; and content and character of the prayer. Despite the dissent's critique, it did not suggest a ban on prayer at local town councils. Instead, the dissenting Justices would require the town to inform speakers that prayers must be nonsectarian, "common to diverse religious groups." In addition to the questions arising under the Establishment Clause relating to the selection of speakers, other challenges may be raised regarding whether a prayer policy violates the speaker's Free Exercise rights by dictating how selected individuals may pray at legislative meetings. In a 2008 case in the U.S. Court of Appeals for the Fourth Circuit, a city council refused to permit a council member whose religious beliefs require that he close prayers with specific reference to Jesus Christ to deliver the council's invocation. The council member challenged the requirement that all prayers be nondenominational as a violation of his right under the Free Exercise and Free Speech Clauses of the First Amendment. The court's decision, authored by retired U.S. Supreme Court Justice Sandra Day O'Connor, sitting by designation for the case, held that legislative prayer is governmental speech and as such, its content can be regulated by the government. The court explained, "[The speaker] was not forced to offer a prayer that violated his deeply-held religious beliefs. Instead, he was given a chance to pray on behalf of the government. [He] was unwilling to do so in the manner that the government had proscribed, but remains free to pray on his own behalf, in nongovernmental endeavors, in the manner dictated by his conscience." The decision comports with the Supreme Court's interpretation of government speech generally. Courts generally have held that Marsh created an exemption from the Establishment Clause's prohibition on state-sponsored religious expression, but have interpreted the exemption narrowly. Several appellate courts have explained that the exemption for legislative prayer cannot be extended to all possible governmental contexts, and several courts have refused to uphold prayers at school board meetings under Marsh . Under traditional Establishment Clause jurisprudence, courts have applied a heightened standard for potential violations in contexts involving children, particularly in education. The Supreme Court has held that the unique nature of the school environment creates heightened risks that students may be coerced into participation in religious activities or that they may not understand that the religious activity is not an official act. The Court has emphasized that even if a student is not officially obligated to participate in a prayer or attend an event where a prayer may be offered, an official delivery of a prayer in a school setting may violate the student's First Amendment rights. The Court reasoned that such prayers could force the student to make a choice between attending the event and missing a significant experience in his or her educational career. While the Supreme Court has applied this understanding in the context of graduation and school sporting events, lower courts have extended it to apply to school board meetings, explaining that school board meetings also comprise part of the educational experience. These courts have recognized a variety of instances in which students may feel obligated or wish to attend school board meetings: student disciplinary actions adjudicated by the school board; student involvement in school government and public debate; student performances; and student award ceremonies presented by the school board. One court explained that these connections between school board meetings and students' educational experience indicate "that school board meetings are an integral component of the … public school system" and as such "remove it from the logic in Marsh and … place it squarely within the history and precedent concerning the school prayer line of cases." Despite the similarity of the school board to deliberative bodies in government, it has not been considered to be sufficiently analogous to qualify for Marsh 's legislative prayer exemption: Simply stated, the fact that the function of the school board is uniquely directed toward school-related matters gives it a different type of 'constituency' than those of other legislative bodies – namely students. Unlike ordinary constituencies, students cannot vote. They are thus unable to express their discomfort with state-sponsored religious practices through the democratic process. Accordingly, courts have recognized that student involvement in school board meetings may be considered compulsory and therefore cannot be examined under the parameters of Marsh . Although the constitutionality of legislative prayers generally has been upheld, legal challenges to such prayers may be difficult to sustain due to restrictions on standing. Standing is a constitutional principle that serves as a restraint on the power of federal courts to render decisions. Under general standing rules that apply to any case, an individual must have an individualized interest that has actually been harmed under the law or by its application to bring that case to court. In some instances, an individual may wish to challenge a governmental action that injures the individual generally as a member of society. The U.S. Supreme Court has construed the requirements to raise such cases narrowly. As a general rule, taxpayers do not have standing to challenge the constitutionality of the appropriation of funds for government programs. However, the Court has specifically allowed an exception to the taxpayer standing rule for certain claims arising under the Establishment Clause. The Court continually has construed this exception narrowly, refusing to extend it to permit taxpayer lawsuits challenging executive actions or taxpayer lawsuits challenging congressional actions taken under powers other than taxing or spending. Under the so-called Flast exception to the general prohibition on taxpayer standing, taxpayers may raise challenges of actions taken by Congress under Article I's Taxing and Spending Clause that exceed specific constitutional limitations (i.e., the Establishment Clause). The Flast exception grants taxpayers standing only if there is (1) a "logical link between [taxpayer] status and the type of legislative enactment attacked" and (2) "a nexus between that status and the precise nature of the constitutional infringement alleged." The Court later clarified the application of Flast in Hein v. Freedom from Religion Foundation , explaining that the taxpayers in Flast challenged an action "funded by a specific congressional appropriation and was undertaken pursuant to an express congressional mandate." Without such a "link between congressional action and constitutional violation," taxpayers cannot claim standing to assert Establishment Clause claims. After the Court issued its decision in Hein , a lawsuit challenging legislative prayer in the Indiana legislature was dismissed due to lack of standing of the litigants. Four taxpayers attempted to challenge the delivery of sectarian prayers before legislative sessions. Under legislative rules, a prayer or invocation is offered each day prior to the conduct of any business, a practice dating back almost two centuries. However, the U.S. Court of Appeals for the 7 th Circuit refused to adjudicate the merits of the case, finding that the legislature's prayer practice originated in legislative rules and was not mandated by statute. The court explained that the program's administration was "a matter of House tradition, implemented at the discretion of the Speaker. Although there is some minimal amount of funds expended in the administration of the program, the plaintiffs have not pointed to any specific appropriation of funds by the legislature to implement the program." Noting that "the 'use' of funds for the allegedly unconstitutional program, without more, is not sufficient to meet the nexus required by Flast ," the court held that taxpayers could not claim standing to challenge Indiana's prayer practice. Although the rules for recognizing taxpayer standing have curtailed significantly the ability of taxpayers to challenge prayers conducted by legislatures, courts still may recognize standing of other parties who have an individualized interest beyond their status as taxpayers. For instance, a member or attendee who has business before a legislative body and opposes the prayer practice could likely demonstrate an individualized injury to assert standing to challenge the practice. In some cases, individuals seeking to be appointed to deliver the prayer or invocation may also be recognized as having the requisite standing to challenge legislative prayer policies. In 1985, the U.S. Court of Appeals for the Second Circuit decided the only direct constitutional challenge to the military chaplaincy, Katcoff v. Marsh . Although later cases have challenged how the chaplaincy is administered, Katcoff considered whether the mere existence of the military chaplaincy violated the Establishment Clause. The Second Circuit held that the chaplaincy itself did not violate the Establishment Clause, but concluded that specific practices of the chaplaincy may not be constitutional. The Second Circuit noted that the Supreme Court upheld the constitutionality of legislative chaplains offering prayers at legislative sessions under the rationale that the practice was a part of American history and had been woven into the fabric of our society. The Court had reasoned that the legislative chaplaincy had an "unbroken history of more than 200 years." It may be argued that the legislative chaplaincy is distinct from the military chaplaincy, meaning that the Supreme Court's analysis of the legislative chaplaincy does not control the outcome of cases challenging the military chaplaincy. Thus, the Second Circuit examined the challenge under other constitutional tests. The court indicated that the military chaplaincy would fail the constitutional requirements of the Establishment Clause, but recognized that the Establishment Clause concerns must be balanced by other constitutional considerations, including the Free Exercise Clause. The court held that the military chaplaincy was a constitutional means of accommodating servicemembers' religious exercise rights under the Free Exercise Clause. Because members of the military have been removed from their religious communities, the court explained that the government had interfered with their ability to exercise their religious beliefs. Accordingly, the military chaplaincy, although unconstitutional if examined solely under the Establishment Clause, alleviated the burden imposed by the military on servicemembers' religious exercise. The court reinforced this balance favoring the accommodation of servicemembers' religious exercise by noting the importance of the War Powers Clause of the U.S. Constitution, which requires the court to give significant deference to Congress in military affairs. The court explained that "when a matter provided for by Congress in the exercise of its war power and implemented by the Army appears reasonably relevant and necessary to furtherance of our national defense it should be treated as presumptively valid and any doubt as to its constitutionality should be resolved ... in favor of deference to the military's exercise of discretion." Thus, the court determined that because the chaplaincy serves as an accommodation to alleviate a burden on religion imposed by the government and because the military is entitled to deference in a reasonable policy to ensure that servicemembers are treated adequately to maintain military order, the chaplaincy is a permissive accommodation of religion by the government. The Court has often recognized the role of religion in the nation's history, noting a number of occasions on which government officials invoke religion during official acts. The Court has specifically stated that "[w]e are a religious people whose institutions presuppose a Supreme Being." With that understanding, the Court often has justified examples of religious references during public ceremonies: "So help me God" as part of the oath of office; opening prayers during legislative sessions; "God save the United States and this Honorable Court" in the opening statement of the Supreme Court's sessions; presidential proclamations, including the Thanksgiving holiday; etc. Such references have been labeled as "ceremonial deisms"—practices that may not violate the Establishment Clause "because they have lost through rote repetition any significant religious content." The Court has justified references to religion, particularly with regard to displays of religious symbols, as long as the context of the reference does not promote religious beliefs, but only acknowledges a religious history of the nation. The Court also has explained that "however history may affect the constitutionality of nonsectarian references to religion by the government, history cannot legitimate practices that demonstrate the government's allegiance to a particular sect or creed." Courts have upheld the inscription of "In God We Trust" as the national motto on coins and currency. One court explained that the motto was not a religious invocation and therefore could not violate the First Amendment. According to the court, "[i]t is quite obvious that the national motto and the slogan on coinage and currency 'In God We Trust' has nothing whatsoever to do with the establishment of religion. Its use is of a patriotic or ceremonial character and bears no true resemblance to a governmental sponsorship of a religious exercise." Some cases challenging such religious references have been dismissed based on a lack of standing. In 2004, the Court dismissed a case challenging "under God" in the Pledge of Allegiance on standing grounds, but several Justices indicated that a decision on the merits likely would have justified the phrase under the First Amendment. Chief Justice Rehnquist, concurring only in the judgment, explained that the reference to God in the pledge does not "[convert] its recital into a 'religious exercise' of the sort described in Lee ." The Chief Justice wrote that the phrase "is in no sense a prayer, nor an endorsement of any religion, but a simple recognition" of the religious history of the nation. Justice O'Connor explicitly elaborated on the concept of ceremonial deisms in First Amendment jurisprudence, suggesting a four-part test to determine whether a religious reference may be constitutionally permissible. Public references to religion may be constitutional according to Justice O'Connor depending on (1) the history and ubiquity of the practice; (2) the absence of worship or prayer in the practice; (3) the absence of any reference to a particular religion in the practice; and (4) extent of religious content in the practice. In another case, the U.S. Court of Appeals for the Ninth Circuit held that an individual challenging the national motto and monetary inscription had standing to challenge the inscription but not the motto itself. The court distinguished the two claims based on the type of harm caused by each. The court recognized that "given the ubiquity of coins and currency in everyday life … [the inscription] forces him repeatedly to encounter a religious belief he finds offensive," and therefore constituted a legally cognizable injury to justify standing. However, the statutory authorization of the national motto "merely recognizes 'In God We Trust'" and did not cause the individual the "'unwelcome direct contact'" to justify standing. In a third example, the U.S. Court of Appeals for the Seventh Circuit held that a group of individuals did not have standing to challenge the presidential proclamation for a National Day of Prayer. The court explained that the challenged law directs the President to issue the proclamation annually, but does not require any other person to take any action related to the President's proclamation. Accordingly, only the President may suffer an injury sufficient to be eligible to challenge the statute. The court recognized that the President's proclamation included a call to prayer: "I call upon the citizens of our Nation to pray, or otherwise give thanks, in accordance with their own faiths and consciences, for our many freedoms and blessings, and I invite all people of faith to join me in asking for God's continued guidance, grace, and protection as we meet the challenges before us." However, the court explained that "although this proclamation speaks to all citizens, no one is obliged to pray, any more than a person would be obliged to hand over his money if the President asked all citizens to support the Red Cross and other charities." The court questioned whether individuals could pursue legal challenges of a government official's statements simply because they might disagree with the content of those statements, calling it "preposterous" to expect courts to censor presidential references to religion or other subjects to which some individuals might object. Congress regularly confronts public concerns regarding the parameters of permissible public religious expression. Among the notable issues of legislative interest in the 113 th Congress are the permissibility of voluntary prayer in publicly funded programs; religious inscriptions on government property; and the religious freedom of military chaplains. H.R. 2926 / S. 1279 , the Freedom to Pray Act, would prohibit the revocation or withholding of federal funds to otherwise qualified recipients "on the basis of religious activities that are conducted voluntarily and initiated by participants" in the recipient's program or activity. The bill explicitly clarifies that it would not authorize sponsorship of religious activity in federally funded programs or activities; restrictions on recipients' ability to ensure that permissible religious activities do not interfere with the program or activity; or requirements for participation in prayer or other activities that may conflict with individuals' First Amendment freedoms. H.R. 2175 / S. 1044 , the World War II Memorial Prayer Act of 2013, would direct the Secretary of the Interior to incorporate the words of the prayer from President Franklin D. Roosevelt's June 1944 D-Day address at the World War II Memorial on the National Mall. The bill would prohibit the use of public funds to prepare or install the inscription, but would authorize the use of private contributions. H.R. 343 would amend statutory provisions relating to military chaplains to include an explicit protection allowing a chaplain to close prayers offered outside of religious services "according to the dictates of the Chaplain's conscience." The bill would amend provisions governing chaplains serving under the U.S. Army, U.S. Navy, U.S. Marine Corps, and U.S. Air Force, as well as the U.S. Military Academy and U.S. Air Force Academy. It does not address chaplains serving under the U.S. Coast Guard. Although these bills implicate First Amendment protections, they do not affect the constitutional rules controlling public prayer. It should be noted that Congress may not alter the constitutional parameters of public prayer and religious expression through statute. | The First Amendment of the U.S. Constitution prohibits the government from providing official support or endorsement of religion and from interfering with individuals' exercise of religion. Balancing the constitutional protections under the Establishment and Free Exercise Clauses, as these provisions are known, often leads to questions regarding the extent to which religious activities may occur within public institutions or at public events. On one hand, permitting prayer at publicly sponsored activities arguably may suggest official support for religion. On the other hand, restricting religious expression by individuals at such activities may appear to interfere with their ability to exercise their religious beliefs freely. As a general rule, publicly sponsored prayer is prohibited under the First Amendment with few exceptions. Legal challenges to prayer in public fora have arisen most frequently in the context of prayer in schools. The U.S. Supreme Court generally has struck down school prayer policies adopted by public schools, even if the content of the prayer is neutral and participation among students is voluntary. This prohibition has been extended to extracurricular and other school-related activities as well, but does not apply to all religious activity in public schools. Rather, the First Amendment prohibits any school-sponsored religious activity, but protects students' ability to pray voluntarily at their own initiative. Although official prayers by public institutions are generally unconstitutional, there are a few notable exceptions. The Supreme Court has recognized that legislative prayer—invocations made to open legislative sessions—are generally permissible because of the role such prayers have played in the history and tradition of American government. Although the Court acknowledged the constitutionality of legislative prayer, for decades, lower courts generally have had to interpret the parameters of the exemption, including how speakers may be selected and what the content of such prayers may be. The Court issued a decision in Town of Greece, New York v. Galloway in 2014 clarifying that legislative prayers need not be nonsectarian to pass constitutional muster. Furthermore, courts have acknowledged other exemptions, upholding the constitutionality of the military chaplaincy and the use of religious references in official proceedings and on coins and currency. |
Since the mid-1980s, Congress has passed legislation that is intended to support older youth in foster care who are expected to leave care without being reunited with their parents or having another permanent family placement. At the center of these policies is the Chafee Foster Care Independence Program (CFCIP), authorized in 1999 ( P.L. 106-169 ) to provide services, including housing, for older foster youth. With funding from the CFCIP and other sources, states have developed independent living programs that supplement youth's own efforts to attain self- sufficiency. Additionally, federal law directs child welfare agencies to develop policies, where appropriate, targeted to older youth that assist in their transition from care, such as written case plans outlining the services they will receive to prepare for independent living. Despite these services and supports, research has demonstrated that compared to their counterparts in the general population, current and former foster youth are more likely to have difficulty making the transition to adulthood. The limited research literature on this topic demonstrates that during their early adult years, former foster youth are much more likely than their peers to forego higher education, describe their general health as fair or poor, become homeless, and rely on public supports. This research, along with the efforts of policy makers and child welfare advocates, has brought greater attention to the challenges facing youth transitioning from care. Congress has focused on efforts to ensure that youth have connections to caring adults and can continue to receive support from the state after they reach the legal age of majority—usually age 18—to help ease the challenges associated with the transition to adulthood. Asserting that most youth are not ready to live independently at age 18, federal policy makers have expressed special interest in providing a safety net for youth who are wards of the state. The 110 th Congress conducted a series of hearings on child welfare reforms, some of which focused on older youth in care. These hearings culminated in the passage of the Fostering Connections to Success and Increasing Adoptions Act of 2008 ( P.L. 110-351 ), an omnibus child welfare bill that addresses several aspects of the child welfare system. P.L. 110-351 is arguably one of the most significant laws that pertain to older youth in foster care. More recently, the 113 th Congress held hearings on child welfare topics that focus, in part, on older youth. Following these hearings and other efforts, Congress passed the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ). President Obama signed the bill into law on September 30, 2014. The law specifies protections for older youth in care, seeks to promote "normalcy" among children in foster care so they can participate in age and developmentally-appropriate extracurricular and other activities, and requires child welfare agencies to respond to children who are victims of sex trafficking or may be at risk for such victimization. This report presents issues affecting older youth as they transition from foster care into adulthood, particularly with regard to implementation of P.L. 110-351 and P.L. 113-183 . Perhaps the most pressing implementation issue concerning P.L. 110-351 is the challenges states may face in extending foster care to older youth. As of FY2011, states may extend care after age 18 by authorizing partial reimbursement for the cost of that continued support. One possible challenge in implementing this provision is that even with assistance from the federal government, states may be hesitant to extend care because of the cost. In addition, states are required to assist youth in developing a transition plan within 90 days of exiting care that identifies the supports and services available when they transition from care. In carrying out the plan, states can take a variety of approaches, such as beginning the transition planning process well before the 90-day requirement and engaging adults who can have meaningful connections to the youth when they emancipate from care. Even with the option to extend foster care, policy makers and advocates remain concerned that older foster youth and those who have aged out will continue to experience challenges during the transition to adulthood. Emancipated youth face particular obstacles in fostering permanent connections with caring adults, securing health insurance and housing, and staying connected to work and school. Further, little is known about youth as they transition from foster care, although a new national database will likely provide some insight into their outcomes across a number of areas, such as education, employment, and contact with social service and criminal justice systems. Another concern is that youth in foster care are vulnerable to child sex trafficking, which refers to adults sexually exploiting children under age of 18 for commercial purposes. P.L. 113-183 requires, one year after the law's enactment, that child welfare agencies have policies in place to serve these youth. Congress may wish to monitor how states are implementing these and related requirements, including how many victims have been reported by state child welfare agencies to the federal government and any best practices that have been identified for serving these victims. After a brief background on federal child welfare policies concerning transitioning youth, this report will include discussions on implementation of select aspects of P.L. 110-351 and other ongoing issues. The report is a companion to another report that provides context about older foster youth and related federal policy. See CRS Report RL34499, Youth Transitioning from Foster Care: Background and Federal Programs . The overall number of children in foster care has been declining in the past decade or so. On any given day in FY2002, approximately 523,000 children were in foster care, while the corresponding figure for FY2012 was 397,122. The share of older children in care also increased but then declined slightly over this period. Children ages 13 through 17 comprised about 29% of the caseload in FY2002, 35% in FY2010, and 34% in FY2012. The share of older youth who exited care because they reached the state's legal age of majority followed this same trend. In FY2002, just over 20,000 children "aged out" of foster care, making up 7% of all children who exited care that year. These figures increased in each subsequent year through FY2010, when slightly more than 26,000 youth aged out, making up 11% of all children who exited that year. However, the number (and share) of youth emancipating reached a recent all-time low of 23,396 (10%) in FY2012. A growing body of research on youth who spend some of their teenage years in foster care demonstrates that they tend to experience more negative outcomes in adulthood than their peers generally. A leading study of former foster youth—known as the Midwest Evaluation on the Adult Functioning of Former Foster Youth ("Midwest Evaluation")—is tracking outcomes of former foster youth in three states: Illinois, Iowa, and Wisconsin. All of the surveyed youth entered care prior to their 16 th birthday. Surveyed youth responded to researcher questions about outcomes in four data collection waves: at wave 1, when they were ages 17 and 18, at which time most were in foster care; at wave 2 when they were ages 19 and 20, at which time some remained in care; at wave 3, when they were age 21 and no longer in care; wave 4, when they were ages 23 and 24; and wave 5, when youth were age 26. These outcomes have been compared to outcomes of their peers in the general population. The most recent results of the study, based on survey data of youth at age 26, found that former foster youth and youth generally shared some common characteristics, but that the former foster youth experienced more negative educational and employment outcomes, among other outcomes. For example, former foster youth were less likely to have attained a four-year college degree compared to youth in general (2.5% versus 23.5%). Youth in the Midwest Evaluation who were not currently in school reported barriers to enrolling or staying in school, including that they could no longer afford school, became employed, needed to care for a child, or had no transportation, among other reasons. While youth formerly in care were almost as likely to report ever holding a job as youth in general (93.6% versus 98.2%), a smaller share were currently employed (48.3% versus 79.9%). Their mean annual income was about $13,000, compared to about $32,000 for their peers. The state child welfare agency, with oversight by the court, is responsible for the care and placement of children who have been removed from their homes due to abuse, neglect, or for some other reason that does not allow them to remain in their homes. The child welfare agency uses both federal and state funds to facilitate children reuniting successfully and safely with their parents, and when this is not possible, to find them a permanent and safe home. A primary federal source of funding is Title IV-E foster care, authorized under the Social Security Act. To be eligible to receive federal funds (under both the Title IV-E foster care program and related Title IV-B child welfare services program), states must agree to carry out activities that are intended to promote the safety, permanency, and well-being of all children in foster care. These include that a state has a written case plan detailing, among other things, where the child is placed and what services are to be provided to ensure that a permanent home is re-established for the child. Further, for each child in foster care, this plan must be reviewed on a regular basis. The case review is to be conducted not less often than every 6 months by a judge or an administrative review panel, and at least once every 12 months by a judge who must consider the child's permanency plan. As part of any permanency hearing, the court must consult "in an age appropriate" manner with the child. Specific case plan and case review procedures pertain to older youth in care, some of which go into effect one year after enactment of P.L. 113-183 . For youth age 14 and older, the written case plan must include a description of the programs and services that will help the child prepare for a successful transition to adulthood. Additionally, for any child in foster care at age 14 or older, the state child welfare agency is required to include in the child's case plan a document listing certain rights with respect to (1) education, health, visitation, and court participation; (2) provision of certain identification documents and information, if leaving foster care at age 18 or older; and (3) the right to be safe and avoid exploitation. The case plan also needs to include a signed acknowledgement by the child that he/she was given a copy of the list of rights and that they were explained. In addition, any child in foster care who is age 14 or older must be consulted in the development of, and about any revisions to, his/her case plan and permanency plan. The child may choose up to two members of the case planning and permanency planning teams (subject to state disapproval of any individual that it has good cause to believe would not act in the child's best interest). One of the individuals selected by the child is permitted to be the child's advisor and advocate for applying what is referred to as "the reasonable and prudent parenting standard" for purposes of determining whether a foster child can participate in extracurricular activities. As discussed in a subsequent section, states must also assist youth in developing what is known as a transition plan, which addresses housing and other needs when they have emancipated from foster care. For many children who enter foster care, returning to their parents is the way permanence is re-established. For some children, however, it is not safe or possible to reunite with their parents. In those cases, states must work to find adoptive parents or legal guardians who can provide a permanent home and family. Yet despite efforts to find a permanent home for older youth while they are in care, some age out upon reaching the state's legal age of majority. The Chafee Foster Care Independence Program is designed to provide services that will prepare these youth for when they are no longer under the custody and care of the state. The 110 th Congress held a series of hearings on reforms to the child welfare system, which culminated in the enactment of the Fostering Connections to Success and Increasing Adoptions Act ( P.L. 110-351 ) on October 7, 2008. P.L. 110-351 addresses some of the concerns that were raised in the hearings, and it made significant changes to federal child welfare statutes. Several provisions pertained to older youth in foster care and those transitioning out of care. These provisions focus not on youth living independently, but rather on their connections to adults and the state as they transition to adulthood. Notably, states are authorized to extend foster care to youth age 18 and older, until age 19, 20, or 21 (at state option). More recently, the 113 th Congress has focused on the needs of older youth in foster care and child sex trafficking. Following hearings and roundtables on these topics, Congress passed the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), which was signed into law on September 30, 2014. The law specifies protections for older youth in care, seeks to promote "normalcy" among children in foster care so they can participate in age and developmentally-appropriate extracurricular and other activities, and requires child welfare agencies to respon d to sex trafficking of children. Figure 1 summarizes the provisions and programs in federal child welfare law that pertain specifically to older youth in care and those aging out. The following sections discuss these provisions, programs, and related issues . Under Title IV-E of the Social Security Act, states and Indian tribes may seek federal funds for partial reimbursement of the room and board costs needed to support eligible children who are in out-of-home foster care. Funding for the Title IV-E foster care program is appropriated out of the general treasury and is available on an open-ended entitlement basis. This means the federal government is obligated to reimburse states for every eligible expenditure made on behalf of an eligible child. A child or youth is eligible for Title IV-E foster care if he or she is in the care and under the responsibility of the state and, among other things the child or youth is a citizen or qualified alien and meets certain income/assets tests, age, and family structure/living arrangement rules in the home he/she was removed from; a judge has determined that (1) the home the child was removed from was "contrary to the welfare" of the child; (2) the state made reasonable efforts to initially prevent the child's placement in a foster care setting; and (3) on a continuing basis, the state makes reasonable efforts to secure a permanent home for the child; and the child is placed in an eligible licensed setting with an eligible provider. The state or tribal child welfare agency must provide a "foster care maintenance payment" on behalf of every Title IV-E eligible child in foster care. This payment is made to the licensed foster family home or institution where the eligible child is placed to provide for his or her care and safety. A Title IV-E maintenance payment is defined as "payments to cover the cost of (and the cost of providing) food, clothing, shelter, daily supervision, school supplies, a child's personal incidentals, liability insurance with respect to a child, reasonable travel to the child's home for visitation, and reasonable travel for the child to remain in the school in which the child is enrolled at the time of placement." Federal reimbursement of these costs may only be sought for children placed in a licensed child care institution or foster care home, except that eligible young people who remain in extended care may be placed in an independent living setting, as described in a subsequent section. States and tribes that receive federal child welfare funds must also carry out activities that are designed to promote the safety, permanency, and well-being of all youth in care, regardless of whether they are eligible for a federal maintenance payment. A child remains eligible for Title IV-E foster care maintenance payments until his or her 18 th birthday, or 19 th birthday if the child is still completing secondary school or equivalent training; however, beginning with FY2011, states and tribes may also provide these payments to youth until age 21. States may seek reimbursement for a youth age 18 or older who is Title IV-E eligible and (1) completing high school or a program leading to an equivalent credential; (2) enrolled in an institution that provides post-secondary or vocational education; (3) participating in a program or activity designed to promote, or remove barriers to, employment; or (4) employed at least 80 hours per month (i.e., at least part-time). States and tribes may also seek reimbursement for an older youth's foster care if the youth has a medical condition that makes him or her incapable of participating in the activity and this incapacity is supported by regularly updated information in the youth's case plan. The law does not describe programs that may help to remove barriers to employment, or what constitutes a medical condition that could preclude a youth from working or attending school. States are permitted to seek federal foster care reimbursement for all eligible youth (including those who remain in care) who live in licensed foster homes or a licensed "child care institution." A child care institution is defined as a private child care institution or a public child care institution for no more than 25 children that is licensed by the state. The definition excludes a detention facility, forestry camp, training school, or any other facility operated primarily to detain delinquent children and youth. As authorized by P.L. 110-351 , and beginning with FY2011, states may also seek reimbursement for youth ages 18 or older who remain in foster care at state option and are placed in a "supervised setting in which the individual is living independently." The act directs HHS to establish in regulation what qualifies as such a setting. In July 2010, HHS issued program instructions on certain provisions of P.L. 110-351 , including extended care. HHS encourages states and tribes to extend federal foster care assistance to eligible youth until age 21, and if they extend to a lower age (19 or 20), they must describe the "programmatic or practice rationale" rationale for doing so. The state or tribe is to submit this description as part of their Title IV-E plan, which describes how they administer or supervise the administration of programs under Title IV-E. Funding under Title IV-E is contingent upon an approved plan. According to the HHS guidance, states and tribes must establish the criteria they will use to determine whether young people meet the employment or education conditions and/or whether youth have a medical condition that renders them incapable of pursuing these options. States and tribes must also determine how they will verify or obtain assurances that the youth continues to meet the conditions of remaining in care. The program instructions give examples of education or employment activities that youth in extended care can pursue, such as finishing high school; taking classes to prepare for the general equivalency diploma (GED) exam; enrolling in a college, university, or vocational or trade school; enrolling in a Job Corps program; attending interview and resume-writing classes; and working part-time or full-time. Students are considered enrolled in school even when they are on a summer or other break. Notably, HHS advises that states and tribes may establish select requirements for extended foster care. For example, extended care could be provided only to those youth enrolled in post-secondary education. Still, the guidance advises that states and tribes should "consider how [they] can provide extended assistance to youth age 18 and older to the broadest population possible consistent with the law to ensure that there are ample supports for older youth." Separately, the program instructions address issues related to four criteria pertaining to Title IV-E foster care eligibility. These instructions apply to young people who reach the state age of majority and either continue in care or seek to reenter care at some point before the age of 21. They also apply to youth who enter foster care for the first time at age 18 or older. AFDC Program Criteria: To continue to be eligible for federal foster care, a youth who remains in care must have met the Title IV-E requirements pertaining to income, assets, and living arrangements at the time of removal from the home of their parents or legal guardians (or others). States are not required to make redeterminations of AFDC eligibility for these youth. For a youth age 18 or older "entering or reentering care," eligibility is based on the youth without regard to the parents, legal guardians, or others in the home from which the youth was removed as a younger child. Removal from Home: Youth in extended care must also have entered care via a court order or voluntary placement agreement. The program instructions state that for youth who came into care before age 18 and remain in care after age 18, the court ordered removal or the voluntary agreement that was in place before age 18 still stands. The instructions also address removal criteria for youth who are age 18 or older. The instructions specify that (1) a court can make a determination about whether the home from which the youth was removed is "contrary to the welfare" of the youth, to the extent that the court has the jurisdiction to do so; or (2) the youth can sign a voluntary placement agreement as his or her own guardian, so long as it meets Title IV-E requirements for voluntary placement agreements. This provision is subject to the requirement that there be a judicial determination that remaining in care is in the child's best interest if Title IV-E payments extend beyond the first 180 days of the voluntary placement agreement. Placement and Care: The instructions also address the ways that state and tribal child welfare agencies can meet the placement and care rules for older youth—that is, with written authorization by the youth prior to reaching age 18; or through a voluntary placement agreement or court order for youth who have already reached age 18. Placement Setting: P.L. 110-351 permits youth in extended care to be placed in a supervised independent living setting or, like all younger children in care, in a licensed foster family home or child care institution. The program instructions state that HHS does not "at this time" have "forthcoming regulations" that describe the kinds of living arrangements considered to be independent living settings, how these settings should be supervised, or any other conditions for a young person to live independently. The instructions advise that states and tribes have the discretion to develop a range of supervised independent living settings that "can be reasonably interpreted as consistent with the law, including whether or not such settings need to be licensed and any safety protocols that may be needed." The instructions give examples of the types of settings that could be eligible for reimbursement, such as host homes, college dormitories, shared housing, and supervised apartments, among other settings. Child welfare agencies are to ensure that youth in supervised independent living settings have opportunities to form connections to caring adults, such as through guardianship arrangements, adoption, or living with caring adults. According to the program instructions, Title IV-E foster care maintenance payments, which must otherwise be paid to the foster care provider (i.e., the foster parent or child care institution), can be paid directly to a young person who is living in an independent living setting. States and tribes are further advised that they must apply "in a developmentally appropriate manner" the same case planning and case review requirements to youth in extended care as they already do for children under age 18. The program instructions explain that case plan and case review requirements for youth age 18 and older should address a youth's needs. For example, the case plan is to be developed jointly with the youth and include benchmarks that indicate how the youth and child welfare agency "both know when independence can be achieved." Further, periodic reviews (every six months) are to involve youth and focus on whether the youth is safe in his or her placement. States and tribes are also to make reasonable efforts to finalize a permanency plan every 12 months for older youth who were removed through a court-ordered placement agreement. According to the guidance, the permanency plan may reflect the goal of emancipation or independence and address the child welfare agency's efforts to prepare the young person for this goal. As allowed under law for children of any age in foster care, the court overseeing the child's case can make a determination regarding reasonable efforts to finalize a permanency plan without calling a court hearing, so long as an authorized member of the judiciary makes that determination. The program guidance goes on to advise that states and tribes that choose to extend care to youth who are ineligible for federal foster care are not required to fulfill the IV-E requirements, including those related to case planning and case review and certain data collection and reporting requirements, for these youth (although they must continue to do so for all children under the age of 18, or age 19 for children completing school). Given that children in foster care who are IV-E eligible are also categorically eligible for Medicaid, the guidance states that this eligibility is to be extended to youth who remain in care after age 18 (up to the age the state or tribe elects) and receive federal foster care maintenance payments. As of May 2014, nearly half (21) of jurisdictions had amended their Title IV-E state plans with the intent to extend the maximum age of foster care and submitted these plans for HHS to review. HHS had approved plans for 18 states (Alabama, Arkansas, California, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New York, North Dakota, Oregon, Tennessee, Texas, Washington, and West Virginia) and the District of Columbia, and was reviewing plan amendments for two other states (Connecticut and Pennsylvania). All states with approved plan amendments, except for Indiana and Nebraska, extend care until age 21; Indiana extends care to age 20 and Nebraska extends care until age 19. Nebraska enacted legislation in 2013 to extend care to 21, and HHS is reviewing this change. Except for three states—Tennessee, Washington, and West Virginia—jurisdictions with approved plan amendments allow youth to remain in care under the four conditions listed previously and exempt youth from these conditions if a youth is incapable of meeting them for medical reasons. Tennessee allows youth to remain in care so long as youth are in school or participating in a program to address barriers to employment, or are incapable of performing these activities for medical reasons. Washington and West Virginia limit this care to otherwise eligible youth who are completing high school or completing a program leading to an equivalent credential. In taking up the option to extend care, other states (and tribes) likely need to consider a number of factors: (1) the outcomes of youth who remain in care; (2) potential costs and benefits; (3) which youth are permitted to stay in care; (4) the role of the courts in overseeing extended care; (5) rethinking extended care; (6) the extent to which older youth can return to care after they initially leave; (7) the extent to which older youth in general can be placed in foster care settings after age 18; (8) the type of placements that qualify as independent living settings. The research literature on youth who emancipate from care—or stay in care beyond age 18—is scarce. The Midwest Evaluation is one of the few studies in this area. The study demonstrates that youth who remained in care as late as age 20 tended to have somewhat more positive outcomes, at least while they were still in care, than their counterparts who emancipated at age 18. The study examined outcomes for former foster youth in three states: Illinois, Iowa, and Wisconsin. These three states offered a natural experiment for comparing youth outcomes. Iowa and Wisconsin emancipated nearly all of their foster youth in the study by age 18, while approximately three-fourths of foster youth in Illinois who reached age 18 in care remained under the custody of the state until age 21. Remaining in care appeared to be associated with higher earnings and delayed pregnancy. The Midwest Evaluation found that while the young people in Illinois were less likely to be employed at age 21, likely due to being in school, each additional year in care after age 18 was associated with a $470 increase in average annual earnings. Average annual earnings for youth who remained in care longer increased by $924 after controlling for certain characteristics of the young adults (measured when they were age 17) that are likely to affect later earnings (e.g., work history, education attainment, mental health problems, and criminal behavior), as well as unobserved characteristics. Further, young people in Illinois were 38% less likely to become pregnant between ages 17 and 19. Although there was a reduction in the risk of pregnancy after age 19 for youth in care compared to their counterparts, this difference was not statistically significant. Youth in Illinois were also much more likely than their peers to have received a variety of transitional living services between ages 19 and 21, such as those services funded through the CFCIP. Some of the benefits of remaining in care appear to have faded two years after the youth in Illinois aged out. While the study found that by age 23 these young people were more likely to have completed one year of college, they were no more likely than their peers to have earned a two- or four-year degree. Researchers suggest that this could be because they lost access to the services and supports that made it possible for them to pursue their educational goals. In addition, these young people may have had to refocus their efforts on meeting their basic needs, like securing and maintaining housing. Further, even with assistance from the Chafee Education and Training Voucher (ETV) program and programs in some states that waive college tuition, these youth may not have necessarily received other support to help them in school, such as academic and social/emotional support. States face significant challenges in extending care, given the current fiscal environment and competing budgetary considerations. As part of a Government Accountability Office (GAO) review of state policies on extending federal foster care in 2014, 17 states that did not extend care cited budget constraints as the major factor for not doing so. In considering whether to extend care, the Jim Casey Youth Opportunities Initiative, an organization that seeks to assist youth transition from foster care to adulthood, suggests that states can do the following: (1) convene a planning group of critical stakeholders such as state child welfare agency staff, service providers, legal advocates, young people in care, and others; (2) review federal requirements and options (transition planning requirement and option to extend care to age 18, 19, or 20, among other provisions); (3) consider existing supports and services and seek input from young people; (4) reach agreement on key design issues (e.g., which youth are eligible, the settings in which they can live, and what type of case management and court oversight will be needed); (5) project costs and revenues; and (6) consider next steps. The advantages of youth remaining in foster care after age 18 appear significant, as demonstrated by the Midwest Evaluation (at least for youth who stay in care until age 21) and a small number of studies that hypothesize about the benefits and costs of extending care. These studies posit that extending foster care or providing intensive transitional living services can offset the costs that individuals or society would incur, such as in the form of admissions to state prison and welfare payments, in the absence of these interventions. One of these studies evaluated the cost to government and benefits to individual youth of extending foster care. Researchers calculated the costs of extending care based on the experience of Illinois in providing care beyond age 18 (as reported in the Midwest Evaluation) and data on public assistance receipt in Illinois. Based on the average length of stay in care beyond age 18 in Illinois—until approximately age 20, or two years total—researchers estimated the cost to be about $20,800 annually, or about $19,000 if the costs of providing certain public assistance to youth (if they did not remain in care) were subtracted. The benefits (to youth) of remaining in care were evaluated only in the context of additional wages that the youth could earn because remaining in care would enable them to attend at least some college. Based on several factors, the analysis found an average return of about $2 for every $1 spent on a youth remaining in care, which translates into an average of approximately $72,000 additionally earned over the course of the youth's lifetime. The analysis did not examine any cost to the state child welfare agencies or courts, such as the additional time caseworkers devote to these cases and hiring any additional child welfare and court personnel, among certain other cost considerations. In addition, the analysis did not examine the potential benefits to society of extending care, such as higher tax revenues and reductions in homelessness, as well as nonmarket benefits to former foster youth, such as improved personal and familial health choices. The cost of providing foster care to eligible youth after age 18 is likely be a consideration for most states. Based on administrative data, just under half of children meet the criteria to be eligible for federal foster care maintenance payments (this share varies greatly by state). With the exception of eligibility determination and certain data collection costs (both counted as administrative costs), state foster care expenditures may only be partially reimbursed by the federal government if incurred on behalf of Title IV-E eligible children and youth. As discussed in more detail above, a child or youth is eligible for Title IV-E if he or she (1) meets income/assets tests and family structure/living arrangement rules in the home he/she was removed from; (2) has specific judicial determinations made related to reasons for the removal and other aspects of his/her removal and placement; and (3) is placed in an eligible licensed setting with an eligible provider(s). Currently, the reimbursement rate for federal foster care maintenance payments is pegged to a state's Federal Medical Assistance Percentage (FMAP), which ranges from a low of 50% (for highest per capita income states) to as high as 73% (for lowest per capita income states). The reimbursement rate for program administration costs, including child placement activities is 50%; and the reimbursement rate for training costs is 75%. The federal government does not explicitly require that a state make foster care maintenance payments on behalf of children who are ineligible for federal foster care. Given the expense, states that choose to extend care may decide to cover only youth who are IV-E eligible. States are expected to pay the full costs for children and youth who do not meet the Title IV-E eligibility criteria, either out of state or local treasuries or, if allowable, some other federal funding source. Although permissible under law, extending care only to certain youth who meet the eligibility criteria established in the law may raise equity concerns. States that extend care to all youth beyond their 18 th birthday could in practice establish different levels of reimbursement for those youth who are Title IV-E eligible than for those who are not, and possibly different levels of services and supports. Federal law specifies that eligible youth may remain in care after age 18 if they undertake certain activities, such as by attending school; working part-time or full-time; participating in a program or activity designed to promote, or remove barriers to, employment; or having a condition that would preclude them from these activities. As noted earlier, HHS advises that states and tribes can make remaining in care conditional upon whether youth pursue certain pathways. Three states that seek federal reimbursement to extend foster care restrict eligibility based on certain activities. This could raise equity concerns if states and tribes preclude youth who have pursued other opportunities specified under the law. These youth may decide that college is not the right choice for them, or they may decide to work now and pursue college later. If states were, for example, to make extended care available only to those youth in post-secondary education, they may be reinforcing that only some youth should have the opportunity to stay in care. Youth who attend college may already be at an advantage relative to other youth in care who could not get into college or chose to work instead. Federal child welfare law provides state courts (including tribal or other court of competent jurisdiction) an important role in overseeing the safety and appropriateness of the child's placement and ensuring that each child has an appropriate permanency goal—regardless of whether the child is IV-E eligible and whether entry to care was via involuntary removal or a voluntary placement made by the parent or guardians. As mentioned, a case review must be conducted no less often than every six months by a judge or an administrative review panel in order to review the safety and appropriateness of the child's placement and to address the extent to which progress has been made toward addressing the reasons the child entered care, among related requirements. In addition, no later than 12 months after a child is removed to foster care, a permanency plan must be established for each child in care. This plan must be determined at a permanency hearing held in a court of competent jurisdiction or by a court-appointed/court-approved administrative body. Subsequently, the court or court-appointed/approved body must review the continued appropriateness of the permanency plan no less often than every 12 months for the child's entire length of stay in care. The court must consult with the child about the permanency plan in an age appropriate manner. HHS stipulates in its program instructions that case review system protections apply to all children under age 18 regardless of their IV-E eligibility and to those children in care age 18 and older who are IV-E eligible . In other words, children who are ineligible for IV-E would not necessarily be subject to this same court oversight. This appears to be consistent with "long-standing Departmental policy" that permits states to exclude from case review and other protections any child who has reached the state's age of majority (typically age 18) and was not receiving a Title IV-E payment. HHS program instructions also state that permanency hearings are not required for youth under a voluntary placement agreement; however, a case review must be conducted every six months. In states that choose to extend care to all youth beyond their 18 th birthday, this could, in practice, establish different levels of services and supports, depending on whether the child is IV-E eligible. For example, the requirements for background checks of foster parents and monthly caseworker visits may not be enforced for non-IV-E eligible youth. In addition, these young people may not have the same level of state (child welfare agency and court) oversight and supervision as IV-E eligible youth. Little may be known about the young people who remain in care and are IV-E ineligible, which may in turn preclude policy makers and others from determining whether the needs of all young adults in extended care are being met. A separate issue is whether juvenile courts have jurisdiction over cases involving children who legally become adults upon reaching age 18, and how hearings for older youth ought to be conducted. The American Bar Association (ABA), which represents the interests of legal professionals, has made recommendations to juvenile courts pertaining to older youth in care. The ABA recommends that states enact legislation to ensure that juvenile court involvement can continue beyond age 18, to ensure that the child welfare agency and others are accountable for carrying out the requirements of the law. The ABA also encourages courts to adopt procedures and modify hearings so that older youth in care are present and involved in their hearings. The ABA encourages young adults to be the "lead planner, and the central participant other than the judge, in their hearings." Some child welfare stakeholders articulate that foster care for youth age 18 and older must provide a different set of supports than these youth received at a younger age. Stakeholders have urged states to reconceptualize their current models for older youth in care and those who remain in foster care at age 18 and older. As articulated by the Jim Casey Foundation, an organization that seeks to promote the well-being of children and youth in foster care and those aging out: On the one hand, foster youth are eager to leave a foster care system that has not met their needs, yet they also may have considerable anxiety about the dramatic changes that can occur when they reach 18. They typically are expected to shift from ... having little say in their lives and being given few opportunities to practice making decisions to ... being largely on their own.... Young people in foster care are not given the opportunity to grow up gradually; they suddenly age out of a system.... Simply extending traditional foster care will not provide them with the developmentally appropriate supports and services that they need to become healthy and productive adults. Further, child welfare stakeholders call for extended care to have particular features. One such feature is that it is developmentally appropriate. This means that extended care is geared toward young adults as opposed to children, accounts for the trauma and loss young people have faced, and enables them to be engaged in decisions about their lives. Such an approach is based on emerging research about adolescent brain development, which shows that adolescents and young adults have a "second window" of neurological growth and development. This research suggests that young people take many years to transition to adulthood and need strong social supports as they make the transition. The research also emphasizes the need for youth to have opportunities to make and learn from mistakes and have meaningful opportunities to take on increasing responsibility. Another aspect of extended care is to assist young people in identifying and maintaining permanent connections while also developing the skills they need to have healthy relationships with family members, friends, and others. This approach emphasizes that young people should be the drivers of who they want to connect with. Overall, extended care may involve graduated levels of supervision and supports for young people in care. It may also involve redesigning case planning for these youth. For example, young people can take on specific roles and responsibilities at an earlier age. In addition, the case planning team can work closely with the young person to identify and provide experiences that lead to increased autonomy for him or her. Further, the case planning team also focuses on supporting the youth in building their social networks. Other research focuses on the factors that help young people remain in extended care. In a study by the Chapin Hall Center for Children at the University of Chicago, researchers identified the reasons a significant share of youth in some parts of Illinois do not remain in care despite the state's policies to retain youth beyond age 18. Child welfare services in the state are administered by the Department of Child and Family Services' (DCFS') four regional offices. In the Cook County region, which includes Chicago, over 81% of youth remain in care beyond age 18 (and nearly 60% until age 21), compared to the 54% of youth who are collectively retained in the three other regions (and about 15% to just over 40% until age 21, for each of the three regions).To determine the factors that influence whether some youth leave care before age 21, Chapin Hall evaluated administrative data, conducted a statewide survey of caseworkers, held focus groups with caregivers and youth, and interviewed court personnel across the state. The study identified five such factors: (1) some juvenile courts in the state play an active role in retaining youth by keeping their cases open, even with resistance from stakeholders—caseworkers, caregivers, youth, and court personnel—involved in the case; (2) stakeholders in the child welfare system did not have a uniform understanding of laws and DCFS policy that allow youth to remain in care until age 21; (3) in regions where caseworkers believed that there were few appropriate foster care placements for the oldest youth in care, youth tended not to stay in care after age 18; (4) youth who had stable and supportive relationships with adults—foster parents, relatives, caseworkers, or other professionals—tended to remain in care longer; and (5) youth attitudes about staying in care beyond the age of majority was identified as a challenge in keeping them in care, and youth often request to leave or become uncooperative because of the restrictions imposed by their case worker. Though Illinois is not necessarily representative of all states, these factors may be relevant to other states, particularly those that currently do not extend care beyond age 18, and have not yet had to address these issues. In states that extend foster care, youth age 18 or older who emancipate from foster care may later determine, prior to their state's optional older age, that they would like to return to care because of the challenges they face living on their own, or for other reasons. The July 2010 program instructions issued by HHS permit states and tribes to extend foster care assistance in a way that permits a youth to stay in care continuously or "leave care and return at some point after attaining age 18" (up to age 19, 20, or 21, depending on the state) so long as the original court order remains in effect and other IV-E eligibility criteria are satisfied. In a 2014 report on implementation of the Fostering Connections Act, the Government Accountability Office (GAO) examined the extent to which 19 states that elected to extend federal foster care enable young people to leave and re-enter care. All states reported having such policies. GAO further reported that in 12 of the 19 states, youth could stay in care under voluntary placement agreements. Youth who remain in foster care at age 18 and older may live in "a supervised setting in which the individual is living independently" for youth who remain in care after age 18 in states that take up the extended care option. The law directs HHS to clarify this phrase through the rulemaking process; however, HHS signaled in the July 2010 instructions that it does not plan to issue a regulation "at this time" on independent living settings. The instructions do not provide guidance on what independent living settings entail or how they should be overseen. Under such an arrangement, the child welfare agency continues to provide supervision. The parent or guardian is not the foster care provider to the youth and the youth has not been formally reunified. In the absence of further instructions on oversight of youth in these settings, states could establish very distinct protocols for supervising older youth in care. Regardless of setting, advocates and others have asserted that young adults in care should have the experience of learning "what it takes" to live as adults and manage their budget and other responsibilities, while still having the support of the state. States with foster youth in independent living settings would need to consider several issues: Should the child welfare agency purchase independent living units and/or contract with organizations that own such units? To what extent would the child welfare agency (or its contractor(s)) screen other youth and adults who live with youth in care? What share of the rent and utilities, if any, should youth cover? How often should case workers visit youth at the independent living setting, and where would the case worker visit the youth? To what extent would the youth be responsible if he or she violated the terms of a lease or damaged his or her placement? Can youth move to less or more restrictive independent living settings depending on their progress? Should the youth be directly provided with the maintenance payment to pay the landlord? For those youth who receive the maintenance payment, how should the state respond if the youth squanders the money? For youth who live in an independent supervised setting that is the home of their parent or guardian, what types of supports will be in place to help the youth with transitioning back into the home? In a 2014 GAO survey of 19 states that had extended care, all but two reported providing supervised independent living settings. States also reported challenges with finding appropriate housing options for these youth. States that extend care to youth age 18 and older have outlined which settings youth may live in. For example, in Minnesota youth can live in apartments, homes, dorms, and other settings. The state has explained that it is trying to determine how best to assist youth who pursue postsecondary education out of state, given that caseworkers must continue to meet with these youth at least once a month. Youth may live with roommates; the state does not allow youth to live with their parent(s) from whom they were removed or significant others. The state does not require independent living settings to be licensed, and each county is given discretion on how to handle background checks for roommates and any safety concerns at the independent living setting. Other provisions of the law address the connection of youth to caring adults, through adoption or placement with relatives. With limited exceptions, monthly federal (Title IV-E adoption and kinship guardianship) assistance has not generally been available for a child who has reached his or her 18 th birthday and who left foster care for a permanent family via adoption or kinship guardianship. However, as of FY2011, states and tribes that choose to provide adoption or kinship guardianship subsidies on behalf of eligible children who leave foster care after their 16 th birthday, so long as those youth have not yet reached their 21 st birthday and are enrolled in school, employed at least 80 hours a month, or participating in an activity designed to promote or remove barriers to employment. States and tribes may also cover an older youth with a medical condition that makes him or her incapable of participating in the activity and this incapacity is supported by regularly updated information in the child's case plan. In addition, a state or tribe is allowed to continue this assistance up to the 21 st birthday on behalf of any child, regardless of the age at which the child left foster care, if the state determines that "the child has a mental or physical handicap that warrants the continuation of assistance." (This was and remains true with regard to adoption assistance; P.L. 110-351 extended this, as of FY2011, to kinship guardianship assistance.) With regard to kinship guardianship, the child must have been "residing for at least six consecutive months in the home of the prospective relative guardian," among other requirements. HHS's July 2010 program instructions direct states that opt to extend foster care beyond age 18 to provide adoption and kinship guardianship subsidies to youth age 18 and older, up to the age the state has elected. The instructions advise that the term "relative" for purposes of kinship guardianship assistance can include biological and legal familial ties or refer more broadly to tribal kin, extended family and friends, or other "fictive" kin. States and tribes are further advised that they may establish conditions under which a person may qualify to be a child's guardian or enter into a legal guardianship arrangement. For example, such conditions can include requiring a child to be in care for more than a six-month period, and targeting certain age groups for guardianship, such as children over age 12. The Chafee Foster Care Independence Program (CFCIP) funds services to assist youth who are expected to emancipate from foster care. As enacted by the Foster Care Independence Act of 1999 ( P.L. 106-169 ), the purposes of the CFCIP are to identify youth who are likely to remain in foster care until age 18 and provide them with support services to help make the transition to self-sufficiency; assist these youth in obtaining employment and preparing for and entering postsecondary training and educational institutions; provide personal and emotional support to youth aging out of foster care through mentors and other dedicated adults; enhance the efforts of former foster youth ages 18 to 21 to achieve self-sufficiency through supports that connect them to employment, education, housing, and other services; and assure that these former foster youth recognize and accept personal responsibility for preparing for and then making the transition from adolescence to adulthood. P.L. 110-351 explicitly enables states and tribes to provide independent living services to youth who leave foster care after attaining age 16 for placement in an adoptive home or with a legal kinship guardian. The Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), signed into law on September 30, 2014, added a purpose area to the Chafee program that is effective one year after the law's enactment—to ensure children who are likely to remain in foster care until 18 years of age have regular, ongoing opportunities to engage in age- or developmentally appropriate activities. The CFCIP is a capped entitlement with an annual ceiling set at $140 million. States and tribes are entitled to an amount based on their share of the nation's foster care population, in the most recent year for which information is available. However, no state may receive less than the greater of $500,000 or the amount received by the state in FY1998. States must provide a 20% match. With funding from the CFCIP and other sources, states have developed independent living programs consistent with the purposes of the law. These programs provide direct services to youth such as housing, career exploration, education services, preventative health activities, counseling, mentoring, training in financial management, and other services. To be eligible for CFCIP funds, states and tribes must describe in their five-year Child and Family Services Plan how they will carry out their independent living program. Among other things, they must ensure statewide coverage (although not necessarily uniform) of the program and ensure that the program serves children of various ages and at various stages of achieving independence. States and tribes must also certify in their plans that they meet certain requirements pertaining to the youth served and how funding will be spent. For example, no more than 30% of program funds may be used for the room and board of youth ages 18 to 21. Separately, the Chafee Education and Training Voucher Program (ETV) was authorized by the Promoting Safe and Stable Families Amendments of 2001 ( P.L. 107-133 ) for children who have emancipated from care or were adopted from care at age 16 or older. P.L. 110-351 also permits youth who leave foster care for guardianship at age 16 or older to be eligible. Congress authorized $60 million in discretionary funds for the program, which is allocated to states based on their relative share of the foster care population. Congress has appropriated approximately $45 million each year for the program. The program authorizes vouchers worth up to $5,000 annually per eligible youth for the cost of full-time or part-time attendance at an institution of higher education, as defined by the Higher Education Act of 1965. "Cost of attendance" refers to tuition, fees, books, supplies, equipment and materials, room and board, and related expenses. Students are eligible for the vouchers if they are in good academic standing and making progress toward completing their program or graduating, though states may have additional requirements. Only youth receiving a voucher at age 21 may continue to participate in the voucher program until age 23. P.L. 110-351 explicitly authorizes states to provide independent living services to youth who have left foster care under a permanent arrangement before reaching age 18, either by adoption or kinship guardianship, in addition to the traditional CFCIP population of foster youth who age out without a permanent home. This means that independent living services—with their focus on connecting youth to school, work, and other resources—may be available to these youth until they reach age 21. States currently provide CFCIP services to youth "likely to remain in foster care until age 18," and they have broad discretion in defining this term. Going forward, as states prioritize which youth to serve in the program, they may need to determine whether independent living programs have the capacity to serve any additional youth. In addition, states will need to determine how to fulfill the purpose that addresses youth participating in age- or developmentally appropriate activities. This purpose area will go into effect in FY2016, before new mandatory funding is available under the program (in FY2020). Child welfare law, as amended by P.L. 110-351 , requires that a youth's caseworker, and as appropriate, other representative(s) of the youth, assist and support him or her in developing a transition plan. The plan is to be directed by the youth, and is to include specific options on housing, health insurance, education, local opportunities for mentors, workforce supports, and employment services. The plan must be implemented 90 days prior to a youth's 18 th birthday (or the 19 th , 20 th , or 21 st birthdays of youth in states that take up the option to extend foster care), "whether during that period foster care maintenance payments are being made on the child's behalf or the child is receiving benefits or services under [the Chafee Foster Care Independence Program]." The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148 ), added another element to the transition plan. The law requires that the plan must address the importance of designating another individual to make health care treatment decisions on behalf of the youth if he or she becomes unable to participate in these decisions and does not have a relative who would be authorized to make these decisions under state law, or he or she does not want a relative to make these decisions. In addition, the transition plan must provide the youth with the option to execute a health care power of attorney, health care proxy, or other similar document recognized under state law. The transition plan is distinct from a case plan , which is required for every child and youth in foster care, but the two would appear to be somewhat complementary. The case plan is implemented and modified as needed while the youth is in care. In the case plan , the child welfare agency must describe in a written document the youth's placement and a plan for ensuring the youth receives safe and proper care, among other items. For youth ages 16 or older, the case plan must also address the programs and services that will help the youth make a successful transition to adulthood "where appropriate." In contrast, the transition plan is to include options about the services and supports that the youth may receive (presumably) when he or she is no longer in the custody of the state or receiving CFCIP-funded independent living services. Further, the transition plan requires that youth and other stakeholders identify specific options that will help youth live independently. For example, the plan must specify which type of housing options the youth will have (and presumably alternative options if housing is not available). The transition plan must also be directed by the youth in consultation with others, and can be as detailed as the youth would like. Finally, the case plan is reviewed by a court as part of annual hearings to review the youth's (or child's) permanency goal(s). The transition plan is not reviewed by a court or other body. The July 2010 program instructions issued by HHS on P.L. 110-351 provide additional guidance on the transition plan. The instructions encourage child welfare agencies to use transition planning to build on earlier efforts to assist young people in making the transition from foster care, including through the case planning process and permanency hearings. Child welfare agencies are encouraged to begin engaging youth in the transition plan process "well in advance" of the 90-day period. The July 2010 program instructions state that the transition plan is not required for a youth who leaves foster care more than 90 days before his or her 18 th birthday, or an older age in states that elect to extend care. This raises questions about those youth who emancipate at any earlier age. Thousands of youth emancipate from care at age 17, raising the possibility that without a transition plan, they could leave care less prepared than their peers in care who are emancipated at ages 18 or older. (These youth might also be less likely to benefit from the Medicaid pathway for emancipated youth, who must have been in care on their 18 th birthday to be eligible for this pathway, effective in 2014.) Similarly, states and tribes would not necessarily help develop transition plans for youth who remain in care beyond age 18 but leave at least 90 days before reaching age 19, 20, or 21 (depending on the state). Those in the field of social work have begun to develop guidance on how to carry out a transition plan. This guidance emphasizes that the plan should engage youth and stakeholders in a process, and not serve solely a checklist of skills, and further that the transition planning process should focus on helping the youth achieve permanency with caring adults that will provide lifelong and possible legal relationships to youth. The guidance stresses that plans should be developed with the strengths of the young people in mind; be directed by the youth to ensure they actively participate in the process; and encourage service providers and those closest to the youth to share information and jointly help the youth in planning for their future; among other principles. In a 2014 report, GAO found that states have adopted policies to engage youth in the transition planning process and providing essential supports as part of the transition from foster care. For example, of 53 jurisdictions nearly all (49) require that youth input on the plan is documented and that the plan includes ensuring that youth have key documents (e.g., birth certificate). Further, 35 jurisdictions require that the transition plan is separate from other transition planning efforts, such as plans developed in connection with permanency hearings. Over half (28) of jurisdictions require a transition planning specialist or outreach worker to assist the youth with the plan. Nonetheless, several jurisdictions reported challenges with transition planning, including a lack of staff training or time to effectively engage youth in transition planning (21 jurisdictions), identifying and engaging supportive adults from the youth's life in the transition planning process (21), and identifying appropriate housing for youth transitioning from care (31). Some states, including Hawaii and Nebraska, have developed transition planning processes that provide detailed directives about engaging youth and others who are involved in these processes. In Hawaii, youth and others hold transition planning "circles" to celebrate the young person becoming an adult and assisting the youth plan for their future. These conferences are intended to be driven by the youth and to draw on the youth's support system to generate options and resources that help the youth make decisions about their future and meet their goals. They include specific options that are outlined in federal law, as well as options for transportation and spirituality. Foster Club, an advocacy organization for youth in foster care, has developed a transition planning kit for older youth in Nebraska. It specifies the roles of the transition plan team and courts in oversight. It also includes a transition proposal checklist that is revisited six months after it is initially created, and again 90 days before the youth ages out. In addition, it includes what is referred to as a "permanency pact," whereby youth consider which individuals can assist them as they transition and the specific types of supports they may be able to provide (e.g., a place to spend the holidays, job search assistance, assistance with medical appointments, co-signer, emergency cash, inclusion in social circle/community activities). Even with the passage of P.L. 110-351 , policy makers and child welfare advocates remained concerned that older foster youth and those who have aged out face challenges as they transition to adulthood. The Midwest Evaluation and other research demonstrate that youth have difficulty in fostering permanent connections with caring adults, securing health insurance and housing, and staying connected to work and school. Further, little is known about youth as they transition from foster care and the effectiveness of the services they receive, although a new national database will likely provide some insight into their outcomes across a number of areas, such as education, employment, and contact with social service and criminal justice systems. Finally, a recent focus of Congress has been on increasing protections for children who are vulnerable to going missing from care, or may go missing, and responding to youth in foster care who may be vulnerable to sex trafficking or have been victims of sex trafficking. The Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), enacted in September 2014, seeks to address some of these issues. The Midwest Evaluation shows that youth who aged out of foster care are less likely to have permanent, positive relationships with caring adults, and that youth continue to remain in close contact with their biological families after emancipating. Still, they also appear to be estranged from these family members. The Midwest Evaluation on the Adult Functioning of Former Foster Youth, a study that is tracking young people who emancipated from care in three states, shows that at age 26, these youth were more likely than their peers to be married (35.7% vs. 26.1%) and much less likely to live with their parents (3.9% vs. 17.2%). Further, about half or less than half of alumni reported being "very close" or "somewhat close" to their biological mother (52.0%), biological father (30.8%), grandparents (46.2%), or "other relatives" (38.8%). (Comparable data were not reported for youth generally.) This suggests that a significant share of former foster youth in the study did not have strong relationships with at least some of their relatives after having been out of care for a few years. Despite federal protections to ensure that child welfare agencies help youth plan for their futures, child welfare practitioners and young people in care continue to advocate for additional policies that improve the transition to adulthood by encouraging strong, long-term connections to caring adults. They argue that these connections can help youth achieve more successful outcomes by providing emotional, financial, and other support. In some jurisdictions, the child welfare agency plays an active role to ensure permanent adult connections for youth aging out. According to practitioners, permanency can mean different types of relationships for a youth in foster care, but generally refers to a connection with at least one committed adult who provides a safe, stable, and secure relationship, unconditional commitment, and a legal relationship where possible. Practitioners point out that relationships can be developed by (1) reconsidering whether youth can achieve permanency without resorting to the case goal of "another planned permanent living arrangement (APPLA); (2) helping youth identify permanent connections through the case planning and transition planning processes; (3) assisting youth, up to their early twenties, pursue adoptive relationships with adults; and (4) helping youth develop relationships with caring adults such as teachers or mentors. Child welfare researchers advise that practitioners should be cautious in designing and implementing policies that help foster youth develop lasting connections with adults. For example, young people in care have experienced failed relationships with adults who were supposed to care for them, and youth could be harmed if they form unsustainable relationships with other adults. Further, as the Midwest Evaluation and other studies have shown, youth who age out tend to have regular contact with their biological family. Little research has been conducted on how best to facilitate healthy relationships between foster youth and their family members. Advocates have urged policy makers and practitioners to require that permanency planning be initiated before a youth leaves care. This could be achieved through the case planning process. At a child's annual permanency hearing, the judge must determine the permanency plan (or goal) for the child, including, as appropriate, (1) returning home, (2) referral for adoption and termination of parental rights (TPR), (3) guardianship, or (4) placement with a "fit and willing" relative. If none of these goals is possible or appropriate, "another planned permanent living arrangement" (APPLA) may be selected. In selecting APPLA, states must document a "compelling reason" for determining that the other case permanency goals would not be in the child's best interests." APPLA was added to the statute as part of reforms enacted in the Adoption and Safe Families Act (ASFA) of 1997, in which advocates sought to address concerns that long term foster care (a previous placement option) is not stable and can lead to frequent moves for a child. Advocates envisioned APPLA as a permanent arrangement for a child and "not a catchall for whatever temporary plan is needed when none of the preferred permanency plans are practical." According to advocates, a permanency plan with APPLA should involve a specific adult or couple, as opposed to an organization, who will care for the young person; likely live with him or her; and have a permanent and caring role in the child's life. Since ASFA's enactment, concerns have been raised by child welfare advocates and others that APPLA has been used as a replacement for "foster care on a permanent or long term basis" and that APPLA has become a default permanency goal for some children in foster care. They caution that certain settings, such as group care, should not be pursued unless there is clear evidence that the young person would not be able to function in a family before reaching the age of emancipation. In December 2010, the Senate Caucus on Foster Youth, co-chaired by Senators Grassley and Landrieu, issued a white paper that drew on a series of meetings held with foster youth and other stakeholders to discuss policy and practice changes that could improve outcomes for children in foster care. The executive summary noted that while permanency is a goal for all children in foster care, "too often" the goal was not attained and, further, that youth reported not always understanding what permanency meant. Among a wide range of policy options, the white paper included two that were directly related to APPLA. These were to (1) eliminate APPLA as a case plan goal entirely, or (2) make APPLA available only to older teenagers in care but "only after efforts at intensive family finding have been undertaken, and only if APPLA is determined or re-determined necessary by the court at each permanency hearing held with regard to the youth." The Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ) incorporates some of the recommendations made in the white paper. The law stipulates that no child under the age of 16 may have a permanency plan of APPLA. Generally this requirement is effective one year after the bill's enactment, although for children in foster care who are under the responsibility of an Indian tribe the effective date is three years after the bill's enactment. The law requires that if a child is assigned a permanency plan of APPLA, the state must meet additional requirements for the child as part of the child's annual permanency hearing and, separately, as part of the periodic review (every six months) of a child's status in foster care. These requirements are designed to ensure that the state child welfare agency continues to look for a permanent family for children with an APPLA designation, that the court continues to revisit whether APPLA is an appropriate permanency plan for the child, and that the child is consulted about his/her desired permanency outcome and ability to participate in age- or developmentally appropriate activities. The transition plan requirement may be one way to help ensure that youth are fostering permanent connections in adulthood. The requirement directs youth and other stakeholders to consider local opportunities for mentoring. This could mean that, at minimum, youth and others have a conversation about the relationships the youth can forge as they leave care. Further, as proposed in previous Congresses, changes could be made to federal child welfare law to assist youth achieve permanency. For example, written case plan requirements could be amended to include the steps taken to ensure that a child has a permanent living arrangement if they emancipate, and for older youth, documentation of the permanent living arrangement the youth will enter after foster care. Further, the case plan requirements could include documentation of the steps the agency takes to find a permanent placement with a family or other adult connection for the youth, as well as a permanent living arrangement. As part of its 2014 report on implementation of the Fostering Connections Act, GAO surveyed states about their transition planning process and found that 36 jurisdictions (including the District of Columbia) require that it includes intensive efforts to ensure young people have adult connections if these connections are not already established. Some transition processes in particular focus heavily on permanent connections. During the transition process in Texas, youth receive assistance in determining which caring adults can provide them support when they leave care. As part of the youth's case plan, a youth is asked to identify someone who is over age 18 and not necessarily a placement option, but will provide consistent and significant support and help the youth make important decisions and work through emergency situations. As mentioned, Foster Club's Permanency Pact is intended to help youth aging out connect with caring adults. The pact is a tool that can be used to "define, substantiate, and verbalize" a lifelong commitment of an adult to a youth leaving care. The pact seeks to ensure that the young person leaving care has emotional and tangible supports. Other efforts to support permanency have focused on adoption for older youth. Beginning in 2005, HHS funded a five-year pilot demonstration project to support adoption for older youth, known as Adoption Opportunity Grants. Two of the multiple purposes of the grants were to demonstrate effective strategies of open adoption for youth who prefer to maintain contact with their biological families, and to demonstrate effective implementation strategies for securing permanent connections for youth, particularly through adoption, open adoption, guardianship, and kinship care. The grants funded 10 projects throughout the country. Other changes could be made at the federal level to achieve permanency for current and former foster youth. For example, federal grants could be funded to provide mentoring. The Department of Justice has provided funding to a small number of grantees for mentoring teens in care. Legislation has also been introduced in Congress that seek to permanently authorize funding for grants that provide mentoring to foster children. The bills have proposed to authorize grants to states and other entities to support, establish, and expand networks of public and private community entities to provide this mentoring. State and local child welfare agencies are responsible for carrying out child welfare policies that are intended to promote the safety, well-being, and permanency of all children. Child victims of sex trafficking may come to the attention of the child welfare agency if they are reported to the agency's child protective services (CPS) hotline. In addition, children in foster care—who are typically placed out of their homes due to abuse or neglect by their parents or caregivers—may be vulnerable to trafficking. Youth who run away from foster care are perceived to be especially susceptible to this type of victimization. The capacity for state and local child welfare agencies to respond to the needs of sex trafficking victims is believed to be limited. This may be due, in part, to inadequate training, insufficient resources, high caseloads, and the perception that victims should be handled in the juvenile justice system. In addition, states may not have mechanisms in place to "screen in" cases involving children who are sex trafficked because the perpetrator involved is not the child's parent or caregiver as these terms are defined under state law. As part of its report on child sex trafficking, the National Academy of Sciences recommends, among other items, improving collaboration and information sharing across multiple sectors such as the federal government, state and local governments, academic and research institutions, foundations and nongovernmental organizations, and the commercial sector. In the 113 th Congress, the House Ways and Means Subcommittee on Human Resources and the Senate Finance Committee held hearings about child sex trafficking and the opportunities and challenges for child welfare agencies to respond. Witnesses testified about how children become victimized and the strategies that selected child welfare agencies have taken to recognize and combat child sex trafficking. These hearings and other efforts culminated in passage of the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ). The act amends the Title IV-E foster care program to require state child welfare agencies to develop and implement procedures to identify, document in agency records, and determine appropriate services for certain children or youth who are victims of sex trafficking, or at risk of being such victims as defined under the Trafficking Victims Protection Act. The procedures must be developed in consultation with state and local law enforcement, juvenile justice systems, health care providers, education agencies, and organizations with experience in dealing with at-risk children and youth. The procedures must also ensure relevant training for caseworkers. The law provides that these procedures need to be developed within one year of the bill's enactment (on September 30, 2014) and implemented within two years of that date. Further, no later than two years after the enactment of P.L. 113-183 , the law requires state child welfare agencies to report to law enforcement authorities immediately, or in no case later than 24 hours, after they receive information about child or youth victims of sex trafficking. Additionally, within three years of the law's enactment, state child welfare agencies are required to annually report to HHS the total number of children and youth who are sex trafficking victims. HHS in turn is required, within four years of that date, to annually report to Congress and the public (via the HHS website) the total number of children and youth who are reported by state child welfare agencies as victims of sex trafficking. P.L. 113-183 also directs HHS to submit a written report to Congress, no later than two years after enactment of the bill, summarizing demographic information and discussing state efforts to provide specialized services, foster family homes, child care institutions, or other forms of placement for children who are victims of sex trafficking, and related requirements. Under the law, HHS must also establish the National Advisory Committee on Domestic Sex Trafficking and to appoint all members of the committee (in consultation with the Attorney General) within 180 days after the bill's enactment. The committee is charged with advising the HHS Secretary and the Attorney General on policies concerning improvements to the nation's response to domestic sex trafficking of minors from the child welfare system and developing recommended best practices for states to follow in combating the domestic sex trafficking of minors, among other responsibilities. Congress may wish to monitor how states implement these requirements when they go into effect one to four years after the law's enactment. Some considerations include (1) the type of guidance and technical assistance HHS provides states to make them aware of the child welfare agency's role in responding to child sex trafficking, (2) whether states are serving youth who are not or were not previously in foster care, (3) how many victims are reported by state child welfare agencies to the federal government, and (4) any best practices that have been identified for serving these victims. In addition, state child welfare agencies are required to serve only children and youth victims (or possible victims) who are already in the child welfare system, and not necessarily those who may come to the attention of the agency as a victim. As Congress examines implementation of the new law, it may wish to consider the extent to which state child welfare agencies should take on responsibilities to screen in victims (or possible victims). Pending legislation (including H.R. 5081 , passed by the House in July 2014) would require state child welfare agencies to have procedures in place to identify and assess reports involving children who are sex trafficking victims, and train child protective services (CPS) workers to identify and assess child victims of sex trafficking, among other changes. Children who are removed from their parents or guardians and placed in foster care homes because of abuse and neglect may go missing. Federal law and policy have generally provided limited guidance to states on serving children missing from care, and the focus of this guidance is exclusively on children who run away from their placements. Further, the federal Runaway and Homeless Youth program and the Missing and Exploited Children's program do not target services and supports specifically for children in foster care. Some child welfare stakeholders have sought a more uniform and robust response to children missing from care. In an unpublished survey from 2004 conducted by the Child Welfare League of America (CWLA), a child welfare organization, many states reported that they had policies and procedures in place to prevent children from going missing from foster care or recovering them when they do. Still, it is unclear the extent to which these states carry out the policies they have established and whether implementation differs across jurisdictions within states. The recently enacted Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ) provides a directive to state child welfare agencies on children missing from care. It focuses on responding to children who go missing and directing the child welfare agency to involve other entities when a child goes missing. Specifically, the law requires the state child welfare agency (as part of its Title IV-E plan) to develop protocols for (1) expeditiously locating any child missing from foster care; (2) determining the primary factors contributing to the child running away or otherwise going missing from care and responding to those factors in the current and subsequent placements of the child; (3) learning about the child's experience while absent from care, including determining if the child is a possible victim of sex trafficking; and (4) reporting any related information as required by HHS. These protocols must be developed and implemented within one year of the law's enactment. P.L. 113-183 further requires state child welfare agencies to report information it receives on missing and abducted children or youth to the National Center on Missing and Exploited Children (NCMEC), a federally funded resource center on missing children, and to law enforcement authorities for inclusion in the Federal Bureau of Investigation's (FBI) National Crime Information Center (NCIC) database. Children missing from care raise several issues about the role of child welfare agencies and the federal government in responding to these cases. For example, child welfare agencies may need to examine larger issues that may play a role in whether a child goes missing. Best practice guidelines issue by the Child Welfare League of America (CWLA) in 2005 recommend that state child welfare agencies have certain procedures and policies in place, such as (1) recruit, retain, and train a sufficient and competent workforce and maintain caseload standards that permit workers to perform the duties necessary to achieve successful outcomes; (2) include youth, birthparents, extended family, tribal members, and caregivers in all decision making as appropriate; (3) examine the structure and operation of foster and group homes, residential facilities, or agencies that display higher rates of runaways; and (4) implement remedial action if necessary to correct the structural and operational deficiencies that cause or contribute to running behavior of children in care. Another consideration is how states define missing, and whether to report all missing children to law enforcement agencies. For example, at least a couple of states define "missing" to include children whose whereabouts are known but are not at their foster care placements. This raises questions about whether children who are missing, including those whose whereabouts are known, ought to be reported to law enforcement. States could restrict reporting children who are missing from care to circumstances where law enforcement can be most helpful. This may be necessary because law enforcement agencies often have competing demands from other pressing public safety threats, and smaller law enforcement agencies may not have dedicated staff for missing persons cases. Further, law enforcement agencies may choose not to respond as vigorously to certain types of missing incidents such as frequent runaways, due to a variety of factors such as competing demands, the time it takes to process paperwork and transport juveniles, the frustration of runaway cases involving juveniles who do not want to return home, and the likelihood that juveniles will run again. Nonetheless, even children and youth whose whereabouts are known may still be at risk of endangerment. A related issue is the extent to which coordination between the child welfare agency and law enforcement and the courts can help prevent children from going missing. Federal child welfare policy provides some general requirements related to child welfare agency work and courts and law enforcement. None of these are provided necessarily in the context of children missing from care but they might be a starting point for any needed collaboration. The CWLA Best Practices guidelines, and the guidelines written by NCMEC, encourage law enforcement agencies and child welfare agencies to delineate roles and share clear, consistent definitions of missing children. Finally, little is known about children missing from foster care. Currently, state child welfare agencies must report to HHS, via the reporting system known as AFCARS, on the number of children who run away from their foster care placement settings and have not returned as of the last day of the six-month reporting period, and children who remained in that runaway status when they were discharged from foster care (i.e., exited care). AFCARS does not have a separate reporting category for children who may go missing for other reasons, such as abductions or negligence by the child welfare agency. To enable states to identify and work to locate children who are no longer living where they were placed by child welfare agencies, states may need to more completely track these children. For example, they might also need to identify and count those children who were abducted or are otherwise missing. Child welfare stakeholders have raised concerns that child welfare agencies may limit the opportunity for foster youth to participate in "normal," age-appropriate activities because of policies that prioritize safety above other considerations. At a House Ways and Means Subcommittee hearing on balancing safety with opportunities to let foster youth have normal experiences, witnesses testified about the restrictions foster youth face. For example, they may be prevented from having sleepovers at the homes of their friends, dating, using the phone, obtaining a driver's license, driving a vehicle, working, going on school trips, and participating in sports. Or youth may be able to participate in these activities only after friends' parents (or other adults such as chaperones and coaches) have been subject to background screenings. Witnesses asserted that youth naturally also want to take on more risk as they test out their independence, and their behaviors may put them at risk of injury. One witness explained that changes in brain development during adolescence often mean that teenagers exhibit more risk taking behaviors: "[B]ecoming an adult and taking on adult responsibilities involves taking on risks ... [A] teenager's brain is literally primed for risk-taking since chemicals in the brain that act to link such action to pleasure are shifting during adolescences." Prior to the enactment of the Preventing Sex Trafficking and Strengthening Families Act ( P.L. 113-183 ), few federal child welfare provisions specifically addressed efforts to promote normalcy for youth in foster care. P.L. 113-183 includes several such provisions, and Congress will likely be interested in monitoring how the law is implemented when the provisions generally go into effect one year after the law's enactment. For example, the law established a "reasonable and prudent parenting" standard under which foster parents and other caregivers apply knowledge and skills necessary to make decisions that enable children and youth in care to participate in age and developmentally-appropriate activities. HHS must help states identify best practices for assisting foster parents in using the standard. The law also requires child welfare agencies to provide training to prospective foster parents on children's developmental stages and on how to apply the reasonable and prudent parent standard when determining whether a foster child's participation in school or other social, extracurricular, or cultural activities (e.g., sports teams, field trips, overnight events and related transportation) is age- or developmentally-appropriate. States are further required to revise their licensing standards for foster family homes and child care institutions to reflect provisions around normalcy, among other related changes. A major concern for youth aging out of foster care is the lack of adequate and affordable housing. Several studies have examined rates of homelessness among former foster youth, and the share of youth reported homeless varies from 11% to 36%. The studies were conducted using differing methodologies, localities, length of time since exit, and other variations. The Midwest Evaluation, which has examined outcomes of foster youth in three Midwestern states, found that 24% of 23-year-olds reported being homeless at least once since exiting care. Some youth have also couch surfed, wherein they do not have permanent housing and stay at the homes of family and friends. Estimates of emancipated youth who couch surf range from one-quarter to one-half. The housing status of former foster youth is often affected by individual characteristics (e.g., their lack of financial supports and ties to family members and other caring adults, early parenthood, and involvement with the juvenile justice system); their involvement with the child welfare system (e.g., lack of preparation in making the transition to adulthood and lack of coordination with other systems that may be able to assist young people in securing housing); and the housing market (e.g., ability to secure affordable housing). Youth who lack housing may have difficulty staying in school and/or maintaining employment. Although the CFCIP authorizes states to spend up to 30% of their allotment on room and board for youth ages 18 to 21 who emancipate from care, child welfare researchers point out that these funds alone cannot adequately cover the cost of housing for many former foster youth. Nonetheless, former foster youth may have access to housing programs operated by nonprofit organizations, sometimes in combination with a housing developer or property management agency. In a review of nearly 60 housing programs for former foster youth in 21 states and the District of Columbia, researchers found that these programs provide housing options that include single-site locations (e.g., apartments in one building), scattered-site locations (e.g., housing provided by different landlords throughout a community), and host homes (e.g., homes hosted by a foster family or other adults). Most of the programs focused on providing independent living supports to former foster youth and required the youth to be working or in school. None of the programs have been rigorously evaluated to determine if they prevent homelessness or reduce housing stability, or otherwise have helped young people achieve positive outcomes such as attainment of a high school diploma. In addition, youth who live in states that take up the extended foster care option under P.L. 110-351 can be housed in a foster home or independent living setting. Still, states that extended care report challenges with finding appropriate housing options. Another housing issue concerns current and former foster youth in college who are unable to stay with family or friends over school breaks, when college facilities are often closed. Some states require public universities to provide housing for these youth. For example, California law requires that the California State University system and the community college system, "review housing issues for those emancipated foster youth living in college dormitories to ensure basic housing during the regular academic school year, including vacations and holidays other than summer break." The Higher Education Act (HEA), as amended, seeks to address some of these housing concerns by authorizing services specifically for youth in foster care or recently emancipated youth, including housing services, among other related changes. The law authorizes services for these youth (and homeless youth) through Student Support Services—a program intended to improve the retention and graduation rates of disadvantaged college students—that can include temporary housing during breaks in the academic year. HEA further allows additional uses of funds through the Fund for the Improvement of Postsecondary Education to establish demonstration projects that provide comprehensive support services for students who were in foster care (or homeless) any time before age 13. As specified in the law, the projects can provide housing to the youth when housing at an educational institution is closed or unavailable to other students. Nevertheless, authority to fund housing during breaks does not mean that universities and colleges will necessarily use funds from the two programs for this purpose. Separately, federal law enables owners of properties financed in part with Low-Income Housing Tax Credits (LIHTC) to claim as low-income units those units occupied by low-income students who were in foster care. Owners of LIHTC properties are required to maintain a certain percentage of their units for occupancy by low-income households; students (with some exceptions) are not generally considered low-income households for this purpose. The law does not specify the length of time these students must have spent in foster care nor require that youth are eligible only if they emancipated. In its February 2008 report on disconnected youth, the U.S. Government Accountability Office defined this population as individuals ages 14 to 24 who are not in school and not working, or lack family or other support networks. As identified in the report, youth in care and certain other groups of youth are at greater risk of becoming disconnected from employment and education. Young people who have aged out of care tend to have low rates of employment and low earnings. One study of youth who emancipated in three states—California, Minnesota, and North Carolina—linked child welfare, Unemployment Insurance (UI), and public assistance administrative data to determine the employment outcomes of these young people. At age 24, about three out of five youth who aged out in the three states were working, a rate lower than that of youth nationally and youth from low-income families. These young people were also less likely to earn as much as their counterparts. The average monthly earnings for emancipated youth in all three states were substantially lower than earnings for youth nationally, who earned $1,535 a month on average. On the education front, young people in care or who have aged out face numerous challenges. While in care, youth tend to experience multiple school placements, delays in enrollment, loss of academic credit, and lack of a consistent education advocate who is knowledgeable about their needs in the special education process, among other challenges. Foster care alumni, even those who remain in care beyond age 18, are far less likely to attend college. The Midwest Evaluation demonstrates that by age 26, only about 7% of youth who aged out of care in three states attained an associate's degree or bachelor's degree. About one-third of the general youth population had the same. This suggests that young foster care alumni may need additional supports to facilitate completing their education. For example, they may benefit from academic, social/emotional, and logistical support, including year-round housing. Federal child welfare law addresses the educational needs of youth who are in or were in foster care. State child welfare agencies are required to also give assurances in each child's written case plan that when selecting a child's placement in foster care, the agency had taken into account the setting's proximity to the school in which the child was enrolled at the time of placement in foster care. The law also stipulates that a state child welfare agency must include certain education-related records in the child's case plan (i.e., names and addresses of educational providers, grade level performance, and school and immunizations records). Further, state child welfare agencies must work with relevant state and local education authorities to ensure that a child remains in the same school in which he or she is enrolled at the time of foster care placement, or, if this is not in the best interests of the child, to ensure immediate and appropriate enrollment for the child in a new school. To help support this requirement, the law permits states to claim federal funding for the cost of transporting children to their "school of origin" at the same reimbursement rate that is provided for foster care maintenance payments. Separately (under the Title IV-E plan), the law requires states to assure that children who have reached the minimum age for mandatory school attendance in their state, and who are receiving federal foster care maintenance payments, adoption assistance, or kinship guardianship assistance, are enrolled in school or have completed high school. Finally, educational records must be reviewed, updated, and supplied to a child's foster care parent (or other foster care provider) at the time of each foster care placement. Federal agencies are collaborating to address the multiple needs of vulnerable youth populations, including the education needs of current foster youth. The U.S. Departments of Health and Human Services and Education convened a summit in November 2011 that brought together state teams representing education and child welfare agencies, along with the judicial branch, to discuss how best to promote educational stability and improve educational outcomes for children in foster care. Teams were charged with creating a plan for collaborating across systems that were to be implemented following the conference. Despite this collaboration, federal education law does not address the educational needs of children in foster care. Recent legislation seeks to improve access to education for children and youth in foster care via federal education statute. For example, S. 1094 (a bill reported by the Senate Committee on Health, Education, Labor, and Pensions (HELP) to reauthorize the Elementary and Secondary Education Act in the 113 th Congress) would amend federal education law to reflect related provisions in child welfare law. The bill would require state education agencies (SEAs) to ensure that a child in foster care remain in the same school in which he or she is enrolled at the time of foster care placement, or, if this is not in the best interests of the child, to ensure immediate and appropriate enrollment for the child in a new school. The bill would also require SEAs to have policies in place to ensure that a child in care who is changing schools can transfer school credits and receive partial credit. Federal education law does, however, address the postsecondary educational needs of current and former foster youth. The Higher Education Act includes provisions that authorize supportive educational services for foster youth. The law stipulates that youth in foster care (including youth who have left foster care after reaching age 16) and homeless children and youth are eligible for what are collectively called the federal Trio programs. The law directs the Department of Education to require applicants seeking Trio funds to identify and make available services, including mentoring, tutoring, and other services, to these youth. The Trio programs are designed to identify potential post-secondary students from disadvantaged backgrounds, prepare these students for higher education, provide certain support services to them while they are in college, and train individuals who provide these services. The programs are known individually as Talent Search, Upward Bound, Student Support Services, and Educational Opportunity Centers. Finally, the FY2014 appropriations law ( P.L. 113-76 ) directs the Department of Education (ED) to modify the FAFSA form so that it includes a box for applicants to identify whether they are or were in foster care, and to require ED to provide these applicants with information about federal educational resources that may be available to them. At the time of this writing, it does not appear that ED has issued guidance on this modification. The Chafee Foster Care Independence Program is a major source of funding for independent living services for youth who are in care or have aged out. Yet little is known about the effectiveness of these services or the outcomes of foster youth after they leave care. The few studies of independent living programs and other interventions have not been rigorous, or have shown that the interventions have not been effective at improving outcomes for youth. Further, no studies have provided a national picture of how well former foster youth make the transition to adulthood. The Midwest Evaluation and other studies have focused on the transition for youth in select regions of the country. Though a new national database—known as the National Youth in Transition Database (NYTD)—will provide insight into the lives of youth when they leave care, full implementation of the database will likely take several years. The Chafee Foster Care Independence Program is the only dedicated source of funding for independent living services for transition-age young people in and recently emancipated from foster care. An annual appropriation of $140 million for the program is distributed to states based on their relative share of children in care. States must provide a 20% match in order to receive the funds. Nearly all states routinely draw down their maximum amount of CFCIP dollars. Based on a 2008 survey of 45 states by the University of Chicago's Chapin Hall Center for Children, 31 of the states (68.9%) spend additional funds—beyond the 20% match—to provide independent living services and supports to eligible youth. This suggests that federal funding alone is not likely enough for states to carry out their independent living programs. Given that funding for independent living services is somewhat limited, states can likely benefit from learning about which services are the most effective. The research literature on independent living programs is scarce. However, pursuant to the law that established the CFCIP, HHS was required to conduct evaluations of independent living programs funded by the CFCIP deemed to be innovative or of national significance. HHS contracted with the Urban Institute and its partners to conduct an evaluation known as the Multi-Site Evaluation of Foster Youth Programs. The goal of the evaluation was to determine the effects of independent living programs funded by P.L. 106-169 in achieving key outcomes, including increased educational attainment, higher employment rates and stability, greater interpersonal and relationship skills, reduced non-marital pregnancy and births, and reduced delinquency and crime rates. The evaluation involved randomly assigning 1,400 eligible foster youth to four programs in California and Massachusetts—an employment services program in Kern County, CA; a one-on-one intensive, individualized life skills program in Massachusetts; and a classroom-based life skills training program and tutoring/mentoring program, both in Los Angeles County, CA. The 1,400 youth participating in the evaluation at the four sites were assigned to intervention and control groups and were surveyed at three points: baseline, one year after baseline, and two years after baseline. The researchers also conducted in-person interviews with the youth, program administrators, community advocates, and directors of community provider agencies. Further, the evaluation team held focus groups with youth, independent living program staff, and other agency staff responsible for referring youth to the programs. The team used extracts of state administrative data to determine child and family demographics, child welfare placement history, physical and mental health status, and delinquency history. In short, the evaluation of the Los Angeles and Kern County programs found no statistically significant impacts as a result of the interventions; however, the life skills program in Massachusetts showed impacts for some of the education outcomes that were measured. The program is known as the Massachusetts Adolescent Outreach Program for Youth in Intensive Foster Care, or Outreach. The program assists youth who enroll voluntarily with preparing to live independently and with having permanent connections to caring adults upon exiting care. Outreach is intended to help youth achieve a range of outcomes, including receiving a high school diploma, continuing their education, avoiding non-marital childbirth and high-risk behaviors, and gaining employment, among other outcomes. The program provides services that are tailored to each youth and it emphasizes a youth development approach, which emphasizes that youth can be empowered to make positive decisions about their lives. A core feature of the Outreach model is that the social workers in the program oversee a small caseload (approximately 15 youth each) and have regular (approximately once a week) interactions with the youth. The workers seek to develop a close relationship with the youth, with the goal of the youth viewing the worker as his or her advocate. Caseworkers assist youth with tasks like obtaining their driver's licenses, applying for college, and gaining employment. Caseworkers may also refer youth to service providers as needed. The evaluation examined educational, employment, and other outcomes that can reflect how well a young person is transitioning to adulthood. Outreach youth were more likely than their counterparts in the control group to report having ever enrolled in college, and they were more likely to stay enrolled. Outreach youth were also more likely to experience outcomes that were not a focus of the evaluation: youth were more likely to remain in foster care and to report receiving more help in some areas of educational assistance, employment assistance, money management, and financial assistance for housing. According to the study, remaining in care and enrolling and persisting in college appear to be strongly interrelated. In short, the Outreach youth may have been less successful on the educational front if they had not stayed in care. Youth in the program reported similar outcomes as the control group for multiple other measures. For example, Outreach youth did not report better outcomes in employment, economic well-being, housing, delinquency, pregnancy, or preparedness for various tasks associated with living on one's own. This evaluation raises questions about the efficacy of independent living programs, and whether classroom-based instruction is effective in helping youth make the transition to independent living. The Outreach program, which assigns case workers to a small number of transitioning youth, appears promising; however, as discussed above, youth in this program did not fare any better than similarly situated foster youth in areas other than education and remaining in foster care. The National Youth in Transition Database (NYTD), authorized by the Chafee Foster Care Independence Act ( P.L. 106-169 ), is intended to track demographic and outcome information of current and former foster youth. This database is beginning to provide insight into the outcomes of foster youth throughout the country, and may help to identify promising approaches to serving these youth; however, states have reported information to the database. P.L. 106-169 required that HHS consult with state and local public officials responsible for administering independent living and other child welfare programs, child welfare advocates, Members of Congress, youth service providers, and researchers to (1) "develop outcome measures (including measures of educational attainment, high school diploma, avoidance of dependency, homelessness, non-marital childbirth, incarceration, and high-risk behaviors) that can be used to assess the performance of States in operating independent living programs;" (2) identify the data needed to track the number and characteristics of children receiving independent living services, the type and quantity of services provided, and state performance on the measures; and (3) develop and implement a plan to collect this information beginning with the second fiscal year after the passage of P.L. 106-169 . The final rule establishing the NYTD became effective April 28, 2008, 60 days after publication. The rule required states to begin collecting data on youth in FY2011. HHS is using NYTD to engage in two data collection and reporting activities. First, states (as of FY2011) collect and report information twice each fiscal year on eligible youth who currently receive independent living services (provided or funded by the state). Information will include whether they continue to remain in foster care, were in foster care in another state, or received child welfare services through an Indian tribe or privately operated foster care program. Second, states collect data on the outcomes of current and former foster youth on or about their 17 th birthday, two years later on or about their 19 th birthday, and again on or about their 21 st birthday. These youth are tracked regardless of whether they receive independent living services at ages 17, 19, and 21. States have the option of tracking a sample of youth who participated in the outcomes collection at age 17 to reduce the data collection burden. The rule imposes financial penalties on states that do not meet data and data submission requirements. | Recent research has demonstrated that compared to their peers current and former foster youth are more likely to experience negative outcomes in adulthood. This research, along with the efforts of policy makers and child welfare advocates, has brought greater attention to the challenges facing older youth in care and those transitioning from foster care. In response, Congress has sought to improve existing services and provide additional supports for this population through legislation. The 110th Congress passed the Fostering Connections to Success and Increasing Adoptions Act of 2008 (P.L. 110-351), which is arguably one of the most significant laws enacted in the past two decades that expands services and supports for older foster youth. The 113th Congress expanded on these efforts through the Preventing Sex Trafficking and Strengthening Families Act (P.L. 113-183), enacted on September 30, 2014. The law adds requirements (effective one year after enactment) that are intended to engage older youth in case planning and provide them with certain protections. This report discusses issues affecting older youth as they transition from foster care into adulthood, particularly those that pertain to implementation of the two laws. P.L. 110-351 extended eligibility, beginning in FY2011, for federal foster care assistance to youth who remain in care after age 18 (at state option until 19, 20, or 21). The law additionally authorized this assistance on behalf of older youth eligible for federal foster care if they reside in an independent living setting (as well as foster family homes or other eligible settings). One possible challenge in extending care is that even with assistance from the federal government, states may be hesitant to extend care to older youth because of the cost. Further, child welfare stakeholders assert that states should ensure that youth who remain in care have opportunities to take on increasing responsibilities to prepare them for the transition from care. Despite federal protections to ensure that child welfare agencies help youth as they enter adulthood, stakeholders have called for additional policies to improve this transition by encouraging strong, long-term connections to adults. For example, some policy makers have articulated that child welfare agencies should ensure that all children in foster care have a permanency goal of reunification or other more permanent outcomes, and not a case goal of another planned permanent living arrangement (APPLA). Policy makers assert that APPLA is often used as a default option when a permanent option has not been identified. P.L. 113-183 requires that beginning one year after enactment only youth age 16 and older may have a case goal of APPLA and that additional court oversight is required for these youth. Another concern is that youth in foster care are vulnerable to child sex trafficking, which refers to adults sexually exploiting children under age 18 for commercial purposes. P.L. 113-183 requires, one year after enactment, that child welfare agencies have policies in place to serve child sex trafficking victims. Congress may wish to monitor how states are implementing these and related requirements, including how many victims have been reported by state child welfare agencies to the federal government and any best practices that have been identified for serving these victims. P.L. 113-183 further requires states to develop protocols for responding to children who run from foster care. This may prompt child welfare agencies to examine larger issues that may play a role in whether a child goes missing. A related consideration is how states define "missing" and whether to report all missing children to law enforcement. For background information about older foster youth and the current federal policies and programs for this population, see CRS Report RL34499, Youth Transitioning from Foster Care: Background and Federal Programs, by [author name scrubbed]. |
This report provides background information and oversight issues for Congress on what were referred to as the Coast Guard's Deepwater acquisition programs. The Coast Guard's proposed FY2012 budget submission proposed to eliminate the use of "Deepwater" as a term for grouping or referring collectively to these acquisition programs. The Coast Guard's FY2012 budget appeared to request $975.5 million in acquisition funding for these programs, including $289.9 million for aircraft, $512.0 million for surface ships and boats, and $173.6 million for other items. Congress's decisions on these acquisition programs could substantially affect Coast Guard capabilities and funding requirements, as well as contractors involved in these programs. The Coast Guard performs a variety of missions in the deepwater environment, which generally refers to waters more than 50 miles from shore. These missions include search and rescue, drug interdiction, alien migrant interdiction, fisheries enforcement, marine pollution law enforcement, enforcement of lightering (i.e., at-sea cargo-transfer) zones, the International Ice Patrol in northern waters, overseas inspection of foreign vessels entering U.S. ports, overseas maritime intercept (sanctions-enforcement) operations, overseas port security and defense, overseas peacetime military engagement, and general defense operations in conjunction with the Navy. Deepwater-capable assets are also used closer to shore for various operations. The Coast Guard initiated the Deepwater acquisition effort in the late 1990s, following a determination by the Coast Guard that many of its existing (i.e., "legacy") deepwater-capable legacy assets were projected to reach their retirement ages within several years of one another. The Coast Guard's legacy assets at the time included 93 aging cutters and patrol boats and 207 aging aircraft. Many of these ships and aircraft are expensive to operate (in part because the cutters require large crews), increasingly expensive to maintain, technologically obsolete, and in some cases poorly suited for performing today's deepwater missions. Until 2007, the Coast Guard pursued Deepwater acquisition through a single, performance-based, system-of-systems acquisition program that used a private-sector lead system integrator (LSI): System-of-Systems Acquisition. Rather than replacing its deepwater-capable legacy assets through a series of individual acquisition programs, the Coast Guard initially decided to pursue the Deepwater acquisition effort as an integrated, system-of-systems acquisition, under which a combination of new and modernized cutters, patrol boats, and aircraft, along with associated C4ISR systems and logistics support, would be procured as a single, integrated package (i.e., a system of systems). The Coast Guard believed that a system-of-systems approach would permit Deepwater acquisition to be optimized (i.e., made most cost effective) at the overall Deepwater system-of-systems level, rather than suboptimized at the level of individual Deepwater platforms and systems. Private-Sector Lead Systems Integrator (LSI). To execute this system-of-systems acquisition approach, the Coast Guard initially decided to use a private-sector lead system integrator (LSI)—an industry entity responsible for designing, building, and integrating the various elements of the package so that it met the Coast Guard's projected deepwater operational requirements at the lowest possible cost. The Coast Guard decided to use a private-sector LSI in part because the size and complexity of the Deepwater program was thought to be beyond the system-integration capabilities of the Coast Guard's then-relatively small in-house acquisition work force. Performance-Based Acquisition. The Coast Guard initially pursued the Deepwater program as a performance-based acquisition, meaning that the Coast Guard set performance requirements for the program and permitted the private-sector LSI some latitude in determining how the various elements of the Deepwater system would meet those requirements. The Coast Guard conducted a competition to select the private-sector LSI for the Deepwater program. Three industry teams competed, and on June 25, 2002, the Coast Guard awarded the role to Integrated Coast Guard Systems (ICGS)—an industry team led by Lockheed Martin and Northrop Grumman Ship Systems (NGSS). ICGS was awarded an indefinite delivery, indefinite quantity (ID/IQ) contract for the Deepwater program that included a five-year baseline term that ended in June 2007, and five potential additional award terms of up to five years (60 months) each. On May 19, 2006, the Coast Guard announced that it was awarding ICGS a 43-month first additional award term, reflecting good but not excellent performance by ICGS. With this additional award term, the contract was extended to January 2011. In 2007, as the Coast Guard's management and execution of the then-integrated Deepwater program was being strongly criticized by various observers, the Coast Guard announced a number of reform actions that significantly altered the service's approach to Deepwater acquisition (and to acquisition in general). As a result of these reforms, the Coast Guard, among other things, stopped pursuing Deepwater acquisition through a single, performance-based, system-of-systems acquisition program that used a private-sector LSI, and began pursuing Deepwater acquisition as a collection of individual, defined-based acquisition programs, with the Coast Guard assuming the lead role as systems integrator for each: Individual Programs. Although Deepwater acquisition programs continued (until the FY2012 budget submission) to appear in the budget under the common heading IDS, the Coast Guard since April 2007 has been pursuing Deepwater acquisition programs as individual programs, rather than as elements of a single, integrated program. The Coast Guard states that it is still using a systems approach to optimizing its acquisition programs, including the Deepwater acquisition programs, but that the system being optimized is now the Coast Guard as a whole, as opposed to the Deepwater subset of programs. Coast Guard as System Integrator. The Coast Guard announced in April 2007 that, among other things, it would assume the lead role as systems integrator for all Coast Guard Deepwater assets (as well as other major Coast Guard acquisitions as appropriate). The Coast Guard is phasing out its reliance on ICGS as a private-sector LSI for Deepwater acquisition, and shifting system-integration responsibilities to itself. To support this shift, the Coast Guard is increasing its in-house system-integration capabilities. Defined-Based Acquisition. The Coast Guard decided to shift from performance-based acquisition to the use of more-detailed specifications of the capabilities that various Deepwater assets are to have. The Coast Guard states that although this new approach involves setting more-detailed performance specifications, it does not represent a return to minutely detailed specifications such as the Military Specification (MilSpec) system once used in Department of Defense (DOD) acquisition programs. The Coast Guard refers to its new approach as defined-based acquisition. Reflecting the 2007 change to a collection of separate acquisition programs, the Coast Guard's proposed FY2012 budget submission proposed to eliminate the use of "Deepwater" as a term for grouping or referring collectively to these acquisition programs. The budget submission stated that it: proposes the elimination of the Integrated Deepwater System (IDS) sub-appropriation and disaggregation of the IDS construct from the Coast Guard's Acquisition, Construction and Improvement (AC&I) appropriation. Enacting this proposal will further enhance acquisition management and accountability by aligning the appropriations structure with how the projects are managed. This initiative also enhances accountability by establishing a stronger linkage between appropriations and specific asset acquisition projects, promotes better alignment with the authorized appropriation structure, and is a natural outcome of the Coast Guard's ongoing efforts to reform acquisition management and oversight…. Consistent with the dissolution of Integrated CG Systems and the disaggregation of the Deepwater Acquisition into asset-based Acquisition Program Baselines, the proposed changes align projects that were formerly grouped under Integrated Deepwater Systems (IDS) with the existing authorized structure for Vessels, Aviation, Shore, Other Equipment, and Personnel and Management. Table 1 shows Deepwater assets planned for acquisition under a November 2006 Deepwater Acquisition Program Baseline (APB), and the acquisition cost of these assets in then-year dollars as estimated at that time. As shown in the table, the total acquisition cost of these assets was estimated at the time at $24.23 billion in then-year dollars. Acquisition funding for Deepwater assets was scheduled at the time to be completed in FY2025, and the buildout of the assets was scheduled at the time to be completed in 2027. Although Table 1 shows 12 FRCs and 46 FRC-Bs, the Coast Guard's Request for Proposals (RFP) for the FRC-B program included options for building up to 34 FRC-Bs (which, if exercised, would reduce the number of FRC-As to as few as 24). The Coast Guard has also stated that if the FRC-Bs fully meet the requirements for the FRC, all 58 of the FRCs might be built to the FRC-B design. A version of the baseline approved by the Department of Homeland Security (DHS) in May 2007 shows some different quantities compared to those shown above—specifically, 20 patrol boats upgraded with a MEP (rather than the 17 shown above); a figure to be determined for an unmanned aerial system (UAS) (rather than 45 VUAVs shown above); and no 110/123-foot modernized Island class patrol boats (rather than the 8 shown above). The management and execution of the then-integrated Deepwater program was strongly criticized in 2007 by the DHS Inspector General (IG), the Government Accountability Office (GAO), the Defense Acquisition University (DAU) (whose analysis was requested by the Coast Guard), several Members of Congress from committees and subcommittees that oversee the Coast Guard, and other observers. House and Senate committees held several oversight hearings on the program, at which non-Coast Guard, non-ICGS witnesses, and several Members of Congress strongly criticized the management and execution of the program. Criticism focused on overall management of the program, and on problems in three cutter acquisition efforts—the NSC, the modernization of the 110-foot patrol boats, and the FRC. For a more detailed discussion, see Appendix A . In 2007, as the Coast Guard's management and execution of the then-integrated Deepwater program was being strongly criticized by various observers, the Coast Guard announced a number of reform actions that significantly altered the service's approach to Deepwater acquisition (and to Coast Guard acquisition in general). Among these was the change from a single, integrated Deepwater acquisition program to a collection of separate Deepwater acquisition programs. For a more detailed discussion, see Appendix B . Examples of deliveries and other milestones for these acquisition programs include the following: NSC: The Coast Guard commissioned the first and second NSCs, Bertholf and Waesche , into service on August 4, 2008, and May 7, 2010, respectively. The third, Stratton , was delivered to the Coast Guard on September 2, 2011. Fabrication of the fourth NSC, Hamilton , began on August 29, 2011, and the Coast Guard awarded a contract for the construction of the fifth NSC on September 9, 2011. OPC: The Coast Guard released the draft specification for the OPC on May 2, 2011. FRC: The first FRC was launched (meaning that it was put into the water for the final phase of its construction) on April 21, 2011. Builder's trials for the ship began on November 30, 2011, and were completed on December 2, 2011. The ship's acceptance trials were completed on December 16, 2011, and delivery of the ship to the Coast Guard is expected in January 2012. The second and third FRCs were launched on August 18, 2011, and November 29, 2011, respectively. HC-144A: The first HC-144A Ocean Sentry MPA aircraft was accepted by the Coast Guard on March 10, 2008. On February 6, 2009, an HC-144A officially stood watch for the first time on a scheduled operational patrol. The HC-144A achieved Initial Operational Capability (IOC) on April 22, 2009. The 12 th HC-144A was delivered on July 29, 2011, and the remaining three were under contract as of December 19, 2011. The 12 th HC-144 mission system pallet was delivered on December 20, 2010. HC-130J/H: The first missionized HC-130J LRS aircraft was accepted by the Coast Guard on February 29, 2008; the sixth and final missionized aircraft was accepted on May 18, 2010. As of May 31, 2011, new surface search radars had been installed on 23 of 23 HC-130H aircraft. MH-60T: The first production MH-60T Jayhawk Medium Range Recovery Helicopter was delivered on June 3, 2009, and the MH-60T achieved Initial Operational Capability (IOC) on October 1, 2009. As of January 20, 2012, 24 of 42 had been upgraded with new avionics suites and Airborne Use of Force (AUF) equipment kits, and 22 of 42 MH-60Ts had also been upgraded with an enhanced electro-optic/infrared sensor system. MH-65C/D: The Coast Guard received its first MH-65C Multi-Mission Cutter Helicopter (MCH) in October 2007. As of December 22, 2011, the Coast Guard had configured 91 MH-65Cs and delivered 23 MH-65Ds. Table 2 below shows prior-year acquisition funding through FY2011 for these acquisition programs. Table 3 shows acquisition funding requested for these programs for FY2012. As a matter of convenience, Table 3 arranges the FY2012 requests for these acquisition programs in the Deepwater budget-presentation format used in FY2011 and prior years. These acquisition programs have been a focus of congressional oversight for several years. In support of this oversight activity, GAO for several years has been assessing, providing reports and testimony on, and making recommendations for Coast Guard management and execution of these acquisition programs. The Coast Guard has implemented many of GAO's recommendations. Specific oversight issues for these programs have evolved over time. Below are some oversight issues for FY2012, particularly as detailed in GAO reporting. The Coast Guard testified in April 2011 that: In recent years, the Coast Guard has made significant changes to its acquisition enterprise to increase the efficiency and efficacy of our programs. We have consolidated our acquisition, contracting, foreign military sales, and research and development functions under the Acquisition Directorate to support timely delivery of complex and interoperable cutters, boats and aircraft to our frontline forces. The Coast Guard Acquisition Directorate has reclaimed a leadership role in systems integration at all levels, and is now the Systems Integrator for all major and non-major acquisition projects across the Service…. ACQUISITION TODAY The Acquisition Directorate was established nearly four years ago through the integration of programs previously governed under Integrated Deepwater Systems and the Service's legacy acquisition programs. Since then, we have progressed as an organization, and we are implementing effective processes and improving our project management capability and capacity. The Acquisition Directorate established itself as a learning organization, building on our experiences and incorporating relevant lessons learned and best practices from within and outside of the Coast Guard. We are committed to sound management and comprehensive oversight of all aspects of the acquisition process by leveraging the expertise of our acquisition workforce, technical authorities and governmental partners. The acquisition reform measures recently enacted in the Coast Guard Authorization Act of 2010 provide the Coast Guard with the needed tools and authorities to build upon the efforts that were already underway to enhance our acquisition programs. The Coast Guard has ensured that compliance with the Act's requirements is a priority, and we continue to make progress in implementing these required programmatic changes. The Coast Guard has always adapted to meet the needs of the nation, whether those needs are well-known and long-standing—saving lives, enforcing federal law, protecting the marine environment, and contributing to national security—or responding to emergent threats. We have been, and will always be, America's maritime guardians, safeguarding the nation's maritime interests. However, as we face new threats, we must be prepared to adapt our tactics and processes to meet mission requirements. Recapitalization of our aging, costly-to-maintain assets and infrastructure is critical to meeting current missions as well as ensuring that we are ready for the future. Due in large part to this Subcommittee's efforts, we are creating a more unified and agile organization focused on the sustained delivery of mission support to enhance mission execution. The Acquisition Directorate is actively working with our mission support partners—who also act as technical authorities for our ongoing acquisition programs—to provide efficient and effective logistics and maintenance support to our assets in the field. These organizational changes have come in concert with the significant changes in our acquisition processes and project management, in which the Department of Homeland Security (DHS) and this Subcommittee have played integral roles. Consolidation of the Acquisition Directorate, assumption of the Systems Integrator responsibilities and implementation of the recently released Blueprint for Continuous Improvement, Version 5.0, have better equipped us to manage cost, schedules, and contractor performance. We have achieved several accomplishments in key areas: Coast Guard as the Systems Integrator The Coast Guard Acquisition Directorate is now the Systems Integrator for all Coast Guard acquisition projects. Our contract with Integrated Coast Guard Systems (ICGS), a joint venture of Northrop Grumman and Lockheed Martin, expired in January 2011 and will not be renewed. As Systems Integrator, the Coast Guard is responsible for all phases in the lifecycle of its assets, from concept development to decommissioning. We are carrying out these responsibilities through active collaboration with our technical authorities, who set technical standards for the projects, and project sponsors who set the requirements. The Asset Project Office (APO) was added to the Acquisition Directorate last year to ensure new surface assets smoothly transition from acquisition to sustainment by integrating life cycle support early in the acquisition process, and establishing a strong link between the acquisition and maintenance communities. Documentation Major systems acquisitions are complex and require disciplined processes and procedures. In 2010, the Acquisition Directorate completed a comprehensive revision of the Coast Guard's Major Systems Acquisition Manual (MSAM), which defines policies and procedures for project managers to plan, coordinate and execute major systems acquisition projects. The MSAM is closely aligned with DHS acquisition management policy Directive 102-01. The revised MSAM ensures that uniform procedures for acquisition planning and project management are applied to every major systems acquisition, aligning the Coast Guard with the requirements of the Coast Guard Authorization Act of 2010, our Department's acquisition management policy and processes, and federal acquisition rules and procedures. We have made significant progress in ensuring that acquisition projects already underway comply with MSAM policies. In 2010 we also released an updated strategic plan, the Blueprint for Continuous Improvement, Version 5.0—the top-level planning document for the Coast Guard's acquisition enterprise for the next two years. It builds on the action plans included in previous versions by shifting toward a performance measurement and management structure. Furthermore, this plan fits within a broader Mission Support plan, recently signed, that addresses all aspects of support for our people, systems, and assets. Role of Governance and Oversight The Coast Guard's revitalized and improved acquisition organization has been informed and aided by the support of this Subcommittee, DHS and the Government Accountability Office. Effective oversight requires well-defined and repeatable processes, and we have worked hard during the last few years to improve our transparency to Congress and the public. In addition, this Subcommittee was closely involved in developing reforms to our acquisition program that were enacted as part of the Coast Guard Authorization Act of 2010. We are working diligently to institute these reforms, which build on programmatic improvements that the Coast Guard had begun implementing prior to the Act's passage. We have also benefited from the guidance provided by DHS as the Coast Guard's acquisition decision authority. The Department's Acquisition Lifecycle Framework provides the Coast Guard with a disciplined, phased acquisition approach and governance by department-level Acquisition Review Boards, which evaluate the direction of each program according to consistent criteria. This oversight function not only ensures Coast Guard acquisition programs are soundly conceptualized, developed and managed, but also fosters a strong collaborative component-department relationship. The acquisition process support and clear guidance provided by the Department's Office of the Chief Procurement Officer and Acquisition Program Management Division have played a considerable role in the maturation of the Coast Guard's Acquisition Directorate as a cost-conscious and milestone-driven acquisition organization. Organizational Realignment and Partnerships A key component of the reorganized and revitalized acquisition organization is the strong relationships forged with our technical authorities in the Coast Guard's mission support community, including Human Resources; Engineering and Logistics; and Command, Control, Communications, Computers and Information Technology (C4IT). We have institutionalized collaborative partnerships with these authorities in their roles as our technical authorities for the platforms and mission systems the acquisition enterprise produces and delivers. We continue to benefit from a robust partnership with the U.S. Navy, leveraging its expertise in acquisition processes, common systems planning, engineering, and testing. While the Coast Guard maintains its position as the final authority for asset and system certification, we are committed to seeking out independent validation by third-party experts. These experts provide valuable input to the Coast Guard's own certification process, allowing our technical staff and other professionals to make better-informed decisions regarding designs and operational capabilities of assets and systems…. ACQUISITION WORKFORCE The Coast Guard has been able to make accomplishments in the acquisition field over the past year due in large part to the quality of our people and the great work that they do. The Acquisition Directorate has placed a tremendous emphasis on ensuring workforce quality through professional development and retention, as well as enhancing training and certification opportunities for our acquisition personnel. Project managers for all major acquisition projects within the Acquisition Directorate have attained DHS Level III program manager certification. Both military and civilian Level III program managers have risen through the ranks of our acquisition organization, learning from their leaders, tapping into previous experience in other programs, and increasing leadership continuity in the acquisition enterprise. In addition to maintaining a trained and certified workforce, the expedited hiring authority provided in the Coast Guard Authorization Act of 2010 proved vital to filling many critical civilian positions with individuals who have the appropriate acquisition experience and capabilities. The Service is also establishing military and civilian career paths within the acquisition enterprise to give members of our workforce the opportunity to establish themselves in the acquisition field.... The motto of the Coast Guard's Acquisition Directorate states, "Mission execution begins here." Our job is to recapitalize the Coast Guard, and we are tasked with the responsibility of delivering the highest level of readiness in a sustainable manner. The dedicated efforts of our acquisition workforce, combined with guidance from DHS, the Administration and Congress, have had a lasting impact on Coast Guard men and women serving in the field. We have processes and procedures in place to ensure successful program management and oversight, and we have demonstrated their effectiveness. By adhering to and improving upon what we now have in place, we will be able to successfully meet and address any future challenges and deliver assets and systems with capabilities to meet our evolving mission needs. A July 2011 GAO report stated: The Coast Guard continues to strengthen its acquisition management capabilities in its role of lead systems integrator and decision maker for Deepwater acquisitions. We recently reported that the Coast Guard updated its Major Systems Acquisition Manual in November 2010 to better reflect best practices, in response to our prior recommendations, and to more closely align its policy with the DHS Acquisition Management Directive 102-01. We also reported that according to the Coast Guard, it currently has 81 interagency agreements, memorandums of agreement, and other arrangements in place, primarily with DOD agencies, which helps programs leverage DOD expertise and contracts. To further facilitate the acquisition process, the Coast Guard's Acquisition Directorate has increased the involvement of the Executive Oversight Council as a structured way for flag-level and senior executive officials in the requirements, acquisition, and resources directorates, among others, to discuss programs and provide oversight on a regular basis. In addition to these efforts to strengthen its management capabilities, the Coast Guard has significantly reduced its relationship with ICGS. ICGS's remaining responsibilities include completing construction of the third NSC and a portion of the C4ISR project. In moving away from ICGS, the Coast Guard has awarded fixed-price contracts directly to prime contractors. For example, since our last report in July 2010, the Coast Guard: (1) awarded a sole source fixed price contract for the fourth NSC and long lead materials for the fifth NSC to Northrop Grumman Shipbuilding Systems, (2) exercised fixed price options for four additional FRCs on the contract with Bollinger Shipyards, and (3) awarded a fixed price contract to EADS for three MPAs with options for up to six additional aircraft, following a limited competition in which EADS made the only offer. In addition, the Coast Guard has developed acquisition strategies intended to inject competition into future procurements where possible. For example, the Coast Guard is planning to buy a "reprocurement data licensing package" from Bollinger Shipyards. This information package, according to project officials, is expected to provide the Coast Guard with the specifications to allow full and open competition of future FRCs. Our previous work has shown that when the government owns technical specifications, its does not need to rely on one contractor to meet requirements. As part of its acquisition strategy for the OPC, the Coast Guard plans to award multiple preliminary design contracts and then select the best value contract design for a detailed design and production contract. This planned acquisition strategy will also include an option for a data and licensing package, similar to the FRC. In May 2011, the Coast Guard released a draft of the OPC specifications for industry review in advance of releasing a request for proposals, currently planned to occur in the fall of 2011. Lastly, the Coast Guard is in the process of holding a competition for the over-the-horizon cutter small boat through a small business set-aside acquisition approach. The July 2011 GAO report stated: As part of its role in program execution, the Coast Guard is gaining a better understanding of each asset's cost, schedule, and technical risks, but not all of this information is transparent to Congress. The Coast Guard maintains two different quarterly reports to track information on its major acquisitions, including narrative and mitigation actions pertaining to risks, and Coast Guard officials told us that the same database is used to populate both reports. One is the Quarterly Project Report which is an internal acquisition report used by Coast Guard program managers. The other, known as the Quarterly Acquisition Report to Congress (QARC), was required by various appropriations laws to be submitted to the congressional appropriations committees and to rank on a relative scale the cost, schedule, and technical risks associated with each acquisition project. We found that this statutory requirement is no longer in effect. However, the Coast Guard and DHS continue to submit the QARC pursuant to direction in committee and conference reports and the Coast Guard's Major Systems Acquisition Manual. These committee and conference reports generally reiterate an expectation that the Coast Guard submit the QARC by the 15 th day of the fiscal quarter. We found that the Coast Guard's fiscal year 2010 QARCs did not always include risks identified in the Quarterly Project Reports. The Coast Guard's Major Systems Acquisition Manual states that the QARC incorporates the Quarterly Project Report for each major acquisition project. The Quarterly Project Report includes, among other things, the top three project risks. In comparing both sets of reports—the Quarterly Project Report and the QARC—from fiscal year 2010, we found that over 50 percent of medium and high risks identified in the internal Quarterly Project Reports were not included in the QARC. For example, the Coast Guard reported to Congress that the OPC program had no risks in fiscal year 2010, but several were identified in the internal report—including concerns about affordability. In addition, for all of fiscal year 2010, the Coast Guard reported no risks for the MPA project in the QARC even though several were identified in the internal report. Before transmittal to Congress, the QARCs are reviewed by officials within the Coast Guard's resource directorate, the DHS Chief Financial Officer's office, and the Office of Management and Budget. Resource directorate officials told us they do not include risks in the QARC if those risks contradict the Coast Guard's current budget request. For example, the resource directorate did not include the risk related to spare parts for the MPA in the fiscal year 2010 reports to Congress because the Coast Guard did not request funding for spare parts. DHS officials told us that they do not remove medium and high risks from the report. Office of Management and Budget officials stated that they will discuss several items with the Coast Guard, including factors that the agency may want to consider with regard to the medium and high risks identified in their draft submissions, but that the Office of Management and Budget does not direct the Coast Guard to remove medium or high risks from the reports before they are transmitted. We could not obtain documentation to determine at what point in the review process the decision is made to not include risks. For all four quarters of fiscal year 2010, the QARC was submitted consistently late. And as of May 2011, the Coast Guard had not submitted the first quarter fiscal year 2011 report to Congress—a delay of at least 4 months—but the second quarter fiscal year 2011 internal report was already complete. According to senior Coast Guard acquisition directorate officials, the QARC is intended to be the program manager's communication with Congress about risks. However, when risks are not included, the Coast Guard is not presenting to Congress a complete and timely picture of the risks some assets face. The report also stated: To help ensure that Congress receives timely and complete information about the Coast Guard's major acquisition projects, we recommend that the Commandant of the Coast Guard and the Secretary of the Department of Homeland Security: • include in the project risk sections of the Quarterly Acquisition Report to Congress the top risks for each Coast Guard major acquisition, including those that may have future budget implications such as spare parts; and • submit the Quarterly Acquisition Report to Congress by the 15 th day of the start of each fiscal quarter. The report also stated: To help ensure that it receives timely and complete information about the Coast Guard's major acquisition projects, Congress should consider enacting a permanent statutory provision that requires the Coast Guard to submit a quarterly report within 15 days of the start of each fiscal quarter on all major Coast Guard acquisition projects and require the report to rank for each project the top five risks and, if the Coast Guard determines that there are no risks for a given project, to state that the project has no risks. In addition, Congress should consider restricting the availability of the Coast Guard's Acquisition, Construction and Improvements appropriation after the 15 th day of any quarter of any fiscal year until the report is submitted. Regarding estimated costs for its various acquisition programs (not just those that have been organized under the term Deepwater), the Coast Guard testified in April 2011 that: The [Coast Guard's] Capital Investment Plan (CIP) estimates Acquisition, Construction and Improvement (AC&I) funding levels from FY 2012 through FY 2016 for the program of record for each acquisition project. The plan includes the President's Request for FY 2012, the estimated cost of completion (identified as the Total Acquisition Cost), estimated funding levels for fiscal years 2013 through 2016, and estimated completion dates. The Total Acquisition Costs and estimated completion date identified in the CIP are based upon the cost estimates and schedules associated with the latest DHS-approved project-specific Acquisition Program Baseline (APB) when available, or the Integrated Deepwater System APB for acquisitions that do not yet have a DHS-approved project APB. Funding levels included in the CIP are subject to change based upon adjustments to fiscal guidance, congressional action, changes to the Coast Guard's strategic plan, as well as direction provided by DHS leadership, including Future Years Homeland Security Programs (FYHSP).... As the Coast Guard faces obsolenscence across its fleet of aging air and surface assets, C4ISR, and shore infrastructure, the Coast Guard must carfully manage resources to ensure funding is allocated toward its highest priority requirements. The Coast Guard has establisted a senior level governance body, known as the Executive Oversight Council, to provide guidance and direction to ensure acquisition resources target the Service's highest priority recapitalization needs and are leveraged to best achieve cost, schedule, and performance objectives. An August 30, 2010, press report quoted Admiral Robert Papp, the Commandant of the Coast Guard, as acknowledging that the Coast Guard's ability to acquire Deepwater assets within budgeted costs will depend in part on factors that the Coast Guard does not control: "We can't control the ups and downs of the economy, the price of steel and other things, so there could be [added] costs that occur," he said. "A lot of acquisition pricing depends upon a steady stream of funding. If you delay a ship or you delay the award of a contract for a year or if you don't get the funding through Congress, it adds costs in the out years ... Maybe the whole project doesn't fit within that original advertised cost. We'll be working very hard to bring it in within cost." The July 2011 GAO report stated that The Deepwater Program as a whole continues to exceed the cost and schedule baselines approved by DHS in May 2007, but several factors preclude a solid understanding of the true cost and schedule of the program. The Coast Guard has developed baselines for some assets, most of which have been approved by DHS, that indicate the estimated total acquisition cost could be as much as $29.3 billion, or about $5 billion over the $24.2 billion baseline. But additional cost growth is looming because the Coast Guard has yet to develop revised baselines for all the Deepwater assets, including the Offshore Patrol Cutter (OPC)—the largest cost driver in the Deepwater Program. In addition, the Coast Guard's most recent 5-year budget plan, included in DHS's fiscal year 2012 budget request, indicates further cost and schedule changes not yet reflected in the asset baselines. The reliability of the cost estimates and schedules for selected assets is also undermined because the Coast Guard did not follow key best practices for developing these estimates. Coast Guard and DHS officials agree that the annual funding needed to support all approved Deepwater baselines exceeds current and expected funding levels in this fiscal climate. This contributes to churn in program baselines when programs are not able to execute schedules as planned. The Coast Guard's acquisition directorate has developed several action items to help address this mismatch by prioritizing acquisition program needs, but these action items have not been adopted across the Coast Guard. The estimated total acquisition cost of the Deepwater Program, based on approved program baselines as of May 2011, could be as much as approximately $29.3 billion, or about $5 billion more than the $24.2 baseline approved by DHS in 2007. This represents an increase of approximately 21 percent. As of May 2011, DHS had approved eight revised baselines from the 2007 program and the Coast Guard had approved two based on a delegation of approval authority from DHS. The increase in acquisition cost for these programs alone is about 43 percent. Table 2 compares each Deepwater asset's acquisition cost estimate from the 2007 program baseline with revised baselines, if available. As we reported last year, these revised baselines reflect the Coast Guard's and DHS's efforts to understand acquisition costs of individual Deepwater assets, as well as insight into the drivers of the cost growth. We previously reported on some of the factors contributing to increased costs for the NSC, MPA, and FRC. For example, the Coast Guard has attributed the more than $1 billion rise in FRC's cost to a reflection of actual contract costs from the September 2008 contract award and costs for shore facilities and initial spare parts not included in the original baseline. More recently, DHS approved the revised baseline for the C4ISR program in February 2011, 2 years after the Coast Guard submitted it to the department. The revised baseline includes more than $1 billion in additional acquisition costs to account for factors such as post-September 11 requirements and the need to maintain a common core system design beyond the previously established fiscal year 2014 end date. Additional cost growth is looming because the Coast Guard has yet to develop revised baselines for all of the Deepwater assets and even the approved baselines do not reflect all known costs. The Coast Guard has not submitted to DHS revised baselines for the OPC or the UAS because these two projects are pre-ADE-2. These two assets combined accounted for over 35 percent of the original baseline. The uncertainty regarding the OPC's cost estimate presents a key difficulty in determining what the Deepwater program may end up costing. The original 2007 estimate for one OPC was approximately $320 million. However, the Coast Guard's fiscal years 2012-2016 capital investment plan cites a planned $640 million in fiscal year 2015 for the lead cutter. Coast Guard resource and acquisition directorate officials stated that this $640 million is a point estimate for the lead cutter, some design work, and project management, but the estimate was not based on an approved life-cycle cost estimate and the Coast Guard has identified affordability as this program Coast Guard officials stated that some of the approved acquisition program baselines fall short of the true funding needs. This not only exacerbates the uncertainty surrounding the total cost of the Deepwater acquisition, but also contributes to the approved Deepwater Program no longer being achievable. For example, the NSC program's approved baseline reflects a total acquisition cost of approximately $4.7 billion. However, Congress has already appropriated approximately $3.1 billion for the program and the Coast Guard's fiscal years 2012-2016 capital investment plan indicates an additional $2.5 billion is needed through fiscal year 2016 for a total of $5.6 billion to complete the acquisition. This would represent an increase of approximately 19 percent over the approved acquisition cost estimate for eight NSCs. According to section 575 of Title 14 of the U.S. Code, the Commandant must submit a report to Congress no later than 30 days after the Chief Acquisition Officer of the Coast Guard becomes aware of a likely cost overrun for any level I or level II acquisition program that will exceed 15 percent. If the likely cost overrun is greater than 20 percent, the Commandant must include a certification to Congress providing an explanation for continuing the project. Senior Coast Guard acquisition officials stated that they cannot corroborate a total cost of $5.6 billion for the NSC program, or a cost increase of 19 percent, because the Coast Guard has not yet completed a life-cycle cost analysis for the program. However, these officials stated that a certification to Congress for the NSC program is pending as well as one for the MPA program. We previously reported several schedule delays for assets based on the revised baselines and noted that as the Coast Guard reevaluates its baselines, it gains improved insight into the final delivery dates for all of the assets. While the Coast Guard's revised baselines identify schedule delays for almost all of the programs, these baselines do not reflect the extent of some of these delays as detailed in the Coast Guard's fiscal years 2012-2016 capital investment plan. For example, the MPA's revised baseline has final asset delivery in 2020—a delay of 4 years from the 2007 baseline—but the capital investment plan indicates final asset delivery in 2025—an additional 5-year delay not reflected in the baseline. Coast Guard resource officials responsible for preparing this plan acknowledged that the final asset delivery dates in most of the revised baselines are not current. The forthcoming delays identified in the fiscal years 2012-2016 capital investment plan indicate that the final asset delivery dates approved in the 2007 Deepwater baseline are no longer achievable for most assets. The report also stated: Coast Guard and DHS officials agreed that the annual funding needed to support all approved Deepwater acquisition program baselines exceeds current and expected funding levels, particularly in this constrained fiscal climate. For example, Coast Guard acquisition officials stated that up to $1.9 billion per year would be needed to support the approved Deepwater baselines, but they expect Deepwater funding levels to be closer to $1.2 billion annually over the next several years. Therefore the Coast Guard is managing a portfolio—which includes many revised baselines approved by DHS—that is expected to cost more than what its annual budget will likely support. Our previous work on Department of Defense (DOD) acquisitions shows that when agencies commit to more programs than resources can support, unhealthy competition for funding is created among programs. This situation can lead to inefficient funding adjustments, such as moving money from one program to another or deferring costs to the future. When a program's projected funding levels are lower than what the program was previously projected to receive, the program is more likely to have schedule breaches and other problems, as the program can no longer remain on the planned schedule. From September-October 2010, the Coast Guard reported potential baseline breaches to DHS for the C4ISR, HC-130H, and HH-60 programs that were caused, at least in part, by reduced funding profiles in the fiscal years 2011-2015 capital investment plan.22 For example, in the fiscal years 2008 and 2009 capital investment plans, the Coast Guard had anticipated allocating 20-27 percent of its planned $1.1 billion fiscal year 2011 Deepwater budget to its aviation projects. In its actual fiscal year 2011 budget request, however, the Coast Guard only allocated about 9 percent of the $1.1 billion to aviation projects. The percentage of dollars allocated to surface projects increased—largely driven by an increase of dollars allocated to the FRC program... In the October 2010 Blueprint for Continuous Improvement ( Blueprint ), signed by the Commandant, the Coast Guard's Assistant Commandant for Acquisition identified the need to develop and implement effective decision making to maximize results and manage risk within resource constraints. The Blueprint outlines several action items, expected to be completed by the end of fiscal year 2011, to accomplish this goal. The action items include: • promoting stability in the Coast Guard's capital investment plan by measuring the percentage of projects stably funded year to year in the plan, • ensuring acquisition program baseline alignment with the capital investment plan by measuring the percentage of projects where the acquisition program baselines fit into the capital investment plan, and • establishing Coast Guard project priorities. Acquisition officials responsible for implementing the Blueprint action items acknowledged that successful implementation requires buy-in from leadership. Senior resource directorate officials responsible for capital investment planning told us that the action items in the Blueprint are "noble endeavors," but that the directorates outside of the acquisition directorate are not held responsible for accomplishing them. According to the Major Systems Acquisition Manual , the Component Acquisition Executive (Vice-Commandant), to whom both the acquisition and resource directorates report, is responsible for establishing acquisition processes to track the extent to which requisite resources and support are provided to project managers. In addition to the acquisition directorate's recognition of the need to establish priorities to address known upcoming resource constraints, in August 2010, the Coast Guard's flag-level Executive Oversight Council—chaired by the Assistant Commandant for Acquisition with representatives from other directorates—tasked a team to recommend strategies to revise acquisition program baselines to better align with annual budgets. This acknowledgment that program baselines must be revised to fit fiscal constraints, however, is not reflected in the Coast Guard's most recent capital investment plan.... With the exception of fiscal year 2012, the Coast Guard is planning for funding levels well above the expected funding level of $1.2 billion. This outyear funding plan seems unrealistic, especially in light of the rapidly building fiscal pressures facing our national government and DHS's direction for future budget planning. To illustrate, in fiscal year 2015, the Coast Guard plans to request funding for construction of three major Deepwater surface assets: NSC, OPC, and FRC, but the Coast Guard has never requested funding for construction of three major Deepwater surface assets in the same year before. In a recent testimony, the Commandant of the Coast Guard stated that the plan for fiscal year 2015 reflects the Coast Guard's actual need for funding in that year. If program costs and schedules are tied to this funding plan and it is not executable, these programs will likely have schedule and cost breaches. When a program has a breach, the program manager must develop a remediation plan that explains the circumstances of the breach and propose corrective action and, if required, revise the acquisition program baseline. The report also stated: To help the Coast Guard address the churn in the acquisition project budgeting process and help ensure that projects receive and can plan to a more predictable funding stream, we recommend that the Commandant of the Coast Guard take the following two actions: • Implement GAO's Cost Estimating and Assessment Guide's best practices for cost estimates and schedules as required by the Major Systems Acquisition Manual , with particular attention to maintaining current cost estimates and ensuring contractor's schedules also meet these best practices. • As acquisition program baselines are updated, adopt action items consistent with those in the Blueprint related to managing projects within resource constraints as a Coast Guard-wide goal, with input from all directorates. These action items should include milestone dates as well as assignment of key responsibilities, tracking of specific actions, and a mechanism to hold the appropriate directorates responsible for outcomes, with periodic reporting to the Vice-Commandant. The July 2011 GAO report stated that To support its role as systems integrator, the Coast Guard planned to complete a fleet mix analysis in July 2009 to eliminate uncertainty surrounding future mission performance and to produce a baseline for the Deepwater acquisition. We previously reported that the Coast Guard expected this analysis to serve as one tool, among many, in making future capability requirements determinations, including future fleet mix decisions. The analysis, which began in October 2008 and concluded in December 2009, is termed fleet mix analysis phase 1. Officials from the Coast Guard's capabilities directorate comprised the majority of the project team for the analysis, which also included contractor support to assist with the analysis. As of May 2011, DHS had not yet released phase 1 to Congress. We received the results of the analysis in December 2010. To conduct the fleet mix analysis, the Coast Guard assessed asset capabilities and mission demands in an unconstrained fiscal environment to identify a fleet mix—referred to as the "objective fleet mix"—that would meet long-term strategic goals. The objective fleet mix resulted in a fleet that would double the quantity of assets in the program of record, the $24.2 billion baseline. For example, the objective fleet mix included 66 cutters beyond the program of record. Given the significant increase in the number of assets needed for this objective fleet mix, the Coast Guard developed, based on risk metrics, incremental fleet mixes to bridge the objective fleet mix and the program of record. Table 5 shows the quantities of assets for each incremental mix, according to the Coast Guard's analysis. While the analysis provided insight on the performance of fleets larger than the program of record, the analysis was not cost-constrained. The Coast Guard estimated the total acquisition costs associated with the objective fleet mix could be as much as $65 billion—about $40 billion higher than the approved $24.2 billion baseline. As a result, as we reported last year, Coast Guard officials stated that they do not consider the results to be feasible due to cost and do not plan to use it to provide recommendations on a baseline for fleet mix decisions. Since we last reported, Coast Guard officials stated that phase 1 supports continuing to pursue the program of record. Because the first phase of the fleet mix analysis was not cost constrained, it does not address our July 2010 recommendation that the Coast Guard present to Congress a comprehensive review of the Deepwater Program that clarifies the overall cost, schedule, quantities, and mix of assets required to meet mission needs, including trade-offs in light of fiscal constraints given that the currently approved Deepwater Program is no longer feasible. The Coast Guard has undertaken what it refers to as a cost-constrained analysis, termed fleet mix analysis phase 2; however, according to the capabilities directorate officials responsible for the analysis, the study primarily assesses the rate at which the Coast Guard could acquire the Deepwater program of record within a high ($1.7 billion) and low ($1.2 billion) bound of annual acquisition cost constraints. These officials stated that this analysis will not reassess whether the current program of record is the appropriate mix of assets to pursue and will not assess any mixes smaller than the current program. Alternative fleet mixes are being assessed, but only to purchase additional assets after the program of record is acquired, if funding remains within the yearly cost constraints. The Coast Guard expects to complete its phase 2 analysis in the summer of 2011. As we reported in April 2011, because phase 2 will not assess options lower than the program of record, it will not prepare the Coast Guard to make the trade-offs that will likely be needed in the current fiscal climate. Further, despite Coast Guard statements that phase 2 was cost constrained, there is no documented methodology for establishing the constraints that were used in the analysis, and we found confusion about their genesis. The acquisition directorate, according to the study's charter, was to provide annual funding amounts, but Coast Guard officials responsible for phase 2 told us that DHS's Program Analysis & Evaluation office provided the lower bound and the acquisitions directorate provided the upper bound. An official from the Program Analysis & Evaluation office stated that DHS informally suggested using historical funding levels of $1.2 billion to establish an average annual rate but was unaware that the Coast Guard was using this number as the lower bound for the study. A senior Coast Guard acquisition directorate official stated that the directorate agreed with using the $1.2 billion as the lower constraint and had verbally suggested the upper bound of $1.7 billion. Based on our review of historical budget data, $1.7 billion for Deepwater is more than Congress has appropriated for the entire Coast Guard's acquisition portfolio since 2007 and as such, is not likely a realistic constraint. Coast Guard officials stated that the upper bound was not necessarily a realistic level, rather an absolute upper bound to establish the range of possible acquisition levels. In addition, the Coast Guard does not have documentation of the cost constraints; according to a Coast Guard official, these cost constraints were verbally communicated to the contractor. In addition to the Coast Guard's analysis, DHS's Program Analysis & Evaluation office is conducting a study, at the request of the Office of Management and Budget, to gain insight into alternatives to the Deepwater surface program of record. Office of Management and Budget officials told us that they recommended DHS conduct this study because DHS was in a position to provide an objective evaluation of the program and could ensure that the analysis of the trade-offs of requirements in a cost constrained environment would align with the Department's investment priorities. A DHS official involved in the study stated that the analysis will examine performance trade-offs between the NSC, OPC, a modernized 270' cutter, and the Navy's Littoral Combat Ship.44 The official also explained that the analysis is based on a current estimate of surface asset acquisition costs, which serves as a cap to guide surface asset trade-offs. This cutter study is expected to be completed in the summer of 2011. This official also stated that the cutter study is not expected to contain recommendations, but Office of Management and Budget officials told us they plan to use the results to inform decisions about the fiscal year 2013 budget. A DHS official responsible for this study stated that this analysis and the Coast Guard's fleet mix analysis will provide multiple data points for considering potential changes to the program of record, including reductions in the quantities planned for some of the surface assets. However, as noted above, Coast Guard capabilities directorate officials have no intention of examining fleet mixes smaller than the current, planned Deepwater program. The report also stated: To provide Congress with information needed to make decisions on budgets and the number of assets required to meet mission needs within realistic fiscal constraints, we recommend that the Secretary of Homeland Security develop a working group that includes participation from DHS and the Coast Guard's capabilities, resources, and acquisition directorates to review the results of multiple studies—including fleet mix analysis phases 1 and 2 and DHS's cutter study—to identify cost, capability, and quantity trade-offs that would produce a program that fits within expected budget parameters. DHS should provide a report to Congress on the findings of the study group's review in advance of the fiscal year 2013 budget submission. The Coast Guard testified in April 2011 that: A critical element of our recapitalized fleet, the 418-foot Legend-class National Security Cutter (NSC) is the largest and most technically advanced class of cutter in the Coast Guard. The NSCs are replacing the capability of the Coast Guard's aging and obsolete High Endurance Cutters (WHECs) to execute today's homeland security and maritime law enforcement missions with agility and endurance. BERTHOLF (NSC #1) attained "Ready for Operations" status in May 2010. During a 90-day patrol that ended in November 2010, her crew interdicted approximately 12,400 kilograms of cocaine worth nearly $400 million, detained nine persons suspected of illegal activity and entered 27 associated smugglers into national databases. The BERTHOLF's Sensitive Compartmented Information Facility (SCIF) is proving integral to operations, providing real-time tactical intelligence and classified information-sharing with our operational partners. WAESCHE (NSC #2) was commissioned in May 7, 2010, with final acceptance in November 2010. STRATTON (NSC #3) is nearly 75 percent complete and was christened on July 23, 2010 by First Lady Michelle Obama in Pascagoula, MS. Delivery is scheduled for later this year. After nearly a year of negotiations, a fixed-price incentive contract for the production and delivery of NSC 4 was awarded to Northrop Grumman Shipbuilding in November 2010, allowing future costs for the NSC program to be much more predictable. Valued at $480 million, this was the first NSC production contract awarded directly to the shipbuilder and is significantly lower than their original proposal. In January 2011, we awarded a firm fixed price contract option to procure Long Lead Time Material for the fifth NSC. Negotiations for the production and delivery option for NSC 5 are ongoing, with a contract to be awarded as soon as full funding for this ship is received. The July 2011 GAO report stated that: During acceptance testing for the second NSC in October 2010, Coast Guard officials identified five key issues, also identified on NSC 1 in an operational assessment completed in September 2010: • reliability and maintenance problems with the crane on the back of the cutter, • an unsafe ammunition hoist for the main gun, • instability with the side davit for small boat launch, • insufficient power to a key system used for docking the cutter, and • an impractical requirement for using the side rescue door in difficult sea conditions. Senior acquisition directorate officials stated that there are currently workarounds for some of these issues and the cutters do meet contractual requirements. Program officials added that funding and design changes have yet to be finalized for these five issues and in some cases, correcting these issues will likely require costly retrofits. In January 2011, Coast Guard officials canceled the Aircraft Ship Integrated Secure and Traverse (ASIST)—a system intended to automate the procedure to land, lock down, and move the HH-65 helicopter from the deck to the hangar on the NSC—after significant deficiencies were identified during testing conducted by the U.S. Naval Air Warfare Center. Examples of deficiencies included increased pilot workload during landing, excessive stress on the helicopter components as the aircraft moved across the deck into the hangar, and failure to reduce the number of people needed to secure the helicopter as the system was designed to do. In addition, testing officials determined that the system could cause injury to the aircrew because the landing operator could not communicate with the pilot in a timely manner, and the system demonstrated unpredictable failures to locate the aircraft while it was hovering over the NSC's flight deck. The ASIST system was identified by ICGS as a solution to a Coast Guard requirement. Several Coast Guard officials told us that the Coast Guard was aware of potential problems with ASIST as early as 2007, but the Coast Guard moved forward with it until testing was complete. The Coast Guard invested approximately $27 million to install the system on three NSCs, purchase long lead materials for the fourth NSC, and modify one HH-65 helicopter for the test event. The Coast Guard is now exploring solutions in use by the Navy to replace the system. For the two operational NSCs, officials stated that operators secure the HH-65 using legacy cutter technology. The Coast Guard testified in April 2011 that: The Offshore Patrol Cutter (OPC) will replace the capability of our current fleet of 29 aging Medium Endurance Cutters (WMECs). We are continuing pre-acquisition work for the 25-cutter OPC class. The Operational Requirements Document was approved by DHS in August 2010 and work continues on developing total acquisition and lifecycle cost estimates for the project. We have directly engaged with industry throughout the early stages of the design process, including an industry day held in Tampa, Fla., on November 4, 2010. We anticipate that a draft Request for Proposal (RFP) will be released soon, with a pre-solicitation conference for industry to follow. The July 2011 GAO report stated that: Important decisions remain to be made regarding the OPC, the largest cost driver in the Deepwater program. DHS approved the OPC's requirements document in October 2010 despite unresolved concerns about three key performance parameters—seakeeping, speed, and range—that shape a substantial portion of the cutter's design. For example, DHS questioned the need for the cutter to conduct full operations during difficult sea conditions, which impact the weight of the cutter and ultimately its cost. The Coast Guard has stated that limiting the ability to conduct operations during difficult sea conditions would preclude operations in key mission areas. While it approved the OPC requirements document, DHS at the same time commissioned a study to further examine these three key performance parameters. According to Coast Guard officials, the study conducted by the Center for Naval Analysis found that the three key performance parameters were reasonable, accurate, and adequately documented. By approving the operational requirements document before these factors were resolved, DHS did not ensure that the cutter was affordable, feasible, and unambiguous and required no additional trade-off decisions, as outlined in the Major Systems Acquisition Manual. Our previous work on DHS acquisition management found that the department's inability to properly execute its oversight function has led to cost overruns, schedule delays, and assets that do not meet requirements. In addition to the three performance parameters discussed above, other decisions, with substantial cost and capability implications for the OPC, remain unresolved. For example, it is not known which C4ISR system will be used for the OPC, whether the cutter will have a facility for processing classified information, and whether the cutter will have air search capabilities. The Coast Guard's requirements document addressed these capabilities but allowed them to be removed if design, cost, or technological limitations warrant. According to Coast Guard officials, remaining decisions must be made before the acquisition program baseline is approved as part of the program's combined acquisition decision event 2A/B and the request for proposals is issued, both of which are planned for the fall of 2011. In addition, following the approval of the requirements document, the Coast Guard formed a ship design team tasked with considering the affordability and feasibility of the OPC. This team has met with Assistant Commandants from across the Coast Guard on several occasions to discuss issues that impact the affordability and feasibility of the cutter, including, among others, the size of the living quarters, the aviation fuel storage capacity, and the range of the cutter. The Coast Guard has stated that affordability is a very important aspect of the OPC project and that the request for proposal process will inform the project's efforts to balance affordability and capability. The report also states: Because DHS approved the OPC operational requirements document although significant uncertainties about the program's feasibility, capability, and affordability remained, we recommend that the Secretary of DHS take the following two actions: • ensure that all subsequent Coast Guard decisions regarding feasibility, capability, and affordability of the OPC's design are thoroughly reviewed by DHS in advance of the program's next acquisition decision event (ADE 2A/B); and • determine whether a revised operational requirements document is needed before the program's next acquisition decision event (ADE 2A/B). The Coast Guard testified in April 2011 that: The 154-foot Sentinel-class Fast Response Cutter (FRC) project will provide critically needed patrol boats, helping to close an existing patrol boat operational gap and replace the capabilities of the aging 110-foot Island-class patrol boat fleet. The FRC project is using a proven, in-service parent craft design modified to meet Coast Guard specifications and mission requirements, and that meets American Bureau of Shipping design, build, and class standards. This allows the project to minimize cost and schedule risk as well as deliver these cutters to the fleet quickly, where they are needed to perform operations. Delivery of the first FRC is scheduled for the fall of 2011. An October 13, 2011, press report stated: The first of a new series of patrol boats being built for the Coast Guard is not expected to be delivered until December, about nine months later than expected due to "first of class" issues as well as structural shortfalls that are being corrected in the two vessels, a service official said yesterday. The structural issues in the design of the Fast Response Cutter (FRC) require adding additional structure to the main and first decks, which requires some rework on the first two cutters, Rear Adm. John Korn, assistant commandant for Acquisition, told reporters on a teleconference yesterday to provide a status update on the service's recapitalization efforts. The design changes are being incorporated into future FRCs, he said. The Coast Guard had expected to take delivery of the first FRC in April but that has been pushed out to December due in part to the structural issues, which require the service to make sure the fixes are fully functional, and also to typical issues associated with the first cutter of a new class, Korn said…. Korn said the first FRC does meet contract standards, but that in some sea states at certain speeds the vessel could be in danger without the crew knowing it…. The Coast Guard plans to award a contract for the next batch of FRCs with FY '12 funding before OT&E [operational test and evaluation] occurring, Korn said. To reduce program risk before award, he said a series of tests will occur such as engine and generator system testing, builder's and acceptance trials, and an independent assessment by a Navy test agency, he said. The July 2011 GAO report stated: The FRC program is planning to use the first cutter for initial operational test and evaluation. The original delivery date for the lead cutter was scheduled for January 2011, but that date has slipped to December 2011. Officials told us that the delay is due to a last minute design change, directed by the Coast Guard's engineering and logistics technical authority, to enhance the structure of the cutter. An early operational assessment that reviewed design plans for the FRC was completed in August 2009 and identified 74 design issues, 69 of which were corrected during the assessment. Officials explained that they are confident in the reliability of the FRC design and do not expect any major operational issues to arise during initial operational testing and evaluation. In addition, program officials explained that the Coast Guard has used a lead vessel for initial operational test and evaluation in the past and is now also planning to conduct an operational assessment on the lead FRC to reduce risk. Officials from the Navy's Commander Operational Test and Evaluation Force, however, stated that there are risks associated with using the first cutter for initial operational test and evaluation; operators are not as familiar with the system, the logistics enterprise may not be fully operational to support the asset, and enough time may not have passed to collect sufficient data on what operational issues need to be addressed prior to testing. A June 27, 2011, press report stated: Structural modifications to the U.S. Coast Guard's new Fast Response Cutters (FRC) have pushed back delivery of the first units, but the service does not expect acquisition costs to rise. "Final cost and schedule impact for the cutters currently under construction are being finalized," the Coast Guard said in a June 22 statement to Defense News. "The total acquisition cost of the FRC is not expected to increase. Funds set aside specifically for these kinds of purposes will be used to pay for the structural solution." The structural issues are not the result of construction problems, but rather are due to a reassessment of the stresses expected to be exerted on the cutters at certain speeds and sea states, the statement said. Computer modeling performed by the Norwegian marine classification and analysis firm Det Norsk Veritas identified specific locations on the main and 01 decks that could be susceptible to stress. In January, "the Coast Guard decided to modify the prescribed design safety margins of the FRC in these specific areas to achieve the prescribed 20-year service life of the hull," according to the service's statement. The changes were "not a result of a weakness in the design," said Brian Olexy, a program analyst with the acquisition directorate. "The Coast Guard wanted to achieve more safety margin," Olexy said. "The rest of the ship met or exceeded the safety margins." The fixes involve adding girders and bars to areas around the main deck and the 01 level—the first superstructure deck above the main deck—of the first six ships of the class, which are in various stages of completion. The changes will be built in from the beginning, starting with the seventh ship. The Bernard C. Webber, first of the FRCs, was launched by crane April 21 at Bollinger Marine in Lockport, La. Delivery of the Webber was scheduled under the original contract for April 2011, but the service has yet to establish a revised delivery date.... The FRCs are modified versions of the Damen 4708 design, a Dutch-built patrol boat that is in service with several foreign coast guards. The U.S. version features several changes from the basic Damen design, including the addition of a stern ramp to launch and recover a small boat, and other internal changes. In addition to approving or modifying the Coast Guard's requests for acquisition funding these acquisition programs, potential options for Congress regarding these programs include but are not limited to the following: continue to track the Coast Guard's management and execution of these acquisition programs, including implementation of reform actions announced by the Coast Guard itself or recommended by GAO; modify reporting requirements for these acquisition programs; prohibit the obligation or expenditure of funding for these acquisition programs until the Coast Guard or DHS takes certain actions or makes certain certifications; and pass legislation to codify acquisition reforms for these programs that the Coast Guard has already announced, or to change acquisition policies and practices for Deepwater acquisition programs in other ways. Table 4 summarizes appropriations action on the FY2012 acquisition funding requests for these programs. In final action, H.R. 2055 became a "megabus" appropriations vehicle incorporating nine appropriations bills, including the FY2012 DHS appropriations bill, which was incorporated as Division D. H.R. 2055 / P.L. 112-74 of December 23, 2011, states in part that funds are provided for the Coast Guard's Acquisition, Construction, and Improvements (AC&I) account, ... Provided , That the funds provided by this Act shall be immediately available and allotted to contract for long lead time materials, components, and designs for the sixth National Security Cutter notwithstanding the availability of funds for production costs or post-production costs: Provided further , That the Secretary of Homeland Security shall submit to the Committees on Appropriations of the Senate and the House of Representatives, at the time that the President's budget is submitted each year under section 1105(a) of title 31, United States Code, a future-years capital investment plan for the Coast Guard that identifies for each requested capital asset— (1) the proposed appropriations included in that budget; (2) the total estimated cost of completion, including and clearly delineating the costs of associated major acquisition systems infrastructure and transition to operations; (3) projected funding levels for each fiscal year for the next 5 fiscal years or until acquisition program baseline or project completion, whichever is earlier; (4) an estimated completion date at the projected funding levels; and (5) a current acquisition program baseline for each capital asset, as applicable, that— (A) includes the total acquisition cost of each asset, subdivided by fiscal year and including a detailed description of the purpose of the proposed funding levels for each fiscal year, including for each fiscal year funds requested for design, pre-acquisition activities, production, structural modifications, missionization, post-delivery, and transition to operations costs; (B) includes a detailed project schedule through completion, subdivided by fiscal year, that details— (i) quantities planned for each fiscal year; and (ii) major acquisition and project events, including development of operational requirements, contracting actions, design reviews, production, delivery, test and evaluation, and transition to operations, including necessary training, shore infrastructure, and logistics; (C) notes and explains any deviations in cost, performance parameters, schedule, or estimated date of completion from the original acquisition program baseline and the most recent baseline approved by the Department of Homeland Security's Acquisition Review Board, if applicable; (D) aligns the acquisition of each asset to mission requirements by defining existing capabilities of comparable legacy assets, identifying known capability gaps between such existing capabilities and stated mission requirements, and explaining how the acquisition of each asset will address such known capability gaps; (E) defines life-cycle costs for each asset and the date of the estimate on which such costs are based, including all associated costs of major acquisitions systems infrastructure and transition to operations, delineated by purpose and fiscal year for the projected service life of the asset; (F) includes the earned value management system summary schedule performance index and cost performance index for each asset, if applicable; and (G) includes a phase-out and decommissioning schedule delineated by fiscal year for each existing legacy asset that each asset is intended to replace or recapitalize: Provided further, That the Secretary of Homeland Security shall ensure that amounts specified in the future-years capital investment plan are consistent, to the maximum extent practicable, with proposed appropriations necessary to support the programs, projects, and activities of the Coast Guard in the President's budget as submitted under section 1105(a) of title 31, United States Code, for that fiscal year: Provided further, That any inconsistencies between the capital investment plan and proposed appropriations shall be identified and justified: Provided further, That subsections (a) and (b) of section 6402 of Public Law 110–28 shall apply with respect to the amounts made available under this heading. Section 517 of the bill states: SEC. 517. Any funds appropriated to Coast Guard "Acquisition, Construction, and Improvements" for fiscal years 2002, 2003, 2004, 2005, and 2006 for the 110–123 foot patrol boat conversion that are recovered, collected, or otherwise received as the result of negotiation, mediation, or litigation, shall be available until expended for the Fast Response Cutter program. Regarding the AC&I account, the conference report on H.R. 2055 / P.L. 112-74 ( H.Rept. 112-331 of December 15, 2011) states: Comprehensive and Quarterly Acquisition Status Reports To strengthen oversight for all Departmental acquisition programs, a statutory requirement is included for the Department of Homeland Security Under Secretary for Management to submit to the Committees a comprehensive acquisition status report in tandem with the fiscal year 2013 budget request with quarterly updates on any deviations. Because the Department-wide comprehensive report will encompass Coast Guard acquisition data, a duplicative effort to submit Coast Guard specific quarterly reports is no longer necessary or required. In addition, acquisition specific information is required in the Coast Guard Capital Investment Plan (CIP), which has been expanded for the purpose of in-depth oversight. GAO shall review the CIP and brief the Committees on the results of the review. In lieu of separate briefings on individual acquisitions, as required in the Senate report, the Coast Guard shall brief the Committees quarterly on all major acquisitions. These briefings shall include: the objective for operational hours the Coast Guard expects to achieve; the gap between that objective, current capabilities, and stated mission requirements; and how the acquisition of the specific asset closes the gap. The information presented at these required briefings shall also include a discussion of how the Coast Guard calculated the operational hours, an explanation on risks to mission performance associated with the current shortfall, and the operational strategy to mitigate such risks. Fleet Mix Analysis The Coast Guard is directed to submit to the Committees phases one and two of the Fleet Mix Analysis and the Cutter Fleet Mix Analysis, as specified by the Senate report. National Security Cutter A total of $77,000,000 is repurposed from the budget request and provided for the acquisition of long-lead time materials necessary for production of the sixth National Security Cutter (NSC). In addition, statutory language specifies immediate availability of these funds, notwithstanding the availability of funds for production costs or post-production activities. The funding to support long-lead time materials along with the statutory direction is intended to enable a contract award approximately 90 days after the date of enactment of this Act. As noted in both the House and Senate reports, the Committees disagree with the Administration's current acquisition policy towards the NSC since it will result in substantially higher costs to the Coast Guard and the taxpayer, extension of the NSC acquisition program baseline, significant engineering inefficiencies, and an increased strain on the Coast Guard's legacy assets, including escalation of maintenance costs. By contrast, the funding of long-lead time materials in fiscal year 2012 will accelerate NSC production and result in not only direct savings of $45,000,000 to $60,000,000 per cutter, but also expedite completion of the NSC acquisition program baseline of eight NSCs. The conferees strongly support the acquisition of the planned eight NSCs in the most cost effective manner within the guidelines of proper program oversight and governance. Offshore Patrol Cutter Notwithstanding the direction of the Senate report, the Coast Guard is directed to include updated information on the acquisition of the Offshore Patrol Cutter within the required comprehensive and quarterly acquisition status reports, as described in this statement under the Departmental Management and Operations "Under Secretary for Management" heading. Fast Response Cutter As requested, a total of $358,000,000 is provided for the acquisition of six Fast Response Cutters (FRCs) and the re-procurement data and licensing rights package (RDLP). Funding for six cutters is provided to maximize production capabilities and to realize a total savings of $30,000,000, or $5,000,000 per FRC. Funds provided for the RDLP should sustain the acquisition program baseline and enable the planned re-competition of the next FRC contract award.... C4ISR An additional $4,000,000 above the amount requested is provided to support the costs of installation of modernized communications systems on legacy cutters. The Coast Guard shall notify the Committees no later than February 15, 2012, on the planned expenditure of these additional funds as well as its deployment plan for C4ISR upgrades to the NSC fleet. In-Service Sustainment The Coast Guard shall develop a long-term plan of investments to address its in-service cutter sustainment requirements, as described in the Senate report. Rotary Wing Aircraft Reset As requested, $18,300,000 is provided for a replacement HH–60 helicopter. Long-Range Surveillance Aircraft A new PPA combining HC–130J acquisition and HC–130H refurbishment is established, as directed by the House, in order to allow the Coast Guard to leverage its limited funding for the most cost effective budgeting for Long Range Surveillance Aircraft. The Coast Guard is directed to brief the Committees by February 15, 2012, on its evaluation of options presented in the recently completed Naval Air Systems Command business case analysis of the optimal mix of refurbished HC–130Hs and new HC–130Js. Unmanned Aircraft Systems Funding for unmanned aircraft systems is addressed under the Coast Guard "Research, Development, Testing, and Evaluation" heading and is not provided in this appropriation. Program Oversight and Management A total of $26,000,000 is provided for Program Oversight and Management, a reduction of $9,000,000 from the request due to budgetary constraints. This PPA is renamed from, "Government Program Management" to more accurately reflect the nature of the activities supported by the funding provided. The Coast Guard shall provide a more detailed budget justification, by activity, for this PPA in the fiscal year 2013 budget justification materials. (Pages 979-981) Regarding the Coast Guard's Research, Development, Test, and Evaluation account, the report states: Unmanned Aircraft Systems Within the amount provided under this heading, $8,000,000 is provided for cutter-based unmanned aircraft systems (UAS). This funding, in addition to amounts previously appropriated, is provided for the purposes of procurement of shipboard integration equipment and to support an advanced concept technology demonstration. (Page 983) For final action on the FY2012 DHS appropriations bill, see the above entry on the FY2012 Military Construction and Veterans Affairs and Related Agencies Appropriations Act ( H.R. 2055 / P.L. 112-74 ). The text of H.R. 2017 as reported by the House Appropriations Committee states in part that funds are provided for the Coast Guard's Operating Expenses (OE) account, … Provided further , That of the funds provided under this heading, $75,000,000 shall be withheld from obligation for Coast Guard Headquarters Directorates until (1) a revised future-years capital investment plan for fiscal years 2012 through 2016, as specified under the heading `Coast Guard, Acquisition, Construction, and Improvements' of this Act, that is reviewed by the Comptroller General of the United States; (2) the fiscal year 2012 second quarter acquisition report; and (3) the polar operations high latitude study are submitted to the Committees on Appropriations of the Senate and the House of Representatives:… The bill also states in part that funds are provided for the Coast Guard's AC&I account, … Provided , That the Secretary of Homeland Security shall submit to the Committees on Appropriations of the Senate and the House of Representatives, at the time that the President's budget is submitted each year under section 1105(a) of title 31, United States Code, a future-years capital investment plan for the Coast Guard that identifies for each requested capital asset— (1) the proposed appropriations included in that budget; (2) the total estimated cost of completion, including and clearly delineating the costs of associated major acquisition systems infrastructure and transition to operations; (3) projected funding levels for each fiscal year for the next five fiscal years or until acquisition program baseline or project completion, whichever is earlier; (4) an estimated completion date at the projected funding levels; and (5) a current acquisition program baseline for each capital asset, as applicable, that— (A) includes the total acquisition cost of each asset, subdivided by fiscal year and including a detailed description of the purpose of the proposed funding levels for each fiscal year, including for each fiscal year funds requested for design, pre-acquisition activities, production, structural modifications, missionization, post-delivery, and transition to operations costs; (B) includes a detailed project schedule through completion, subdivided by fiscal year, that details— (i) quantities planned for each fiscal year; and (ii) major acquisition and project events, including development of operational requirements, contracting actions, design reviews, production, delivery, test and evaluation, and transition to operations, including necessary training, shore infrastructure, and logistics; (C) notes and explains any deviations in cost, performance parameters, schedule, or estimated date of completion from the original acquisition program baseline and the most recent baseline approved by the Department of Homeland Security's Acquisition Review Board, if applicable; (D) aligns the acquisition of each asset to mission requirements by defining existing capabilities of comparable legacy assets, identifying known capability gaps between such existing capabilities and stated mission requirements, and explaining how the acquisition of each asset will address such known capability gaps; (E) defines life-cycle costs for each asset and the date of the estimate on which such costs are based, including all associated costs of major acquisitions systems infrastructure and transition to operations, delineated by purpose and fiscal year for the projected service life of the asset; (F) includes the earned value management system summary schedule performance index and cost performance index for each asset, if applicable; and (G) includes a phase-out and decommissioning schedule delineated by fiscal year for each existing legacy asset that each asset is intended to replace or recapitalize: Provided further , That the Secretary shall ensure that amounts specified in the future-years capital investment plan are consistent, to the maximum extent practicable, with proposed appropriations necessary to support the programs, projects, and activities of the Coast Guard in the President's budget as submitted under section 1105(a) of title 31, United States Code, for that fiscal year: Provided further , That any inconsistencies between the capital investment plan and proposed appropriations shall be identified and justified:… Section 517 of the bill states: Sec. 517. Any funds appropriated to `Coast Guard, Acquisition, Construction, and Improvements' for fiscal years 2002, 2003, 2004, 2005, and 2006 for the 110-123 foot patrol boat conversion that are recovered, collected, or otherwise received as the result of negotiation, mediation, or litigation, shall be available until expended for the Fast Response Cutter program. The House Appropriations Committee, in its report ( H.Rept. 112-91 of May 26, 2011) on H.R. 2017 , states: Of the [operating expenses] funds recommended for the Coast Guard's Headquarters Directorates, $75,000,000 is withheld from obligation until the Commandant of the Coast Guard submits the following to the Committees on Appropriations of the Senate and House of Representatives: (1) a revised future-years Capital Investment Plan for fiscal years 2012 through 2016 that has been reviewed by GAO, as specified under the "Coast Guard Acquisition, Construction, and Improvements" heading in this Act; (2) the fiscal year 2012 second quarter quarterly acquisition report; and (3) the polar operations high latitude study…. MISSION REQUIREMENTS The Coast Guard has not formally updated its mission requirements to the Committee since the 2004 Mission Needs Study. The Coast Guard informed the Committee that it uses an annual Standard Operational Planning Process (SOPP) to update current requirements; however, a SOPP finding has never been submitted to the Committee nor has a change in an acquisition program baseline or an operational requirement been justified before the Committee as a result of a SOPP finding. Furthermore, the Coast Guard has stated that it has been conducting a Fleet Mix Analysis since 2004 and the results of this analysis will inform the fiscal year 2013 budget submission and fiscal years 2013 through 2017 Capital Investment Plan. The Committee finds this protracted delay in updating mission requirements for the Coast Guard's post-Deepwater era to be a major impediment to effective budget planning. The Coast Guard is directed to submit the most current Fleet Mix Analysis to the Committees on Appropriations of the Senate and House of Representatives and to brief the Committees on its process for formulating updated mission requirements no later than 30 days after the date of enactment of this Act. (Pages 72-73) The report also states: The Committee removes the annual requirement for a Revised Deepwater Implementation Plan due to the dissolution of the Deepwater initiative and directorate. The Committee modifies and strengthens the requirements for the annual capital investment plan (CIP) and requires the submittal of the CIP, as specified in the bill, in conjunction with the annual budget submission…. QUARTERLY REPORTS ON ACQUISITION PROJECTS AND MISSION EMPHASIS The Commandant is directed to continue to submit to the Committee quarterly acquisition and mission emphasis reports consistent with deadlines articulated under section 360 of division I of Public Law 108–7. The Coast Guard shall continue submitting these reports in the same format as required in fiscal year 2010. In addition, for each asset covered, the reports should present the objective for operational hours the Coast Guard expects to achieve, the gap between that objective, current capabilities, and stated mission requirements, and how the acquisition of the specific asset closes the gap. The information shall also include a discussion of how the Coast Guard calculated the operational hours, an explanation on risks to mission performance associated with the current shortfall, and the operational strategy to mitigate such risks. CAPITAL INVESTMENT PLAN The Committee directs the Commandant of the Coast Guard to revise and resubmit the fiscal years 2012–2016 Capital Investment Plan as specified in the bill. The CIP submitted with the fiscal year 2012 budget request fails to align capital investments to mission requirements; does not include current acquisition program baselines for each capital asset; does not include the associated infrastructure costs essential to the operation of each capital asset; and contains no background information or justification regarding the future-years funding assumptions. The Coast Guard is further directed to submit a CIP in accordance with the specified requirements listed in the bill in conjunction with the budget submission for fiscal year 2013 and thereafter. The Committee believes the CIP serves as the primary means of oversight for tracking the Coast Guard's recapitalization efforts and therefore must be substantially improved. REVISED BUDGET STRUCTURE The Committee has revised the Coast Guard's budget structure for the Acquisition, Construction, and Improvements account due to the dissolution of the Deepwater initiative and directorate. The Committee appreciates the Coast Guard's cooperation in aligning previously appropriated funds with this new PPA structure and directs the Coast Guard to submit both its fiscal year 2013 budget submission and revised and future CIPs in accordance with this new budgetary display. The Committee's standing reprogramming and transfer guidelines contained in section 503 of this Act shall be applied to these new PPAs. NATIONAL SECURITY CUTTER The Committee denies the request for $77,000,000 for the closeout costs of the fifth National Security Cutter (NSC) because these funds were provided in fiscal year 2011 along with funding for the full production costs of the fifth NSC. The Coast Guard has not submitted a budget amendment proposing to re-purpose these requested funds towards the pre-acquisition and long-long material costs of the sixth NSC; has currently budgeted for the full cost of the sixth NSC in fiscal year 2013, as per the capital investment plan submitted with the fiscal year 2012 budget submission; and has not informed the Committee on whether the Office of Management and Budget (OMB) would grant an exception from the full funding policy contained in OMB Circular A–11 and allow for the application of incremental funding (as has been done for the previous five NSCs). Due to OMB's application of this Circular A–11 full funding policy upon the acquisition of NSCs five through eight, the entire NSC acquisition program baseline will be extended by several years and the unit cost for NSCs six through eight will increase by an estimated $45,000,000 to $60,000,000 per cutter (an estimated increase of six to eight percent to total acquisition cost per cutter). The Committee believes the application of a policy that results in higher costs and in the undue delay of critical operational capabilities to be illogical and counterproductive to our Nation's security needs as well as current budgetary realities. Furthermore, delays in the acquisition of the NSC will exacerbate the already escalating operating and maintenance costs of the Coast Guard's aging High Endurance Cutter fleet. Due to these undisputed adverse impacts, the Committee believes the Administration's management of the NSC acquisition program baseline to be failing in its responsibility to deliver a cost-effective capability for maritime safety and security. The Committee directs the Department's Office of the Chief Financial Officer and the Coast Guard to brief the Committee within 30 days of the date of enactment of this Act on a revised NSC acquisition strategy that addresses all known adverse impacts resulting from the application of OMB's full funding requirements for the NSC pursuant to OMB Circular A–11. FAST RESPONSE CUTTER The Committee recommends $240,000,000 for the acquisition of four Fast Response Cutters (FRCs), $118,000,000 below the amount requested and the same as the amount provided in fiscal year 2011. Funding for two, additional FRCs is denied due to concerns regarding structural deficiencies found during the production of the first FRC and the resulting delay in delivery of the first FRC due to the required structural modifications. The Committee is also very concerned that the Coast Guard is applying funds reserved for FRC antecedent liabilities to address the costs of these structural modifications and that this decision will likely result in future, unfunded liabilities. Because the Coast Guard has yet to conduct its operational test and evaluation (OT&E) of the first FRC, the Committee believes it is prudent to examine the empirical OT&E results before accelerating the acquisition of FRCs from four to six per year. The Committee also denies the request for the re-procurement package and data rights (RDLP) at this time because, according to the Coast Guard's fiscal year 2012 budget submission, the RDLP option of the contract is not scheduled to be executed until fiscal year 2013 and the current contract for FRC production does not expire until the end of fiscal year 2014. The Committee remains committed to the FRC acquisition, and believes replacement of the Coast Guard's aging, 110-foot Island Class patrol boat fleet to be among the Department's highest acquisition priorities. The Committee will re-consider the request for funding to support an increase in the annual production rate of FRCs and the purchase of the RDLP once outstanding issues have been fully resolved…. MAJOR ACQUISITION SYSTEMS INFRASTRUCTURE The Committee recommends $66,000,000 for major acquisition systems infrastructure, $28,500,000 below the amount requested and $10,000,000 above the amount provided in fiscal year 2011. The Committee denies the request for two of the FRC port upgrades due to an insufficient budget justification; projected delays in FRC deliveries; the protracted delay in the Coast Guard's delivery of a revised FRC master schedule to the Committee; and due to serious concerns regarding the significant cost per port upgrade that amount to nearly a 24 percent increase in the cost of each FRC. As previously stated and directed, the Coast Guard shall include the associated costs of major acquisition systems infrastructure with each capital asset, as applicable, in the CIP. Furthermore, the Coast Guard is directed to brief the Committee no later than 45 days after the date of enactment of this Act on the cost control and estimation tools it is employing to contain the costs of infrastructure modifications needed to accommodate re-capitalized and new assets. GOVERNMENT PROGRAM MANAGEMENT The Committee recommends $30,000,000 for government program management, $5,000,000 below the amount requested and $15,000,000 below the amount provided in fiscal year 2011. The Committee recommends this reduction due to the complete lack of detail provided by the Coast Guard in their fiscal year 2012 Congressional budget justification for this function. While Committee strongly supports the activities carried out within this function, the lack of detail provided in the budget request is inadequate to warrant a recommendation for funding the amount requested. The Coast Guard is directed to provide a detailed subdivision of funding requested for government program management in its justification materials accompanying the fiscal year 2013 budget submission. COMMUNICATION UPGRADES OF LEGACY CUTTERS The Committee recommends an additional $10,000,000 above the amount requested to support the costs of installation of communications systems on legacy cutters. These enhancements will improve surveillance, secure networking, and operational coordination among Coast Guard and other blue force assets. Furthermore, this increase in funding is consistent with recent DHS OIG recommendations to upgrade current maritime satellite communication equipment to provide high-speed transmission capabilities to enable cutters that interdict migrants to collect and screen certain biometric data. HH–65 HELICOPTER RESET The Committee recommends an additional $37,000,000 above the amount requested for the acquisition of two, replacement HH–65 helicopters that were lost in the line of duty over the past two years. The Coast Guard is directed to brief the Committee within 60 days of the date of enactment of this Act on its reset plans for irrecoverable assets lost in the line of duty. CUTTER-BASED UNMANNED AIRCRAFT SYSTEMS The Committee recommends an additional $2,000,000 above the amount requested for the pre-acquisition activities for cutter-based unmanned aircraft systems (UAS). The Committee supports the use of cutter-based UAS to maximize the surveillance and interdiction capabilities of the Coast Guard's cutters, but is concerned that the fiscal years 2012 through 2016 CIP submitted with the fiscal year 2012 budget request contains no funding for UAS. In the justification materials accompanying the fiscal year 2013 budget submission, the Coast Guard shall clearly outline its plans for further investment in the acquisition and deployment of a cutter-based UAS, to include estimated acquisition costs and delivery schedule. The Committee advises that any such plan should align with the Coast Guard's CIP and should clearly identify the costs of acquisition, cutter integration, and missionization per asset, as well as a delivery and activation schedule of UAS capability per cutter. The Coast Guard shall also include with its fiscal year 2013 budget submission a report to the Committee on the impact of the absence of deployed UAS upon NSC capability and mission performance. LAND-BASED MARITIME UNMANNED AIRCRAFT SYSTEMS The Committee commends CBP and the Coast Guard for its collaboration on the development and deployment of a land-based, maritime unmanned aircraft system. However, the Committee notes with concern the lack of progress on this interagency coordination or subsequent acquisition of additional land-based, maritime UAS. In fact, the Coast Guard's fiscal years 2012 through 2016 Capital Investment Plan submitted with the fiscal year 2012 budget request includes no funding for land-based UAS. The Committee believes there is considerable potential in the use of persistent surveillance tools in the maritime approaches to the continental United States, namely in the Eastern Pacific and Caribbean basin. In the justification materials accompanying the fiscal year 2013 budget submission, the Coast Guard shall clearly outline its plans for further investment in the acquisition and deployment of a land-based UAS in collaboration with CBP, to include estimated acquisition costs and delivery schedule. The Committee advises that any such plan should align with the Coast Guard's CIP and should clearly identify the costs of acquisition, integration, and missionization per asset, as well as a delivery and activation schedule of UAS capability. LONG-RANGE SURVEILLANCE AIRCRAFT The Committee has renamed and combined the PPAs for HC–130J introduction and HC–130H refurbishment in order to allow the Coast Guard to leverage its limited funding for these activities for the most cost-effective budgeting for Long Range Surveillance (LRS) Aircraft. The Coast Guard is directed to brief the Committee no later than 45 days after the date of enactment of this Act on its evaluation of options presented in the recently completed Naval Air Systems Command business case analysis of the optimal mix of refurbished HC–130Hs and new HC–130Js. (Pages 79-84) The text of H.R. 2017 as reported by the Senate Appropriations Committee states in part that funds are provided for the Coast Guard's Operating Expenses (OE) account, … Provided further , That of the funds provided under this heading, $75,000,000 shall be withheld from obligation for Headquarters Directorates until: (1) the fiscal year 2012 second quarter acquisition report; and (2) the future-years capital investment plan for fiscal years 2013-2017, as specified under the heading Coast Guard, `Acquisition, Construction, and Improvements' of this Act, are received by the Committees on Appropriations of the Senate and the House of Representatives:… The bill also states in part that funds are provided for the Coast Guard's Acquisition, Construction, and Improvements (AC&I) account, … Provided , That the funds provided by this Act shall be immediately available and allotted to contract for long lead time materials, components, and designs for the sixth National Security Cutter notwithstanding the availability of funds for production costs or post-production costs: Provided further , That the Secretary of Homeland Security shall submit to the Committees on Appropriations of the Senate and the House of Representatives, at the time that the President's budget is submitted each year under section 1105(a) of title 31, United States Code, a future-years capital investment plan for the Coast Guard that identifies for each requested capital asset— (1) the proposed appropriations included in that budget; (2) the total estimated cost of completion, including and clearly delineating the costs of associated major acquisition systems infrastructure and transition to operations; (3) projected funding levels for each fiscal year for the next 5 fiscal years or until acquisition program baseline or project completion, whichever is earlier; (4) an estimated completion date at the projected funding levels; and (5) a current acquisition program baseline for each capital asset, as applicable, that— (A) includes the total acquisition cost of each asset, subdivided by fiscal year and including a detailed description of the purpose of the proposed funding levels for each fiscal year, including for each fiscal year funds requested for design, pre-acquisition activities, production, structural modifications, missionization, post-delivery, and transition to operations costs; (B) includes a detailed project schedule through completion, subdivided by fiscal year, that details— (i) quantities planned for each fiscal year; and (ii) major acquisition and project events, including development of operational requirements, contracting actions, design reviews, production, delivery, test and evaluation, and transition to operations, including necessary training, shore infrastructure, and logistics; (C) notes and explains any deviations in cost, performance parameters, schedule, or estimated date of completion from the original acquisition program baseline and the most recent baseline approved by the Department of Homeland Security's Acquisition Review Board, if applicable; (D) aligns the acquisition of each asset to mission requirements by defining existing capabilities of comparable legacy assets, identifying known capability gaps between such existing capabilities and stated mission requirements, and explaining how the acquisition of each asset will address such known capability gaps; (E) defines life-cycle costs for each asset and the date of the estimate on which such costs are based, including all associated costs of major acquisitions systems infrastructure and transition to operations, delineated by purpose and fiscal year for the projected service life of the asset; (F) includes the earned value management system summary schedule performance index and cost performance index for each asset, if applicable; and (G) includes a phase-out and decommissioning schedule delineated by fiscal year for each existing legacy asset that each asset is intended to replace or recapitalize: Provided further , That the Secretary of Homeland Security shall ensure that amounts specified in the future-years capital investment plan are consistent, to the maximum extent practicable, with proposed appropriations necessary to support the programs, projects, and activities of the Coast Guard in the President's budget as submitted under section 1105(a) of title 31, United States Code, for that fiscal year: Provided further , That any inconsistencies between the capital investment plan and proposed appropriations shall be identified and justified:… Section 517 of the bill states: Sec. 517. Any funds appropriated to Coast Guard `Acquisition, Construction, and Improvements' for fiscal years 2002, 2003, 2004, 2005, and 2006 for the 110-123 foot patrol boat conversion that are recovered, collected, or otherwise received as the result of negotiation, mediation, or litigation, shall be available until expended for the Fast Response Cutter program. Section 565 of the bill states: Sec. 565. (a) For an additional amount for Coast Guard `Acquisition, Construction, and Improvements', $18,300,000, to remain available until September 30, 2014, for aircraft replacement. (b) The following amounts are rescinded: (1) $7,300,000 from unobligated balances made available for Coast Guard `Acquisition, Construction, and Improvements' in chapter 5 of title I of division B of P.L. 110-329 . (2) $7,000,000 from unobligated balances made available for `United States Citizenship and Immigration Services' in chapter 6 of title I of P.L. 111-212 . (3) $4,000,000 from unobligated balances made available for Transportation Security Administration `Aviation Security' in chapter 5 of title III of P.L. 110-28 . (c) The amount made available in subsection (a) is designated by Congress as being for an emergency requirement pursuant to section 251(b)(2)(A)(i) of the Balanced Budget and Emergency Deficit Control Act of 1985 ( P.L. 99-177 ), as amended. The Senate Appropriations Committee, in its report ( S.Rept. 112-74 of September 7, 2011) on H.R. 2017 , states: HIGH-ENDURANCE CUTTERS In fiscal year 2010, the Committee appropriated $4,000,000 for the Coast Guard to assess the High Endurance Cutter fleet to determine the most effective use of funds to operate the vessels until replaced by National Security Cutters [NSC]. Unfortunately, minimal work has been put into this effort with less than $500,000 of this funding being obligated since October 2009. Given the additional delays in delivering the final NSC, as noted in the fiscal year 2012 budget request (final NSC delivery in 2018 versus 2016), the Coast Guard is urged to accelerate its work in this area. As part of its periodic acquisitions briefings to the Committee, the Coast Guard is to provide an update on the progress made on this effort. The Coast Guard's update shall include a discussion of the potential need for a future sustainment project to bridge operational gaps between full operating condition of the NSC fleet and the decommissioning sequence for remaining HECs. (Page 89) The committee's report also states: REPORTING REQUIREMENTS WITHOLDING In an effort to encourage timely submissions to the Committees of materials necessary for robust and informed oversight, the Committee withholds $75,000,000 from obligation from the Coast Guard's "Headquarters Directorates" until the Quarterly Acquisition Report for the second quarter of fiscal year 2012 and a comprehensive 5-year Capital Investment Plan for fiscal years 2013–2017 have been submitted to the Committee. (Page 91) The report also states: NATIONAL SECURITY CUTTER The Coast Guard operates a fleet of 378-foot high endurance cutters [HECs] that are over 43 years old on average, and are increasingly unreliable and expensive to maintain. By comparison, the average Navy ship is 14 years old. The Coast Guard's current plan is to acquire eight National Security Cutters [NSCs] to replace 12 HECs (of which two have been decommissioned with the arrival of the first two NSCs). To date, over $3,100,000,000 has been appropriated for five NSCs, of which two have been delivered to the Coast Guard and the third will be delivered by the end of fiscal year 2011. NSC–4 is under contract and is expected to be delivered in 2014. The request in fiscal year 2012 of $77,000,000 for NSC–5 has been superseded by the fact that full funding was appropriated for the cutter in fiscal year 2011. Therefore, the Committee redirects these funds to acquire long lead time materials necessary for production of NSC–6. According to the Department, this will accelerate the production schedule for the cutter and result in direct savings of $45,000,000 to $60,000,000 compared to delaying the request for long lead acquisition to the fiscal year 2013 budget. As noted in prior years, the Committee strongly supports the procurement of one National Security Cutter per year until all eight planned ships are procured. The continuation of production without a break will ensure that these ships, which are vital to the Coast Guard's mission, are procured at the lowest cost, and that they enter the Coast Guard fleet as soon as possible. The Committee is concerned that the administration's current acquisition policy requires the Coast Guard to attain total acquisition cost for a vessel, including long lead time materials, production costs, and post production costs, before a production contract can be awarded. This has the potential to create shipbuilding inefficiencies, forces delayed obligation of production funds, and requires post production funds far in advance of when they will be used. As the Secretary noted in her testimony before the Committee, "we fully expect to build out the eight cutters." The Department should therefore be in a position to acquire NSCs in the most efficient manner within the guidelines of strict governance measures. Therefore, the Committee includes language in the bill specifying that funds made available by this act shall be available to contract for long lead time materials for Coast Guard vessels, notwithstanding the availability of funds for production costs or post-production costs. FAST RESPONSE CUTTER The Committee recommends $358,000,000 for the Coast Guard's Fast Response Cutter [FRC], as requested. This funding will allow the Coast Guard to acquire six FRC hulls (13–18). Procuring six Fast Response Cutters in fiscal year 2012 will maximize the production line and generate cost savings of $5,000,000 per hull for a total savings to the taxpayers of $30,000,000. Funding six boats instead of four will also allow the Coast Guard to decommission two additional aging 110-foot Island Class Patrol Boats already beyond the end of their projected service life and expensive to maintain. Each FRC will provide 2,500 annual operating hours and an improved sea keeping ability, resulting in better habitability and full mission capability in higher sea states. The Committee commends the Coast Guard's due diligence in working with the Naval Engineering Technical Authority to improve the structural design for the FRC hull to prevent the potential need for any structural repairs prior to the end of the cutter's 20-year service life. Based on the continued involvement of the Coast Guard's technical authorities and consultation with third party independent classification societies, the identification and improvement of the structural design prior to launching the first FRC prevented required changes that would have been far more costly and impactful to operations than if they were identified later in the lifecycle of the cutter class. The recommendation also includes funding for Re-procurement Package and Data Rights, as requested, which is necessary to support the planned re-competition of the next Fast Response Cutter procurement. Not funding this effort in fiscal year 2012 would result in an FRC production gap, driving up procurement costs and out-year operating and maintenance costs of legacy assets well beyond their service life. MEDIUM ENDURANCE CUTTER SUSTAINMENT The recommendation includes $47,000,000 for the Medium Endurance Cutter Sustainment Project, as requested. Funding will complete sustainment work on five 270-foot cutters. This funding is intended to improve mission effectiveness of these vessels to allow them to meet their goals for program availability through the remainder of their service lives. This program has been successful in significantly reducing the number of major equipment failures on these vessels resulting in a much higher percentage of time they are fully mission capable. OFFSHORE PATROL CUTTER The recommendation includes $25,000,000 for the Offshore Patrol Cutter, as requested. Funding is provided for pre-acquisition activities. The Committee expects the Coast Guard to provide quarterly briefings to the Committee on the status of this procurement, including critical decision points and dates. ROTARY WING REPLACEMENT AIRCRAFT Since September 2008, the Coast Guard has lost four helicopters in accidents. To date, funding has been appropriated to replace only one of those assets. The recommendation includes $36,600,000, $18,300,000 above the request to replace two additional helicopters. Funds for the second aircraft are provided in title V of the bill. The Coast Guard is to brief the Committee no later than 60 days after the date of enactment of this act on its plans for replacing lost rotary wing operational assets. MARITIME PATROL AIRCRAFT The Committee recommends $104,500,00 for the Maritime Patrol Aircraft [MPA], $25,000,000 below the budget request. Funds are recommended for the acquisition of two aircraft (MPAs–16 & 17), which will provide an additional 2,400 hours to address the Coast Guard's MPA flight-hour gap. The Committee recognizes the importance of the mission system pallet, which is the electronic equipment to collect, compile, interpret, and disseminate data from the MPA's sensors. However, the Coast Guard is no longer purchasing these pallets from the original systems integrator and has not identified a new acquisition strategy to purchase them, making it unlikely that any funding for pallets would be obligated in fiscal year 2012. Therefore, the recommendation does not include funding for this purpose. UNMANNED AIRCRAFT SYSTEMS The Committee is aware of efforts by the Coast Guard to evaluate both ship-based and land-based Unmanned Aircraft Systems [UAS] for mission requirements. Both platforms have the potential to enhance the Coast Guard's capability to execute statutory requirements in the maritime domain. A recent Coast Guard report concluded that upgraded sensors and greater persistence could effectively extend a cutter's immediate surveillance horizon by as much as 35 percent. This is why the Committee is concerned with the absence of funding in the budget request and the long-term Capital Investment Plan for the acquisition of UAS. Prior to the establishment of a UAS acquisition program, additional testing is necessary to determine the viability of ship-based UAS systems on major Coast Guard cutters. Therefore, the Committee includes $8,000,000 under "Research, Development, Test, and Evaluation" for the shipboard ground control equipment necessary for ship-aircraft interface activities. The Committee is also aware of $3,200,000 that remains available from Coast Guard prior year appropriations for this purpose. (Pages 95-97) The committee's report also states: FLEET MIX ANALYSIS In July 2010, the Government Accountability Office [GAO] recommended that the Coast Guard review the cost and mix of its assets and identify trade-offs given fiscal constraints. According to GAO testimony in April 2011, "The Department of Homeland Security agreed with the recommendation; however, the Coast Guard has not yet implemented it." Since 2008, the Coast Guard has been conducting a study called the "Fleet Mix Analysis" to analyze asset requirements and to validate and recommend fleet mix options to best execute operational missions. Phase 1 of the analysis has been completed, but it was unconstrained by cost considerations and led to unrealistic conclusions considering the current fiscal environment. Phase 2 of the Fleet Mix Analysis is underway, which is examining performance of alternative fleet mixes while applying fiscal constraints. The Coast Guard expects to complete this study in fiscal year 2011. The Committee is also aware of a separate Departmental study that is in the final stages of Departmental review called the "Cutter Fleet Mix Analysis". The Coast Guard shall submit both the "Fleet Mix Analysis" (Phases 1 and 2) and the "Cutter Fleet Mix Analysis" to the Committee and GAO once they are completed, but no later than 30 days after the date of enactment of this act. GAO shall provide an assessment of the results no later than 120 days following the submission of the report to the Committee. (Pages 99-100) Regarding Section 565 of the bill, the committee's report states: Section 565. The bill includes language that makes available an additional $18,300,000 for Coast Guard to replace a rotary wing airframe. The Coast Guard has lost four helicopters to accidents over the past few years. This provision is designated as an emergency and is offset with unobligated emergency balances. (Page 162) Section 303 of H.R. 2838 as reported by the House Transportation and Infrastructure Committee ( H.Rept. 112-229 of October 3, 2011) states: SEC. 303. NATIONAL SECURITY CUTTERS. (a) In General- Subchapter I of chapter 15 of title 14, United States Code is amended by adding at the end the following new section: `Sec. 569a. National security cutters `(a) Sixth National Security Cutter- The Commandant may not begin production of a sixth national security cutter on any date before which the Commandant— `(1) has acquired a sufficient number of Long Range Interceptor II and Cutter Boat Over the Horizon IV small boats for each of the first three national security cutters and has submitted to the Committee on Commerce, Science, and Transportation of the Senate and the Committee on Transportation and Infrastructure of the House of Representatives a plan to provide such boats upon the date of delivery of each subsequent national security cutter; `(2) has achieved the goal of 225 days away from homeport for each of the first two national security cutters; and `(3) has submitted to the Committee on Commerce, Science, and Transportation of the Senate and the Committee on Transportation and Infrastructure of the House of Representatives a program execution plan detailing increased aerial coverage to support national security cutter operations. `(b) Seventh National Security Cutter- The Commandant may not begin production of a seventh national security cutter on any date before which the Commandant has selected an offshore patrol cutter that meets at least the minimum operational requirements set out in the Operational Requirements Document approved by the department in which the Coast Guard is operating on October 20, 2010.'. (b) Clerical Amendment- The analysis at the beginning of such chapter is amended by adding at the end of the items relating to such subchapter the following: `569a. National security cutters.'. Section 304 states: SEC. 304. MAJOR ACQUISITIONS REPORT. (a) In General- Subchapter I of chapter 15 of title 14, United States Code, is further amended by adding at the end the following: `Sec. 569b. Major acquisitions report `(a) Major Acquisition Programs Implementation Report- In conjunction with the transmittal by the President of the budget of the United States for fiscal year 2013 and every two fiscal years thereafter, the Secretary shall submit to the Committee on Commerce, Science, and Transportation of the Senate and the Committee on Transportation and Infrastructure of the House of Representatives a report on the status of all major acquisition programs. `(b) Information To Be Included- The report shall include for each major acquisition program— `(1) a statement of Coast Guard's mission needs and performance goals for such program, including a justification for any change to those needs and goals from any report previously submitted under this subsection; `(2) a justification for how the projected number and capabilities of each planned acquisition program asset meets those mission needs and performance goals; `(3) an identification of any and all mission hour gaps, accompanied by an explanation on how and when the Coast Guard will close those gaps; `(4) an identification of any changes to such program, including— `(A) any changes to the timeline for the acquisition of each new asset and the phase out of legacy assets; and `(B) any changes to the costs of new assets and legacy assets for that fiscal year, future fiscal years, or the total acquisition cost; `(5) a justification for how any change to such program fulfills the mission needs and performance goals of the Coast Guard; `(6) a description of how the Coast Guard is planning for the integration of each new asset acquired under such program into the Coast Guard, including needs related to shore-based infrastructure and human resources; `(7) an identification of how funds in that fiscal year's budget request will be allocated, including information on the purchase of specific assets; `(8) a projection of the remaining operational lifespan and lifecycle cost of each legacy asset that also identifies any anticipated resource gaps; `(9) a detailed explanation of how the costs of the legacy assets are being accounted for within such program; `(10) an annual performance comparison of new assets to legacy assets; and `(11) an identification of the scope of the anticipated acquisitions workload for the next fiscal year; the number of officers, members, and employees of the Coast Guard currently assigned to positions in the acquisition workforce; and a determination on the adequacy of the current acquisition workforce to meet that anticipated workload, including the specific positions that are or will be understaffed, and actions that will be taken to correct such understaffing. `(c) Cutters Not Maintained in Class- Each report under subsection (a) shall identify which, if any, Coast Guard cutters that have been issued a certificate of classification by the American Bureau of Shipping have not been maintained in class with an explanation detailing the reasons why they have not been maintained in class. `(d) Definition- For the purposes of this section, the term `major acquisition program' means an ongoing acquisition undertaken by the Coast Guard with a life-cycle cost estimate greater than or equal to $300,000,000.'. (b) Clerical Amendment- The analysis at the beginning of such chapter is further amended by adding at the end of the items relating to such subchapter the following: `569b. Major acquisitions report.'. (c) Repeal- (1) Section 408 of the Coast Guard and Maritime Transportation Act of 2006 (120 Stat. 537) is amended by striking subsection (a). (2) Title 14, United States Code, is amended— (A) in section 562, by striking subsection (e) and redesignating subsections (f) and (g) as subsections (e) and (f), respectively; and (B) in section 573(c)(3), by striking subparagraph (B). The committee's report states: Major acquisitions The Coast Guard is undertaking a 20- to 25-year program to recapitalize most of its aging vessels and aircraft, as well as its outdated command, control, communications, computer, intelligence, surveillance and reconnaissance (C4ISR) systems. In spite of the series of acquisition reforms undertaken in recent years, significant delays, cost overruns and capability gaps remain in the development and implementation of the recapitalization program. According to the Government Accountability Office (GAO), the current total acquisition costs for the Coast Guard's 17 major acquisitions are expected to exceed $28 billion, nearly $4 billion over the $24.2 billion 2007 baseline. This does not include an updated estimate for the Offshore Patrol Cutter, the largest remaining acquisition program without an approved baseline. Of 12 major acquisitions with approved baselines, 10 were behind schedule, some by several years. The recapitalization program is currently expected to end in early 2030's. Rising prices and schedule delays can be attributed to several factors: • Funding—Inconsistent and insufficient annual funding for the Service's capital acquisitions especially in the early years of the Deepwater program delayed the development of certain assets. • Asset Development Failures—The Service spent hundreds of millions to develop assets that failed in their design phase or in operational testing. • Ongoing Capability Rebaselining—In 2004, the Service began a complete rebaselining of the number and types of assets to accommodate additional capabilities needed to meet post-September 11 mission requirements. Although the rebaseline was approved by DHS in 2007, the Service continues to rewrite capability requirements for certain assets under development such as the Offshore Patrol Cutter (OPC) and revise them for others currently in production. • The Service recently completed a revised, cost-constrained Fleet Mix Analysis which may result in yet another rebaselining of capabilities for all the assets in the recapitalization program. This document, similar to the 2004 rebaseline, could significantly increase total acquisition costs and further delay the delivery of new assets and technology. • Unrealistic Budget Planning—The Service's Capital Investment Plan (CIP) includes estimates of significantly higher levels of sustained funding for capital acquisitions over the next five years that have been appropriated to the Service for capital improvements in recent years. DHS acquisition oversight officials informed the Service earlier this year that breaches in acquisition schedules are inevitable due to future decreases in available resources. The Committee is extremely concerned the Service continues to be unable to develop and implement a recapitalization program with predictable costs. The Committee expects the Commandant to provide the cost-constrained Fleet Mix Analysis expeditiously. National Security Cutters The Committee is particularly concerned about the inability of the Coast Guard to implement portions of the National Security Cutter (NSC) acquisition program which will allow the NSC to meet the operational parameters on which the purchase of these vessels was predicated. The NSC was to operate more efficiently and effectively through the use of new communications systems and other technologies which would have significantly increased its range and capability. In several ways, the NSCs delivered to date have not provided the full array of anticipated increased capability. • Vertical take-off Unmanned Aerial Vehicles—The NSC was designed and built to carry as many as four vertical take-off unmanned aerial vehicles (VUAV). The VUAV's were expected to extend the range and effectiveness of the cutter. Two NSC's have been delivered to date without VUAVs. The Service continues to work with the Navy to develop a VUAV, but cannot provide an estimate of when the first NSC will be outfitted with a VUAV. No funds are included in the CIP to acquire VUAVs over the next five years. • Cutter Boats—The NSC was built to carry two classes of stern launched small boats each with a different size and capability to improve the cutter's range and effectiveness. The larger of the two boats did not perform as required and the smaller boat had to be modified to perform correctly. The Service recently solicited industry for a solution to replace both classes of small boats. Meanwhile, the NSC cannot operate at its full capability without these boats. • Multi-Crewing—The Coast Guard's plan for meeting mission hour baselines for the NSC requires operating the asset at least 225 days a year. In order to do so, it proposed a multi-crewing strategy whereby four crews would rotate among three ships. Although the Coast Guard has taken delivery of two NSCs, it still has no plan to begin multi-crewing or otherwise achieve the 225 day goal. The decision to move forward with the NSC was based on the vastly larger area that could be patrolled by the vessel using the VUAVs, cutter boats, and additional days at sea. As the DHS Inspector General recently found (OIG–09–82), without these planned capabilities the NSCs cover little more range than the 40 year old cutters they replace. The Coast Guard has spent over $3 billion on the NSC to date. Given the large percentage of the total cost of recapitalization devoted to the NSC and the need to increase the Service's mission capabilities, the Committee believes it is imperative the NSC meet the stated operational parameters. (Pages 16-18) Regarding Section 303, the report states: Sec. 303. National security cutters This section prohibits the Commandant from going to production on a sixth national security cutter on any date before which the Commandant has acquired a sufficient number of Long Range Interceptor II and Cutter Boat Over the Horizon IV small boats for each of the first three national security cutters, implemented a system to achieve the goal of 225 days away from homeport for two national security cutters, and submitted a plan to provide the national security cutters with advance aerial surveillance support. Additionally, the Commandant may not begin production on the seventh national security cutter until the Service has selected an OPC. The OPC is intended to replace the Coast Guard's aging fleet of medium endurance cutters. The Service is years behind schedule on the development of the OPC, and still does not have an approved baseline cost estimate in place for the program. (Page 21) On November 4, 2011, during the House's consideration of H.R. 2838 , an amendment to strike Section 303 ( H.Amdt. 859 ) was withdrawn by unanimous consent. S. 1665 was introduced on October 6, 2011, and ordered to be reported from the Senate Committee on Commerce, Science, and Transportation with an amendment in the nature of a substitute favorably on November 2, 2011. The text of the bill as introduced on October 6 does not include any provisions specific to Deepwater acquisition programs. The text of the bill as ordered to be reported on November 2, 2011, and the committee's report on the bill were not available from the Legislative Information System as of January 20, 2012. Appendix A. Criticism of Deepwater Management in 2007 Overall Management of Program Many observers in 2007 believed the problems experienced in the three Deepwater cutter acquisition efforts were the product of broader problems in the Coast Guard's overall management of the Deepwater program. Reports and testimony in 2007 and prior years from the DHS IG and GAO, as well as a February 2007 DAU "quick look study" requested by the Coast Guard expressed serious concerns about the Coast Guard's overall management of the Deepwater program. Some observers expressed the view that using a private-sector LSI to implement the Deepwater program made a complex program more complex, and set the stage for waste, fraud, and abuse by effectively outsourcing oversight of the program to the private sector and by creating a conflict of interest for the private sector in executing the program. Other observers, including GAO and the DAU, expressed the view that using a private-sector LSI is a basically valid approach, but that the contract the Coast Guard used to implement the approach for the Deepwater program was flawed in various ways, undermining the Coast Guard's ability to assess contractor performance, control costs, ensure accountability, and conduct general oversight of the program. Observers raised various issues about the Deepwater contract. Among other things, they expressed concern that the contract was an indefinite delivery, indefinite quantity (ID/IQ) contract, which, they said, can be an inappropriate kind of contract for a program like the Deepwater program. Observers also expressed concern that the contract transferred too much authority to the private-sector LSI for defining performance specifications, for subsequently modifying them, and for making technical judgements; permitted the private-sector LSI to certify that certain performance goals had been met—so-called self-certification, which, critics argue, can equate to no meaningful certification; provided the Coast Guard with insufficient authority over the private-sector LSI for resolving technical disputes between the Coast Guard and the private-sector LSI; was vaguely worded with regard to certain operational requirements and technical specifications, reducing the Coast Guard's ability to assess performance and ensure that the program would achieve Coast Guard goals; permitted the firms making up the private-sector LSI to make little use of competition between suppliers in selecting products to be used in the Deepwater program, to tailor requirements to fit their own products, and consequently to rely too much on their own products, as opposed to products available from other manufacturers; permitted the private-sector LSI's performance during the first five-year period to be scored in a way that did not sufficiently take into account recent problems in the cutter acquisition efforts; permitted award fees and incentive fees (i.e., bonuses) to be paid to the private-sector LSI on the basis of "attitude and effort" rather than successful outcomes; and lacked sufficient penalties and exit clauses. Observers also expressed concern that the Coast Guard did not have enough in-house staff and in-house expertise in areas such as program management, financial management, and system integration to properly oversee and manage an acquisition effort as large and complex as the Deepwater program, and that the Coast Guard did not make sufficient use of the Navy or other third-party, independent sources of technical expertise, advice, and assessments. They also expressed concern that the Coast Guard, in implementing the Deepwater program, placed a higher priority on meeting a schedule as opposed to ensuring performance. In response to criticisms of the management and execution of the Deepwater program, Coast Guard and industry officials acknowledged certain problems in the program's management and execution and defended the program's management execution in other respects. National Security Cutter (NSC) A DHS IG report released in January 2007 strongly criticized the NSC program, citing design flaws in the ship and the Coast Guard's decision to start construction of NSCs in spite of early internal notifications about these flaws. The design flaws involved, among other things, areas in the hull with insufficient fatigue life—that is, with insufficient strength to withstand the stresses of at-sea operations for a full 30-year service life. The DHS IG report also noted considerable growth in the cost to build the first two NSCs, and other issues. Observers in 2007 stated that the Coast Guard failed to report problems about the NSC effort to Congress on a timely basis, resisted efforts by the DHS IG to investigate the NSC effort, and appeared to have altered briefing slides on the NSC effort so as to downplay the design flaws to certain audiences. On May 17, 2007, the DHS IG testified that the Coast Guard's cooperation with the DHS IG had substantially improved (though some issues remained), but that Deepwater contractors had establishing unacceptable conditions for DHS IG to interview contractor personnel about the program. 110/123-Foot Patrol Boat Modernization The Coast Guard originally planned to modernize and lengthen its 49 existing Island-class 110-foot patrol boats so as to improve their capabilities and extend their lives until their planned eventual replacement with FRCs starting in 2018. The work lengthened the boats to 123 feet. The program consequently is referred to as the 110-foot or 123-foot or 110/123 modernization program. Eight of the boats were modernized at a total cost of about $96 million. The first of the eight modernized boats was delivered in March 2004. Structural problems were soon discovered in them. In June 2005, the Coast Guard stopped the modernization effort at eight boats after determining that they lacked capabilities needed for meeting post-9/11 Coast Guard operational requirements. In August 2006, a former Lockheed engineer posted on the Internet a video alleging four other problems with the 110-foot patrol boat modernization effort. The engineer had previously presented these problems to the DHS IG, and a February 2007 report from the DHS IG confirmed two of the four problems. On November 30, 2006, the Coast Guard announced that it was suspending operations of the eight modernized boats (which were assigned to Coast Guard Sector Key West, FL) because of the discovery of additional structural damage to their hulls. The suspension prompted expressions of concern that the action could reduce the Coast Guard's border-enforcement capabilities in the Caribbean. The Coast Guard said it was exploring options for addressing operational gaps resulting from the decision. On April 17, 2007, the Coast Guard announced that it would permanently decommission the eight converted boats and strip them of equipment and components that might be reused on other Coast Guard platforms. The Coast Guard acknowledged in 2007 that the program was a failure. Fast Response Cutter (FRC) As a result of the problems in the 110-foot patrol boat modernization project, the Coast Guard accelerated the FRC design and construction effort by 10 years. Problems, however, were discovered in the FRC design. The Coast Guard suspended work on the design in February 2006, and then divided the FRC effort into two classes—the FRC-Bs, which are to be procured in the near term, using an existing patrol boat design (which the Coast Guard calls a "parent craft" design), and the subsequent FRC-As, which are to be based on a fixed version of the new FRC design. As mentioned earlier, although the November 2006 Deepwater APB calls for 12 FRCs and 46 FRC-Bs, the Coast Guard's Request for Proposals (RFP) for the FRC-B program includes options for building up to 34 FRC-Bs (which, if exercised, would reduce the number of FRC-As to as few as 24). The Coast Guard has also stated that if the FRC-Bs fully meet the requirements for the FRC, all 58 of the FRCs might be built to the FRC-B design. Appendix B. Coast Guard Reform Actions in 2007 Actions Announced in April 2007 On April 17, 2007, the Coast Guard announced six changes intended to reform management of the Deepwater program. In announcing the actions, Admiral Thad Allen, the Commandant of the Coast Guard, stated in part: Working together with industry, the Coast Guard will make the following six [6] fundamental changes in the management of our Deepwater program: [1] The Coast Guard will assume the lead role as systems integrator for all Coast Guard Deepwater assets, as well as other major acquisitions as appropriate.... [2] The Coast Guard will take full responsibility for leading the management of all life cycle logistics functions within the Deepwater program under a an improved logistics architecture established with the new mission support organization. [3] The Coast Guard will expand the role of the American Bureau of Shipping, or other third-parties as appropriate, for Deepwater vessels to increase assurances that Deepwater assets are properly designed and constructed in accordance with established standards. [4] The Coast Guard will work collaboratively with Integrated Coast Guard Systems to identify and implement an expeditious resolution to all outstanding issues regarding the national security cutters. [5] The Coast Guard will consider placing contract responsibilities for continued production of an asset class on a case-by-case basis directly with the prime vendor consistent with competition requirements if: (1) deemed to be in the best interest of the government and (2) only after we verify lead asset performance with established mission requirements. [6] Finally, I will meet no less than quarterly with my counterparts from industry until any and all Deepwater program issues are fully adjudicated and resolved. Our next meeting is to be scheduled within a month. These improvements in program management and oversight going forward will change the course of Deepwater. By redefining our roles and responsibilities, redefining our relationships with our industry partners, and redefining how we assess the success of government and industry management and performance, the Deepwater program of tomorrow will be fundamentally better than the Deepwater program of today.... As many of you know, I have directed a number of significant organizational changes [to the Coast Guard], embedded within direction and orders, to better prepare the Coast Guard to meet and sustain mission performance long into the future as we confront a broad range of converging threats and challenges to the safety, security and stewardship of America's vital maritime interests. What's important to understand here is that these proposed changes in organizational structure, alignment and business processes, intended to make the Coast Guard more adaptive, responsive and accountable, are not separate and distinct from what we have been doing over the past year to improve Deepwater. In fact, many of these initiatives can be traced directly to challenges we've faced, in part, in our Deepwater program. Consequently, we will be better organized, better trained, and better equipped to manage large, complex acquisitions like Deepwater in the coming days, weeks, months and years as we complete these service-wide enhancements to our mission support systems, specifically our acquisition, financial and logistics functions. That is the future of the Coast Guard, and that is the future of Deepwater. To be frank, I am tired of looking in the rearview mirror - conducting what has been the equivalent of an archaeological dig into Deepwater. We already understand all too well what has been ailing us within Deepwater in the past five years: We've relied too much on contractors to do the work of government as a result of tightening AC&I budgets, a dearth of contracting personnel in the federal government, and a loss of focus on critical governmental roles and responsibilities in the management and oversight of the program. We struggle with balancing the benefits of innovation and technology offered through the private sector against the government's fundamental reliance on robust competition. Both industry and government have failed to fully understand each other's needs and requirements, all too often resulting in both organizations operating at counter-odds to one another that have benefited neither industry nor government. And both industry and government have failed to accurately predict and control costs. While we can—and are—certainly learning from the past, we ought to be about the business of looking forward—with binoculars even—as we seek to see what is out over the horizon so we can better prepare to anticipate challenges and develop solutions with full transparency and accountability. That is the business of government. And it's the same principle that needs to govern business as well. And it's precisely what I intend to do: with the changes in management and oversight I outlined for you here today, with the changes we are making in the terms and conditions of the Deepwater contract, and with the changes we will make in our acquisition and logistics support systems throughout the Coast Guard. If we do, I have no doubt in my mind that we will exceed all expectations for Deepwater.... The Deepwater program of tomorrow will be fundamentally better than the Deepwater program of today. The Coast Guard has a long history of demonstrating exceptional stewardship and care of the ships, aircraft and resources provided it by the public, routinely extending the life of our assets far beyond original design specifications to meet the vital maritime safety, security and stewardship needs of the nation.... Knowing that to be the case, I am personally committed to ensuring that our newest ships, aircraft and systems acquired through the Coast Guard's Integrated Deepwater System are capable of meeting our mission requirements from the moment they enter service until they are taken out of service many, many years into the future.... As I've said many times in the past, the safety and security of all Americans depends on a ready and capable Coast Guard, and the Coast Guard depends on our Deepwater program to keep us ready long into the future. The changes to Deepwater management and oversight I outlined here for you today reflect a significant change in the course of Deepwater. I will vigorously implement these and other changes that may be necessary to ensure that our Coast Guard men and women have the most capable fleet of ships, aircraft and systems they need to do the job I ask them to do each and every day on behalf of the American people. Other Actions Announced in 2007 The Coast Guard in 2007 also did the following: announced a reorganization of certain Coast Guard commands—including the creation of a unified Coast Guard acquisition office—that is intended in part to strengthen the Coast Guard's ability to manage acquisition projects, including the Deepwater program; stated that would alter the terms of the Deepwater contract for the 43-month award term that commenced in June 2007 so as to address concerns raised about the current Deepwater contract; announced that it intended to procure the 12 FRC-B cutters directly from the manufacturer, rather than through ICGS; stated that it was hiring additional people with acquisition experience, so as to strengthen its in-house capability for managing the Deepwater program and other Coast Guard acquisition efforts; stated that it concurred with many of the recommendations made in the DHS IG reports, and was moving to implement them; stated that it was weighing the recommendations of the DAU quick look study; and stated that it had also implemented many recommendations regarding Deepwater program management that have been made by GAO. Appendix C. 110/123-Foot Patrol Boat Modernization As an earlier part of the Deepwater program, the Coast Guard initiated an effort to modernize its existing 110-foot Island class patrol boats, so that they could remain in service pending the delivery of replacement Deepwater craft. Among other things, the modernization increased the length of the boats to 123 feet. The effort is thus referred to variously as the 110-foot modernization program, the 123-foot modernization program, or the 110/123-foot modernization program. The initial eight boats in the program began to develop significant structural problems soon after completing their modernizations. The Coast Guard removed the boats from service and canceled the program, having spent close to $100 million on it. On April 18, 2007, it was reported that the Justice Department was conducting an investigation of the Deepwater program. Press reports at the time stated that investigation centered on the 110/123-foot modernization program, Deepwater communications systems, and the National Security Cutter (NSC). The Justice Department reportedly notified Lockheed, Northrop, and certain other firms involved in the Deepwater program of the investigation on December 13, 2006, and directed the firms to preserve all documents relating to the program. On May 17, 2007, the Coast Guard issued a letter to ICGS revoking its previous acceptance of the eight modernized boats—an action intended to facilitate Coast Guard attempts to recover from ICGS funds that were spent on the eight converted boats. On January 7 and 8, 2008, it was reported that the Coast Guard was seeking a repayment of $96.1 million from ICGS for the patrol boats and had sent a letter to ICGS on December 28, 2007, inviting ICGS to a negotiation for a settlement of the issue. Some observers questioned the strength of the government's legal case, and thus its prospects for recovering the $96.1 million or some figure close to that. The Coast Guard testified in April 2009 that: With regard to the 123-foot patrol boats, the Department of Justice and the DHS-OIG [the DHS Office of the Inspector General] continue their investigation into the project. The qui tam [legal] action involving the patrol boats is still on-going. The Department of Justice has not yet made yet made a determination whether it will intervene in that action. The Coast Guard continues its support of the DOJ and DHS-OIG investigation. Simultaneous to our support of the DOJ investigation, we have also undertaken an independent engineering analysis through the Navy's Naval Sea Systems Command, which we expect to be completed sometime this summer. Additionally, we are working with the Department of Justice to release five of the eight patrol boats to salvage systems, equipment and parts still of value to the Coast Guard. The remaining three cutters would remain untouched for evidence purposes in support of the ongoing investigations. On August 17, 2011, the Department of Justice announced that it had filed suit against Bollinger Shipyards for allegedly making material false statements to the Coast Guard regarding the 110/123-foot modernization program. The Department of Justice's announcement stated: The United States has filed suit in U.S. District Court in Washington, D.C., against Bollinger Shipyards Inc., Bollinger Shipyards Lockport LLC and Halter Bollinger Joint Venture LLC, the Justice Department announced. The suit alleges that Bollinger, which is headquartered in Lockport, La., made material false statements to the Coast Guard under the Deepwater Program. The government's complaint alleges that Bollinger proposed to convert existing 110-Ft Patrol Boats (WPBs) into 123-Ft WPBs by extending the hulls 13 feet and making additional improvements. As a result of Bollinger's misrepresentations about the hull strength of the converted vessels, the Coast Guard awarded a contract to convert eight Coast Guard 110 foot cutters to 123 foot cutters. The first converted cutter, the Matagorda, suffered hull failure when put into service. An investigation by the Coast Guard and the prime contractor, Integrated Coast Guard Systems, concluded that the calculation of hull strength reported by Bollinger to the Coast Guard prior to the conversion was false. Efforts to repair the Matagorda and the other converted vessels were unsuccessful. The cutters are unseaworthy and have been taken out of service. "Companies which make false statements to win Coast Guard contracts do a disservice to the men and women securing our borders," said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. "We will take action against those who undermine the integrity of the public contracting process by providing substandard equipment to our armed services personnel." The government's suit seeks damages from Bollinger under the False Claims Act for the loss of the eight now unseaworthy vessels. The investigation of the case was conducted by the Department of Justice Civil Division, the Department of Homeland Security Office of the Inspector General and the Coast Guard. An August 18, 2011, press report presented what it said was a statement from Bollinger Shipyards Lockport LLC in response to the filing of the suit. According to the press report, the text of the statement is as follows: Since its founding, Bollinger Shipyards has operated on the principle that "quality is remembered long after the price is forgotten." Three generations of the Bollinger family have earned a spotless record for honest and fair dealing with every customer, including the U.S. Navy and Coast Guard, our largest client. Since 1984, Bollinger has built every patrol boat the Coast Guard has purchased; to date some 122 have been delivered. We are disappointed with the Department of Justice's decision to file a complaint related to work completed in 2006. Throughout this process, Bollinger has been open and cooperative with the government, and we remain committed to providing the government all necessary information and assistance to bring this matter to a close. Bollinger has tried to find a way to resolve this matter short of litigation, but we are fully prepared to defend our good name aggressively in a court of law. As we have for the last 65 years, Bollinger will continue to deliver the highest quality and contract-compliant products to the United States Coast Guard and to each and every customer. Appendix D. Revolving Door and Potential for Conflicts of Interest The so-called revolving door, which refers to the movement of officials between positions in government and industry, can create benefits for government and industry in terms of allowing each side to understand the other's needs and concerns, and in terms of spreading best practices from one sector to the other. At the same time, some observers have long been concerned that the revolving door might create conflicts of interest for officials carrying out their duties while in government positions. A March 25, 2007, news article stated in part: Four of the seven top U.S. Coast Guard officers who retired since 1998 took positions with private firms involved in the Coast Guard's troubled $24 billion fleet replacement program, an effort that government investigators have criticized for putting contractors' interests ahead of taxpayers'. They weren't the only officials to oversee one of the federal government's most complex experiments at privatization, known as Deepwater, who had past or subsequent business ties to the contract consortium led by industry giants Northrop Grumman and Lockheed Martin. The secretary of transportation, Norman Y. Mineta, whose department included the Coast Guard when the contract was awarded in 2002, was a former Lockheed executive. Two deputy secretaries of the Department of Homeland Security, which the Coast Guard became part of in 2003, were former Lockheed executives, and a third later served on its board. Washington's revolving-door laws have long allowed officials from industry giants such as Lockheed, the nation's largest defense contractor, to spend parts of their careers working for U.S. security agencies that make huge purchases from those companies, though there are limits. But Deepwater dramatizes a new concern, current and former U.S. officials said: how dwindling competition in the private sector, mushrooming federal defense spending and the government's diminished contract management skills raise the stakes for potential conflicts of interest. Deepwater also illustrates how federal ethics rules carve out loopholes for senior policymakers to oversee decisions that may benefit former or prospective employers. These include outsourcing strategies under which taxpayers bear most of the risks for failure, analysts said. There is no sign that any of the retired admirals or former Lockheed officials did anything illegal. But the connections between the agencies and the contractors have drawn the attention of the DHS inspector general, Richard L. Skinner. "That is on our radar screen," he said. "It's something we are very sensitive to." | The term Deepwater referred to more than a dozen separate Coast Guard acquisition programs for replacing and modernizing the service's aging fleet of deepwater-capable ships and aircraft. Until April 2007, the Coast Guard pursued these programs as a single, integrated acquisition program that was known as the Integrated Deepwater System (IDS) program or Deepwater program for short. Since April 2007, the Coast Guard has pursued them as separate acquisition programs. These acquisition programs include plans for, among other things, 91 new cutters, 124 new small boats, and 247 new or modernized airplanes, helicopters, and unmanned aerial vehicles (UAVs). The Coast Guard's proposed FY2012 budget submission proposed to eliminate the use of "Deepwater" as a term for grouping or referring collectively to these acquisition programs. The budget submission stated that "Consistent with the dissolution of Integrated CG Systems and the disaggregation of the Deepwater Acquisition into asset-based Acquisition Program Baselines, the proposed changes align projects that were formerly grouped under Integrated Deepwater Systems (IDS) with the existing authorized structure for Vessels, Aviation, Shore, Other Equipment, and Personnel and Management." The year 2007 was a watershed year for these acquisition programs. The management and execution of what was then the single, integrated Deepwater program was strongly criticized by various observers. House and Senate committees held several oversight hearings on the program. Bills were introduced to restructure or reform the program in various ways. Coast Guard and industry officials acknowledged certain problems in the program's management and execution and defended the program's management and execution in other respects. The Coast Guard announced a number of reform actions that significantly altered the service's approach to Deepwater acquisition (and to Coast Guard acquisition in general). Among these was the change from a single, integrated Deepwater acquisition program to a collection of separate acquisition programs. The Coast Guard's management of these acquisition programs, including implementation of recommendations made by the Government Accountability Office (GAO), has been a topic of continuing congressional oversight. Additional oversight issues have included reporting of information to Congress on these programs; cost growth in, and budget planning for, these acquisition programs; a Coast Guard fleet mix analysis that could lead to changes in planned asset quantities; and execution of individual acquisition programs. The Coast Guard's FY2012 budget appeared to request $975.5 million in acquisition funding for these programs, including $289.9 million for aircraft, $512.0 million for surface ships and boats, and $173.6 million for other items. |
Postage stamps were introduced in 1847, but for a half century the designs were limited to images of Presidents and founding fathers. The first commemorative postage stamps were issued in 1893 to mark the Columbian Exposition of that year. The success of the Columbian stamp series prompted the Post Office Department to continue offering stamps to commemorate historic events and places. The commemorative stamp became a fixture of mail service, contributing to civic education and drawing millions into the hobby of philately. When USPS was established in 1971 with an expectation that it would be self-supporting, the revenue potential of commemorative issues became a more prominent consideration. Social issues such as conservation, employment of the handicapped, and higher education were added as commemorative features to the traditional mix of historical and patriotic themes. In 1993, USPS released the Elvis Presley stamp, which generated unprecedented enthusiasm among postal customers (as distinguished from collectors) and still holds the record for stamps saved—124 million with a face value of $35.9 million. The USPS has been criticized by collectors for issuing too many commemorative stamps, as well as for producing too many stamps of a particular issue. Concerns have been expressed that too many stamps diminished the value of the stamps to the hobbyist and had the potential to drive collectors away. Under Postmaster General (PMG) Marvin Runyon, a former collector himself, it became USPS policy to produce and market fewer commemorative stamps. However, in the effort to expand and appeal to a wider range of interests, USPS in the late 1990s began designing stamps not only to attract non-collectors, but also children. This expansion has increased the number of commemorative stamps produced and marketed. The number of separate commemorative stamps issued rose from 26 in 1997, to 81 in 1998, to 121 in 2002. In 2007, USPS will issue 99 commemorative stamps. Errors and subject selection in commemorative stamps have sometimes generated controversy. For example, in 1994 postal officials belatedly discovered that a stamp featuring wild west star Bill Pickett depicted the wrong man. To prevent such occurrences in the future, a historian has been hired by the USPS to authenticate all chosen stamp designs. A widely-circulated news story in 2000 pointed out that of 1,722 commemorative stamps issued since 1893, only 133 (8%) featured women or women's issues. Also, according to a widely-read stamp publication, the PMG was "stunned" by the negative reaction to the stamp issued in honor of Frida Kahlo in 2001; Ms. Kahlo, a Mexican artist and the wife of Diego Rivera, was also a communist, and the stamp was strongly criticized by Senator Jesse Helms. The Citizens' Stamp Advisory Committee (CSAC) was established by the PMG in March 1957. Before it was established, political influence often determined what stamps were issued. The committee operates under 39 U.S.C. 404(a) (4-5), and its primary purpose is to provide "philatelic, history, and artistic judgment and experience" in the selection and design of commemorative stamps. The committee consists of 15 members, none of whom is a postal employee, and whose backgrounds reflect a wide range of educational, artistic, historical, and professional knowledge. Members are appointed and serve at the pleasure of the PMG for three-year staggered terms, with no member able to serve more than four terms. Current members include Joan Mondale, actor Karl Malden, graphic designer Michael Brock, and Harvard professor Henry Louis Gates, Jr. No member may serve more than three terms. The PMG appoints one member to serve as chairperson and another member as vice chairperson, each serving two-year terms. The committee meets quarterly in Washington, DC, or at the call of the CSAC chairperson, to review the thousands of suggestions that are received by the USPS. Its meetings are not public. CSAC itself employs no staff. To expedite its work, employees of the USPS's stamp development group analyze all stamp subject suggestions upon initial receipt. Subcommittees of staff researchers are formed on special themes such as sports, medicine, transportation, black heritage, and performing arts to provide additional background and research. Occasionally, commemorative ideas require considerable research to explore an idea's merit or to devise a strong visual appeal. All supporting materials are then presented to the committee, along with any suggestions. While the primary responsibility of the committee is to review and appraise all proposals submitted for commemoration, the PMG has the exclusive and final authority to determine both the subject matter and the designs for U.S. postage stamps. Thus, for example, although the advisory committee recommended in 2003 that a stamp be commissioned for tercentenary of the birth of 18 th century theologian Jonathan Edwards, PMG John Potter refused to approve the recommendation. Members of Congress are often asked by constituents to support a particular commemorative theme or event. In doing so, a Member may choose to write the PMG expressing support for a particular stamp proposal. This usually results in a referral to the advisory committee. It is not uncommon for Members to introduce congressional resolutions encouraging the commemoration of a specific subject. In the 108 th Congress, 28 resolutions for this purpose were introduced; in the 109 th Congress, 23 resolutions were introduced. However, congressional endorsement of a proposal accords it no special status in the committee's deliberations. The House Committee on Oversight and Government Reform has discouraged Members from introducing bills endorsing the issuance of new commemorative stamps. For the 110 th Congress, the Committee's Rule 20 reads: The committee has adopted the policy that the determination of the subject matter of commemorative stamps ... is properly for consideration by the Postmaster General and that the committee will not give consideration to legislative proposals for the issuance of commemorative stamps and new semi-postal issues. It is suggested that recommendations for the issuance of commemorative stamps be submitted to the Postmaster General. Thus, in the House, when a commemorative stamp bill is introduced, it is referred the committee, which takes no further action on the bill. The Citizens' Stamp Advisory Committee receives about 50,000 nominations each year, and gives no special attention to those submitted by Congress or other legislative bodies. As a basis for its recommendation to the Postmaster General, the advisory committee uses 12 criteria when considering commemorative stamp subjects. They are: It is a general policy that U.S. postage stamps and stationery primarily will feature American or American-related subjects. No living person shall be honored by portrayal on U.S. postage. Commemorative stamps or postal stationery items honoring individuals usually will be issued on, or in conjunction with significant anniversaries of their birth, but no postal item will be issued sooner than five years after an individual's death. Events of historical significance shall be considered for commemoration only on anniversaries in multiples of 50 years. Only events and themes of widespread national appeal and significance will be considered for commemoration. Events or themes of local or regional significance may be recognized by a philatelic or special postal cancellation, which may be arranged through the local postmaster. Stamps or postal stationery items shall not be issued to honor fraternal, political, sectarian, or service/charitable organizations. Stamps or stationery shall not be issued to promote or advertise commercial enterprises or products. Commercial products or enterprises might be used to illustrate more general concepts related to American culture. Stamps or postal stationery items shall not be issued to honor cities, towns, municipalities, counties, primary or secondary schools, hospitals, libraries, or similar institutions. Due to the limitations placed on annual postal programs and the vast number of such locales, organizations, and institutions, singling out any one for commemoration would be difficult. Requests for observance of statehood anniversaries will be considered for commemorative postage stamps only at intervals of 50 years from the date of the state's entry into the Union. Requests for observance of other state-related or regional anniversaries will be considered only as subjects for postal stationery, and only at intervals of 50 years from the date of the event. Stamps or postal stationery items shall not be issued to honor religious institutions or individuals whose principal achievements are associated with religious undertakings or beliefs. Stamps with a surcharge for the benefit of a worthy cause, referred to as "semipostals," shall be issued in accordance with P.L. 106-253 . Semipostals will not be considered as part of the commemorative program and separate criteria will apply. Requests for commemoration of significant anniversaries of universities or other institutions of higher education shall be considered only for stamped cards and only in connection with the 200 th anniversaries of their founding. No stamp shall be considered for issuance if one treating the same subject has been issued in the past 50 years. The only exceptions to this rule will be those stamps issued in recognition of traditional themes such as national symbols and holidays. Other than applying these criteria, the USPS has no formal procedure or required format for submitting stamp proposals, which can be by letter, post card, or petition. After a proposal is determined not to violate the USPS criteria, each proposed subject is listed on the committee's agenda for its next meeting. In-person appeals by stamp proponents are not permitted. Proponents are not advised if a subject has been approved until a general announcement is made to the public. The USPS encourages the submission of commemorative postage stamp subjects to the committee at least three years prior to the proposed date of issuance, to allow sufficient time for consideration, design, and production. Suggestions may be addressed to the Citizens' Stamp Advisory Committee, c/o Stamp Development, U.S. Postal Service, 1735 North Lynn St., Suite 5013, Arlington, VA 22209-6432. In order to encourage stamp collecting, USPS maintains philatelic centers in more than 300 population centers in the United States and in 7 foreign countries. While it is feasible to track the gross revenues USPS gets from the sale of commemorative issues, determining how many stamps are saved (i.e., not used for postage) is difficult. This is because commemorative sales and usage are interchangeable with, and not counted separately from, other stamps and other forms of postage. In an attempt to gain some knowledge of the contribution its commemorative program makes to its bottom line, USPS has tried a number of approaches to measure the retention rate for commemorative stamps. Before 1989, clerks collected "intent to retain" data from customers on six to eight issues per year, and projected retention revenues from the responses. In the following years, USPS launched quarterly surveys of a representative sample of approximately 60,000 households, asking them to report the stamps they bought and those they intended to retain. This was an expensive approach, however, in part because 84% of the households reported that they retained no stamps and thus analysts could learn little from them about relative appeal of various types of issues. In 1999, USPS launched what it termed a more cost-effective design using 10,250 quarterly surveys, 61% of which were to go to households pre-screened (by a market research company) to be "stamp retaining households." The resulting revenue estimates are still inexact and, because of frequent methodological changes, cannot be directly compared. However, there seems to be ample evidence that the commemorative postage stamp program provides net revenues measured in the hundreds of millions of dollars for USPS. According to USPS estimates, retention revenues have been as follows: The stamps most kept by consumers are as follows: | More than 1,800 commemorative stamps have been issued since the first in 1893. In recent years they have been marketed to attract non-collectors and children. In 2007, the U.S. Postal Service (USPS) will issue 99 different commemorative stamps. In considering subjects for commemorative stamps, the USPS Citizens' Stamp Advisory Committee, guided by 12 basic criteria, reviews and appraises the approximately 50,000 proposals submitted for commemoration each year. The postmaster general (PMG) has the exclusive and final authority to determine both subject matter and design. A number of resolutions are introduced in Congress each year urging that consideration be given to a particular subject for commemoration, but few are passed, and the advisory committee accords them no special status. The commemorative stamp program contributed an estimated $225.9 million in retained revenues for the USPS in 2005. |
A stable, democratic, prosperous Pakistan actively working to counter Islamist militancy is considered vital to U.S. interests. The history of democracy in Pakistan is a troubled one marked by ongoing tripartite power struggles among presidents, prime ministers, and army chiefs. Military regimes have ruled Pakistan directly for 34 of the country's 60 years in existence, and most observers agree that Pakistan has no sustained history of effective constitutionalism or parliamentary democracy. The country has had five constitutions, the most recent being ratified in 1973 (and significantly modified several times since). From the earliest days of independence, the country's armed forces have thought of themselves as "saviors of the nation," a perception that has received significant, though limited, public support. The military, usually acting in tandem with the president, has engaged in three outright seizures of power from civilian-led governments: by Gen. Ayub Khan in 1958, Gen. Zia-ul-Haq in 1977, and Gen. Pervez Musharraf in 1999. After 1970, five successive governments were voted into power, but not a single time was a government voted out of power—all five were removed by the army through explicit or implicit presidential orders. Of Pakistan's three most prominent Prime Ministers, one (Zulfikar Ali Bhutto) was executed, another (Benazir Bhutto) exiled (then later assassinated), and her husband jailed for eight years without conviction, and the last (Nawaz Sharif) suffered seven years in exile under threat of life in prison for similar abuses before his 2007 return. Such long-standing turmoil in the governance system may partially explain why, in a 2004 public opinion survey, nearly two-thirds of Pakistanis were unable to provide a meaning for the term "democracy." The year 2007 saw Pakistan buffeted by numerous and serious political crises culminating in the December 27 assassination of former Prime Minister and leading opposition figure Benazir Bhutto, who had returned to Pakistan from self-imposed exile in October. Bhutto's killing in an apparent gun and bomb attack (the circumstances remain controversial) has been called a national tragedy for Pakistan and did immense damage to already troubled efforts to democratize the country. Pakistan's security situation has deteriorated sharply: the federal government faces armed rebellions in two of the country's four provinces, as well as in the Federally Administered Tribal Areas (FATA). The country experienced about 44 suicide bomb attacks in the latter half of 2007 that killed more than 700 people. The country is scheduled to hold parliamentary elections in February 2008. Pakistan now suffers from considerable political uncertainty as the tenuous governance structure put in place by President Musharraf has come under strain. Musharraf himself was reelected to a second five-year presidential term in a controversial October 2007 vote by the country's electoral college and, under mounting domestic and international pressure, he finally resigned his military commission six weeks later. Yet popular opposition to military rule had been growing steadily with a series of political crises in 2007: a bungled attempt by Musharraf to dismiss the country's Chief Justice; Supreme Court rulings that damaged Musharraf's standing and credibility; constitutional questions about the legality of Musharraf's status as president; a return to Pakistan's political stage by two former Prime Ministers with considerable public support; and the pressures of impending parliamentary elections now set for February 18, 2008. The catastrophic removal of Benazir Bhutto from Pakistan's political equation dealt a serious blow both to the cause of Pakistani democratization and to U.S. interests. On November 3, 2007, President Musharraf had launched a "second coup" by suspending the country's constitution and assuming emergency powers in his role as both president and army chief. The move came as security circumstances deteriorated sharply across the country, but was widely viewed as being an effort by Musharraf to maintain his own power. His government dismissed uncooperative Supreme Court justices, including the Chief Justice, and jailed thousands of opposition figures and lawyers who opposed the abrogation of rule of law. It also cracked down on independent media outlets, many of which temporarily were shut down. The emergency order was lifted on December 15, but independent analysts find little evidence that the order's lifting has led to meaningful change, given what they see as repressive media curbs and a stacked judiciary. On the day before his action, Musharraf issued several decrees and made amendments to the Pakistani Constitution, some of which would ensure that his actions under emergency rule would not be challenged by any court. Pakistan's National Assembly ended its five-year term on November 15, 2007. Musharraf ally and recent Chairman of the Senate, Mohammadmian Soomro, was appointed to serve as caretaker Prime Minister during the election period. Many analysts view the caretaker cabinet as being stacked with partisan Musharraf supporters and so further damaging to hopes for credible elections. There have been numerous reports of government efforts to "pre-rig" the election. Pakistan's Chief Election Commissioner initially announced that polls would be held on January 8, 2007. About 13,500 candidates subsequently filed papers to vie for Pakistan's 272 elected National Assembly seats and 577 provincial assembly constituencies. The full National Assembly has 342 seats, with 60 reserved for women and another 10 reserved for non-Muslims. Amendments to the Pakistan Constitution and impeachment of the president require a two-thirds majority for passage. Opposition parties have been placed in the difficult position of choosing whether to participate in elections that may well be manipulated by the incumbent government or to boycott the process in protest. Following Bhutto's assassination and ensuing civil strife, the Election Commission chose to delay polls until February 18. The decision was criticized by the main opposition parties, which accuse the government of fearing a major loss, but which have chosen to participate. As Musharraf's political clout has waned, the ruling, Musharraf-allied PML-Q party faces more daunting odds in convincing a skeptical electorate that it deserves another five years in power. What follows is a review of the five leading political parties/coalitions (which accounted for 85% of the National Assembly seats won in the 2002 election) and some of their most important figures. The Muslim League is Pakistan's oldest political party and was the only major party existing at the time of independence. Long associated with the Quaid-e-Azam (Father of the Nation) Mohammed Ali Jinnah and his lieutenant, Liaquat Ali Khan (the country's first Prime Minister), the League was weakened upon their premature deaths in 1948 and 1951 (Jinnah by natural causes, Khan by assassination). With its primary goal (the creation of a homeland for the Muslims of British India) accomplished, the party struggled to find a coherent ideology. The Pakistan Muslim League (PML) was established in 1964 as a successor to the Muslim League. It was not until the 1988 elections that the PML—in coalition with Islamist parties—was again a major player on the national scene. Nawaz Sharif's faction of the PML was formed in 1993. The PML-N's electoral strength typically is found in the densely populated Punjab province and includes the cities of Lahore, Faisalabad, Rawalpindi, and Multan. The party's current election manifesto stresses its demands for "revival of genuine democracy" through a sovereign parliament, an independent judiciary, and a free and fair electoral process. Party leaders have been consistent and explicit in their criticisms of President Musharraf, calling him a "one-man calamity" who has single-handedly brought ruin to Pakistan through efforts to retain personal power. They call for restored democracy and urge the U.S. government to support the Pakistani nation rather than a single individual. Nawaz Sharif, who had been Gen. Zia's finance minister in the 1980s, led a PML-Islamist coalition to a strong second-place showing in 1988 elections and became Punjab chief minister. The scion of a wealthy Lahore industrialist family, Sharif was elected Prime Minister in 1990. Three years later, he established the offshoot PML-Nawaz (PML-N), which went on to dominate the 1997 national elections. While in office, Sharif moved to bolster the power of the Prime Minister's office. Sharif was later ousted in a bloodless coup led by his army chief, Gen. Musharraf, in 1999. He and most of his immediate family lived in exile in Saudi Arabia following his conviction on criminal charges and a brief stay in prison related to his actions on the day of the coup. His family's legal status remained unclear, but reports indicated that, after the 1999 coup, the Sharif family and the Musharraf government, in collusion with the Saudi government, concluded an "arrangement" that would bar any family member from returning to Pakistan for a period of ten years. Sharif is constitutionally barred from serving a third term as Prime Minister. His electoral plans met a major obstacle when, in December 2007, his nomination papers were rejected, making him ineligible to compete in the elections because of criminal convictions related to his 1999 ouster from power. Because he has refused to engage in any negotiations with the Musharraf government, Sharif has been able to seize a mantle as an opposition "purist," and he wields considerable political influence in the populous Punjab province. With Bhutto's demise, Sharif has stepped up as the most visible opposition figure with national credentials. A conservative with long-held ties to Pakistan's Islamist political parties, Sharif is a bitter enemy of Musharraf and is viewed with considerable wariness by many in Washington, where there are concerns that a resurgence of his party to national power could bring a diminishment of Pakistan's anti-extremism policies and be contrary to U.S. interests. Shahbaz Sharif is Nawaz's younger brother and president of the PML-N. A former Punjab Chief Minister and political heavyweight in his own right, Shahbaz also saw his election nomination papers rejected in late 2007, apparently due to pending criminal charges against him. In 2008, Shahbaz is reported to be in consultation with interlocutors from the Musharraf government, causing some observers to suggest that, despite Nawaz's sharp anti-Musharraf rhetoric, the PML-N may be amenable to power-sharing in a potential "national unity government." In the lead up to the 2002 national elections, most former (but still influential) politicians loyal to Nawaz Sharif joined the new PML-Quaid-e-Azam (PML-Q), a centrist-conservative group seen to enjoy overt support from the military. The PML-Q—also called the "king's party" due to its perceived pro-military bent—won 118 of the total 342 parliamentary seats in the flawed 2002 election, almost all of them from Punjab. This gave the pro-Musharraf parties a plurality in the National Assembly, but fell well short of the majority representation needed to control the body outright. Today the party claims be promoting "the vision of Pakistan's founding fathers," Jinnah and Mohammad Iqbal, a renowned poet whose early 20 th century Islamist writings inspired the Pakistan movement. This vision is to include democracy and respect for diversity, along with opposition to terrorism "in all its forms." Yet, while in power, the party came under fire for presenting or preserving legal and legislative obstacles to what Western countries might consider to be important human rights protections, such as those for women and religious minorities. Notable leaders are the "Chaudhrys of Gujrat," cousins from the southern Punjabi city who had been bitter political enemies of Benazir Bhutto and the PPP. In 2004, five PML factions united and named Punjabi politician and industrialist Chaudhry Shujaat Hussein as their leader. Shujaat entered politics in 1981 and has been elected to Parliament five times since, including service as Nawaz Sharif's Interior Minister from 1990-1993. As president of the PML-Q, Shujaat has been a key political ally of President Musharraf. For two months in 2004, he served as a transitional Prime Minister when Musharraf "shuffled" Prime Ministers to seat his longtime finance minister, Shaukat Aziz. Shujaat's father, also a politician, was assassinated in 1981 by a terrorist group allegedly run by Benazir Bhutto's brother, Murtaza. Chaudhry Pervez Elahi is the cousin and brother-in-law of Shujaat Hussein who served as Chief Minister of Punjab from 2002-2007. He is widely regarded as the PML-Q's prime ministerial candidate in 2008. His political vision is based upon a "relentless pursuit of modernization, innovation, confidence, and tolerance." Elahi was among four Pakistani government officials believed named by Benazir Bhutto as posing a potential threat to her life. The left-leaning Pakistan People's Party (PPP) was established in 1967 in reaction to the military dictatorship of Gen. Khan. The party slogan was and remains "Islam is our Faith, Democracy is our Polity, Socialism is our Economy." Under the leadership of Z.A. Bhutto, who had resigned his post as Khan's foreign minister, the PPP won a majority of West Pakistan's assembly seats in 1970 elections and held power from 1971 until 1977, when Bhutto's government was overthrown by his Army Chief, Gen. Zia. Bhutto, who oversaw the establishment of a parliamentary system with the 1973 Constitution and who launched Pakistan's nuclear weapons program, was executed by the military government in 1979. When Gen. Zia's ban on political parties was lifted in 1986, Bhutto's daughter, Benazir, emerged as the new PPP leader and won the Prime Ministership in 1988 and again in 1993. Following Musharraf's coup, she spent eight years in self-imposed exile in London and Dubai under threat of imprisonment should she return. In an effort to skirt legal barriers to its electoral participation in 2002 national elections, the PPP formed a separate entity, the PPP Parliamentarians (PPPP), that pledged to uphold Bhutto's political philosophy. Benazir Bhutto was assassinated in December 2007, just two months after her return to Pakistan. In the view of the longtime leader of the PPP, the ruling, Musharraf-allied PML-Q party saw its fortunes rapidly declining and could expect to lose badly in any free election. Thus, she asserted, its leaders chose to collude with allies in the intelligence agencies to have the polls postponed (she called Musharraf's electoral plans "a farce"). The PPP historically has done especially well in the southern Sindh province, including in the cities of Karachi and Hyderabad. President Musharraf and Bhutto in 2007 had negotiations on a power-sharing arrangement that could have facilitated Musharraf's continued national political role while allowing Bhutto to return to Pakistan from self-imposed exile, potentially to serve as prime minister for a third time. The Bush Administration encouraged such an arrangement as the best means of both sustaining Musharraf's role and of strengthening moderate political forces in Islamabad. Some analysts took a cynical view of Bhutto's motives in the negotiations, believing her central goal was personal power and removal of standing corruption cases against her. Bhutto insisted that she engaged Musharraf so as to facilitate "an effective and peaceful transition to democracy." When asked whether the United States still favored a Musharraf-Bhutto power-sharing agreement in the wake of the emergency decree and deteriorating relations between the president and former prime minister, U.S. officials only reiterated a belief that Pakistan's moderate forces should work together to bring constitutional, democratic rule. Yet reports continued to suggest that Washington was pushing for such an accommodation even after Bhutto's apparently full post-emergency embrace of the opposition and perhaps even after her assassination. In 2004, Asif Zardari—then husband of Benazir Bhutto and a political figure in his own right who had been imprisoned for eight years without conviction—was released on bail after a Supreme Court ruling. Zardari, who continued to face legal action in eight pending criminal cases, later received permission to leave the country to join his wife. He previously had served in the National Assembly and as Environment Minister in his wife's cabinet. As per Bhutto's will, and in perpetuation of South Asia's dynastic politics, in the wake of her assassination the PPP named her young son, Bilawal, and Zardari to succeed her as party leaders. Until Bilawal completes studies at Oxford, Zardari is to run the party. Zardari is a controversial figure in Pakistan: he has gained a reputation for corruption and other charges, including complicity in murder. His rise to leadership of Pakistan's largest opposition party could present difficulties for U.S. policy makers who had quietly urged President Musharraf to reach a power-sharing accommodation with the PPP under Benazir. Zardari (along with Sharif) had demanded that elections be held as originally scheduled on January 8, 2008. His calculation likely was rooted in expectations of a significant sympathy vote for the PPP. Zardari has been adamant in his demands for a United Nations investigation into his wife's murder. Some reports in 2008 suggest he may be open to joining a "national unity government" that could include the Musharraf-allied PML-Q. Zardari may be in negotiation with Musharraf's interlocutors as part of this potential development. The PPP Parliamentarians was headed by Amin Fahim, who served as Benazir Bhutto's deputy and party leader in Parliament during her absence from Pakistan. Fahim, who comes from a feudal Sindh background similar to that of Bhutto, led the party competently in her absence, but does not possess national standing and support anything close to that enjoyed by Bhutto herself. Aitzaz Ahsan, elected president of the Supreme Court Bar Association in 2007, was the lawyer who lead the successful effort to have former Chief Justice Iftikhar Chaudhry reseated in July. He has since been at the forefront of an effort to have the Supreme Court reconstituted by Musharraf restored to its pre-November status. His stand has made him a heroic figure in the eyes of many pro-democracy, pro-rule of law Pakistanis, many lawyers among them. Ahsan even accused the U.S. government of not seeming to care about Musharraf's crackdown on the Supreme Court and making no mention of the issue in various agency briefings. Ahsan was arrested upon the launch of the November emergency; 33 U.S. Senators later signed a letter to President Musharraf urging his immediate release. Following Bhutto's assassination, some reports named Ahsan as a potential successor, but it is generally believed that he will for the time being remain loyal to the current PPP leadership and may even take a senior party post in the future. The Muttahida Majlis-e-Amal (MMA or United Action Forum) is a loose coalition of six Islamist parties formed for the 2002 elections. Its largest constituent is the Jamaat-i-Islami (JI), founded by Maulana Maududi in 1941 and considered to be Pakistan's best-organized religious party. Another major, long-standing Islamist party is the Jamiat Ulema-i-Islam (JUI). The JUI is associated with religious schools (madrassas) that gave rise to the Afghan Taliban movement. Pakistan's Islamist parties are conservative advocates of a central role for Islam and sharia (Islamic law) in national governance. They also oppose Westernization in its socioeconomic and cultural forms. Although Pakistan's religious parties enjoy considerable "street" power and were strengthened by Gen. Zia's policies of the 1980s, their electoral showing has in the past been quite limited (they won only two parliamentary seats in the 1993 and 1997 elections, and gained about 11% of the total vote in 2002, their best national showing ever). The MMA spent the period 2002-2007 as the "dummy opposition" in Islamabad—nominally opposed to the Musharraf government at the center, but allowing for Musharraf's controversial constitutional changes in 2003 and enjoying provincial power in Pakistan's two western provinces (including in outright majority in the North West Frontier and in coalition with the nationally ruling PML-Q in Baluchistan). This allowed for what many observers called an intentional marginalization of Pakistan's non-Islamist opposition parties. In 2007, the MMA became weakened by the increasingly divergent approaches taken by its two main figures, JI chief Qazi Hussain Ahmed, a vehement critic of the military-led government, and JUI chief Fazl-ur-Rehman, who largely has accommodated the Musharraf regime. With its two major constituents holding directly opposing views on the wisdom of participating in upcoming elections, the MMA all but formally split, diminishing its prospects for holding power in Pakistan's two western provinces. Still, the JUI may find itself coveted by parties eager for parliamentary allies and its leadership may play a key role in determining the composition of both national and western provincial governments. The Jamiat Ulema-i-Islam faction headed by Fazl-ur-Rehman is an ideological party that seeks to impose Islamic law in Pakistan through peaceful, democratic means. Its Deobandi roots bring fairly rigid interpretations of Islam and the JUI oversees thousands of religious schools in western Pakistan. Its membership tends to strongly support the Taliban movement in both Afghanistan and Pakistan. Two U.S.-designated Foreign Terrorist Organizations, Harakat ul-Mujahideen and Jaish-e-Mohammed, are believed to have links with the JUI. Rehman, a native of the North West Frontier Province, served as Leader of the Opposition in the Pakistani Senate from 2004 to 2007. He previously had served three terms in the National Assembly, at one time as Chairman of the body's Foreign Affairs Committee under Prime Minister Benazir Bhutto. Despite his Islamist ideology, Rehman is widely considered to be a political pragmatist. The JUI's electoral strength is mainly found in Pakistan's two western provinces, including in the cities of Peshawar and Quetta. The Jamaat-i-Islami is another ideological party that seeks to impose Islamic law in Pakistan through peaceful, democratic means. It is largely comprised of urban, middle-class citizens across Pakistan. JI chief Qazi Hussein Ahmed, also a native of the North West Frontier Province, has served as MMA president since the coalition's 2002 formation. He is an adamant and vocal opponent of the Musharraf government who has in the past been active in such political causes the Pakistan-supported "jihad" in Indian Kashmir (the Hizbul Mujahideen, which appears on the U.S. State Department's list of "other groups of concern," is the militant wing of the JI). "The Qazi," as he is often known, served in the Pakistani Senate from 1986 to 1996, when he resigned in protest of a "corrupt system." The JI leader is considered to be uncompromising in his views and so often unamenable to political compromise. The Muttahida Quami Movement (MQM) is a Sindhi regional party mainly composed of the descendants of pre-partition, Urdu-speaking immigrants (Muhajirs) from what is now India. Its roots are found in a 1980s student movement launched to protect the rights of Muhajirs who perceived themselves to be victims of discrimination and repression following independence. The party has long faced accusations of using terrorist tactics. Although it did well in Sindh's provincial elections, the MQM collected only a small percentage of the national vote in 2002 (winning 17 national seats). Yet the party is notable for its firm grip on political power in Karachi, Pakistan's largest city and primary business hub. The current party manifesto stresses a need for provincial autonomy and cultural pluralism in Pakistan, and calls for an abolition of the feudal economic system still prevalent in Sindh. As a key parliamentary ally of the Musharraf-friendly PML-Q, the MQM appeared to take sides in a showdown between supporters and opponents of ousted Chief Justice Chaudhry, who tried to visit Karachi in May 2007. Its cadres were involved in Karachi street battles with opposition activists that left at least 40 people dead on May 12, most of them PPP members. Reports had local police and security forces standing by without intervening while the MQM attacked anti-Musharraf protesters, leading many observers to charge the government with complicity in the bloody rioting. MQM leaders denied that party activists had been involved in malicious acts. MQM chief Altaf Hussein has led the party from exile in London since 1992, when he fled Karachi ahead of military operations against the MQM. He has been accused of involvement in several violent plots, including the kidnaping of an army major, but was never convicted. Hussein was an early and vocal sympathizer with the United States following September 2001 terrorist attacks there. | A stable, democratic, prosperous Pakistan actively working to counter Islamist militancy is considered vital to U.S. interests. Pakistan is a key ally in U.S.-led counterterrorism efforts. The history of democracy in Pakistan is a troubled one marked by ongoing tripartite power struggles among presidents, prime ministers, and army chiefs. Military regimes have ruled Pakistan directly for 34 of the country's 60 years in existence, and most observers agree that Pakistan has no sustained history of effective constitutionalism or parliamentary democracy. The United States has supported the government of President Pervez Musharraf, whose credibility and popularity have decreased markedly in 2007. The country is scheduled to hold parliamentary elections in February 2008. In 1999, the elected government of then-Prime Minister Nawaz Sharif was ousted in a bloodless coup led by then-Army Chief Gen. Musharraf, who later assumed the title of president (in October 2007, Pakistan's Electoral College reelected Musharraf in a controversial vote). Supreme Court-ordered parlilamentary elections—identified as flawed by opposition parties and international observers—seated a new civilian government in 2002, but it remained weak, and Musharraf retained the position as army chief until his November 2007 retirement from that post. The United States urges restoration of full civilian rule in Islamabad, expecting the planned February 18, 2008, polls to be free, fair, and transparent. Such expectations became sharper after Musharraf's November 2007 suspension of the Constitution and imposition of emergency rule (nominally lifted six weeks later) and the December 2007 assassination of former Prime Minister and leading opposition figure Benazir Bhutto. Current political circumstances in Pakistan are extremely fluid, and the country's internal security and stability are under serious threat. Many observers urge a broad re-evaluation of U.S. policies toward Pakistan. This report provides an overview of Pakistan's political setting and current status, along with a discussion of the country's major political parties and figures. See also CRS Report RL33498, Pakistan-U.S. Relations, and CRS Report RL34240, Pakistan's Political Crises. This report will not be updated. |
Figure 1. Map of Haiti Source: Map Resources. Adapted by CRS. Haiti shares the island of Hispaniola with the Dominican Republic; Haiti occupies the western third of the island. Since the fall of the Duvalier dictatorship in 1986, Haiti has struggled to overcome its centuries-long legacy of authoritarianism, extreme poverty, and underdevelopment. While significant progress has been made in improving governance, democratic institutions remain weak. Poverty remains massive and deep, and economic disparity is wide. In proximity to the United States, and with such a chronically unstable political environment and fragile economy, Haiti has been a constant policy issue for the United States. The U.S. Congress views the stability of the nation with great concern and has evidenced a commitment to improving conditions there. Haiti has been struggling to build and strengthen democratic institutions for 25 years, ever since massive popular protests and international pressure forced dictator Jean-Claude Duvalier to abandon his rule and flee the country in 1986. Known as "Baby Doc," Duvalier came to power in 1971, succeeding his father, Francois "Papa Doc" Duvalier, who had ruled since 1957. Their 29-year dictatorship was marked by repression and corruption. Hoping to reverse almost 200 years of mostly violent and authoritarian rule, Haitians overwhelmingly approved a new constitution creating a democratic government in 1987. De facto military rule, coups, and thwarted attempts at democratic elections continued until a provisional civilian government conducted what were widely heralded as Haiti's first free and fair elections in 1990, in which Jean-Bertrand Aristide, a former Catholic priest, was elected president. In 1991, the Haitian military overthrew Aristide in a coup, just eight months after he was inaugurated. Aristide went into exile in the United States. Three years later, under the threat of a U.S. military intervention, the military finally bowed to international pressure and allowed Aristide to finish his term. Aristide returned to Haiti in 1994 under the protection of some 20,000 U.S. troops, who transferred responsibility to a United Nations mission in 1995. With U.S. assistance, President Aristide disbanded the army and began to train a professional civilian police force. In 1996 Haitians saw their first transfer of power between two democratically elected presidents in Haitian history when Aristide was succeeded by René Préval. Five years later, in 2001, Aristide was reelected, and there was another peaceful transfer of power. Political conflict embroiled Aristide and the opposition, however, and led to the collapse of his government in 2004, and Aristide again went into exile, eventually ending up in South Africa. An interim government followed, from 2004 to 2006. Charges of corruption against Aristide, dissolution of the parliament by Préval in his first term, questions regarding the interim government's legitimacy, and flawed elections under all of them contributed to their inability to establish a fully accepted or functioning government. Nonetheless, with the support of the United Nations Stabilization Mission for Haiti (MINUSTAH)—which arrived in Haiti in 2004—and other donors, security conditions improved, reform of the country's police force began, and elections were held in 2006. As a result of those elections the Parliament, which had not been fully functional since the collapse of the Aristide government in 2004, was reestablished, and René Préval began his second five-year term as president of Haiti. During his first three years in office, Préval established relative internal political stability and oversaw a period of economic growth. In 2007, the Préval Administration published its Poverty Reduction Strategy, a key step in meeting International Monetary Fund (IMF) requirements for debt relief. International donors pledged more than $1.5 billion in economic assistance to Haiti. In the long term, democratization in Haiti has contributed to the slow strengthening of government capacity and transparency. From 2004 to 2009, Haiti made what the IMF and others called "remarkable progress" toward political stability and economic stabilization. With much international support, the government conducted democratic presidential and parliamentary elections and enacted wide-ranging reforms, especially in economic governance. Elected governments have developed long-term development plans resulting in international technical and financial assistance. They have developed national budgets and made them public. The number of employees in bloated state enterprises has been reduced. The government carried out the fiscal management and transparency reforms necessary to qualify for debt relief from multilateral and some bilateral creditors under the Enhanced Heavily Indebted Poor Countries Initiative in 2009. Human rights violations have been drastically reduced. Although crime and violence continued to undermine Haitian development, security improved significantly enough during this period that the United Nations Stabilization Mission in Haiti (MINUSTAH) was shifting the focus of its biggest contingent from security to development. Haiti's fragile stability has been repeatedly shaken, however, if not by political problems, then by climatic ones. During this same period of relative stability, a worsening food crisis led to violent protests and the removal of Haiti's prime minister in 2008. U.N. officials said political opponents and armed gangs infiltrated the protests and fired at U.N. peacekeepers in an effort to weaken the government. Without a prime minister, Haiti could not sign certain agreements with foreign donors or implement programs to address the crisis for over four months. There were some 19 political parties in the legislature competing for influence and positioning themselves for legislative and presidential elections, further complicating governability. And then a devastating earthquake struck the nation in January 2010, ravaging the Haitian capital of Port-au-Prince and surrounding areas. Political stability was especially uncertain after the disaster, due to the loss of many political figures and government officials and massive damage to government infrastructure. Some 17% of the country's civil service employees were killed, and the presidential palace, the parliament building, and 28 of 29 ministry buildings were destroyed. Along with the buildings, government records were destroyed; reestablishing and expanding transparency in government spending has been particularly challenging. After yet another controversial election cycle, Peasant Response party candidate Michel Martelly, one of Haiti's most popular entertainers, was sworn into office as Haiti's new president on May 14, 2011, for a five-year term. When outgoing President René Préval, of the Unity party, gave him the presidential sash it was the first time in Haitian history that a peaceful, democratic transfer of power occurred between presidents of opposing parties. Much of his term to date has been characterized by gridlock between the executive and legislative branches. There is still much to be accomplished in the democratization of Haiti. Some parts of the government are not fully independent, the judicial system is weak, and corruption and political violence still threaten the nation's stability. Haitian governance capacities, already limited, were considerably diminished by the earthquake. President Martelly said that "all problems we are facing today result from the weakness of our institutions," and called on the international community to keep helping Haiti strengthen its institutions. Much of the Haitian public perceives progress in reconstruction and distribution of over $9 billion in pledged international assistance as much too slow, adding to mounting public frustration with international donors and the government. The government's failure to hold elections that are several years overdue is contributing to unrest and public calls for Martelly's resignation. The president, senators, and deputies are elected to serve five-year terms. The constitution limits presidents to two nonconsecutive terms. There are no term limits for the legislature, although turnover for its members has been high. The first round of both the presidential and legislative elections took place on November 28, 2010. According to the Haitian constitution, if no candidate receives an absolute majority of the vote, a runoff vote between the top two candidates is held for presidential and Chamber of Deputies seats. For Senate seats, candidates who lack an absolute majority but have at least 20% more votes than the next candidate are declared the winner. President Préval was completing his second nonconsecutive term, the maximum allowed by the Haitian constitution. Nineteen candidates vied to succeed him in the first round. Like most previous elections in Haiti, this one centered more on personalities than on parties or issues. A group of Haitian journalists, the Public Policy Intervention Group, with the support of the National Democratic Institute and the Commission on Presidential Debates, tried to encourage more substantive discussions among the presidential candidates by holding a series of debates that were broadcast nationwide. All 19 presidential candidates participated. The first round produced contested results involving the governing party's candidate, and politically motivated violence. After the Haitian government accepted the recommendations of international observers, the dispute was resolved and the vote went to a second round between Mirlande Manigat, a professor of constitutional law and former first lady, and Michel Martelly. Martelly, a famous Haitian kompa dance musician known for his bawdy performances, and called "Sweet Micky," was popular with young voters. Martelly, also a businessman, had personal financial issues. He defaulted on over $1 million in loans and had three properties in Florida go into foreclosure, raising questions about his financial management skills. Although Martelly won 68% of the votes cast in the March 20, 2011, elections, turnout was low, so those votes constituted the support of only 15% of all registered voters. Martelly, age 50, was inaugurated on May 14, 2011, for a five-year term ending in 2016. The legislative offices up for election included the entire 99-member Chamber of Deputies, and 11 of 30 Senate seats. The results of the second round of voting for legislative seats were contentious. Charges of fraud led to violent demonstrations across the country resulting in the deaths of at least two people, including the director of a hospital that was set on fire. The legislature sworn in on April 25, 2011, was incomplete: at that time the results in 19 districts had been challenged. International observers reported that the final results released by the provisional electoral council (CEP) for those districts had been changed to favor candidates associated with then-President Préval's Inité (Unity) coalition, and demanded that all 19 results be annulled. The CEP reviewed the cases and endorsed 15 of the 19 original results; the government published the official results; and those 15 legislators were able to take their seats. It appears that the four remaining disputed seats in the chamber of deputies will be voted on in the next elections. The Inité coalition captured a majority in both houses of the legislature, so President Martelly had to negotiate with them to get his proposals passed. The new legislature began to work before Martelly was sworn in, including adopting constitutional reforms that had been passed under the previous legislature, in hopes of getting them to take effect quickly. Constitutional amendments passed by two consecutive legislatures go into effect when the next president takes office. Controversy arose around the status of these amendments as well. The amendments were in a state of constitutional limbo for about a year. To become law, bills passed by the legislature must be published by the executive branch. The wording of the amendments sent to be published by the outgoing Préval Administration differed from that actually passed by the legislature, according to the State Department, so the amendments did not become law. In June 2011, Martelly stopped the altered version from being printed, and there was debate over whether the original version should be printed, or the process started anew. In June 2012, the Martelly Administration finally published the constitutional amendments that had been passed by two legislatures. These allowed Haitians with dual citizenship to vote and hold many government positions, including cabinet positions. This had been a sore point for Haitians in the diaspora who wanted to be able to vote, or return and serve in the government. Those with dual citizenship will still be prohibited from becoming president, prime minister, or members of either chamber of the legislature. Martelly said that leaders of the executive, legislative, and judicial branches had agreed to publish the corrected amendments, cooperation he described as a great step forward in Haiti's democratic process. The amendments also included a streamlined process for creating a permanent electoral council to replace the previous method of nine sectors of government civil society naming the CEP, as had been stipulated in the 1987 constitution. Under the reformed constitution, the three branches of government—executive, judicial, and legislative—each name three members of the CEP. Despite that new process, forming an electoral council has been fraught with disputes and is a key reason why Haiti has still not held long-overdue elections. An electoral council is the entity responsible for setting dates for and organizing new elections. President Martelly fired the members of the previous CEP in December 2011. He did not begin to form a new electoral council until June 2012, even though one-third of the Senate seats expired on May 8, 2012. Elections to replace those legislators should have taken place by January 2012 at the latest, according to Haitian law. Local elections for municipal councils, town delegates, and other posts were also long overdue. Because the Senate had only 20 members since May 2012, it was more difficult to meet the 16-member quorum needed to conduct business, including naming its representatives to the CEP and passing necessary electoral laws. The Inité party lost four senators and some of its clout in that chamber. President Martelly's Peasant Response party had no members in the Senate, and he lost about four allies there, which may explain in part why his administration had such difficulty dealing with the Senate. The government failed to meet the minister's pledge that the elections would be held by the end of 2012; instead the process became contentious, progressed in fits and starts, and contributed to political tensions. Thousands of Haitians took to the streets over the next couple of years to protest the failure to hold elections and to call for Martelly's resignation. Additional concern has been raised over the Martelly Administration's decision to replace most of the 120 mayors elected in 2006, whose terms have expired, with government appointees. According to the then-U.N. Independent Expert on the Situation of Human Rights in Haiti, Michel Forst, this decision "was met with bafflement and incomprehension on the part of the national and international communities." Tensions heightened as political deadlines loomed and elections were still not organized. In December 2014, Prime Minister Laurent Lamothe (a close ally of Martelly) resigned under pressure over the government's failure to resolve the electoral impasse between the executive and legislative branches. As Haiti entered 2015, the crisis escalated: street protests continued to grow, and the executive and legislative branches failed to reach a political compromise. The terms for another third of the Senate as well as the entire 99-seat Chamber of Deputies expired on January 12; the legislature was immediately dissolved, and President Martelly began ruling by decree. Under Haitian law, the president appoints and the legislature confirms the prime minister. In early 2015, Martelly swore in a new cabinet, including Evans Paul, a former mayor of Port-au-Prince, as his fifth prime minister, although the legislature declined to confirm Paul before it dissolved. The Haitian government subsequently took steps to address its ongoing crisis: it established a new Provisional Electoral Council (CEP)—the fifth iteration under Martelly—on January 23 and announced dates in March for local, legislative, and presidential elections in 2015. The new CEP finally set about scheduling elections for 2015. They faced a difficult process: electoral council personnel were largely inexperienced in elections work, and internal procedures had to be established. The races would also be complex: the CEP deemed 166 political parties and platforms qualified to participate and 1,857 candidates qualified to run for the 20 Senate seats and 118 Chamber of Deputies seats (the latter was recently expanded from 99 seats). Among the Senate candidates is Guy Philippe, leader of the 2004 coup overthrowing President Jean-Bertrand Aristide; Philippe is wanted in the United States under sealed indictment. About 70 candidates registered to run for president. (Martelly cannot run for reelection: the Haitian constitution limits presidents to two nonconsecutive terms.) The CEP rejected about 170 candidates. The CEP did not clear former Prime Minister Laurent Lamothe and six other former government ministers to run for president and did not list its reasons. According to Haitian law, the Senate must certify that candidates have not misused government funds before they can run for office. None of the rejected candidates had received the required "discharge." Lamothe said he requested a discharge but that Parliament was dissolved before it could issue one. He said that on May 20, 2015, a judge issued a ruling confirming that, without a functioning parliament, it is impossible to comply with the discharge requirement and that it should therefore be waived, and that his exclusion was politically motivated. According to another report, the superior court of auditors and administrative disputes alleged that irregularities had taken place under Lamothe's role as minister of planning (a post he held simultaneously with being prime minister); Lamothe contested the findings. First Lady Sophia Martelly was rejected as a Senate candidate, apparently on the basis of dual citizenship and for failing to get a discharge. Although she was not elected, she had handled public funds through a government program. President Martelly said that if his wife's rejection was politically motivated, it could discredit the process. Others saw the action as a sign of the CEP's independence. The protests and political tensions preceding the elections led to worries over security for the election cycle. Also fueling security concerns has been the United Nations' reduction in the number of international troops in the country. As of June 30, 2015, the United Nations Stabilization Mission in Haiti (MINUSTAH) had decreased its military troops from 5,021 to 2,338, leaving peacekeeping troops in only 4 of Haiti's 10 departments (slightly below the mandated level of 2,370). The Haitian government asked the U.N. Security Council to delay the plan until after elections were held, but the drawdown proceeded as scheduled. The Haitian National Police has primary responsibility for election security. First-round legislative elections . Haiti began to ease its long-term political crisis by holding the first round of legislative elections on August 9, 2015. Polling in some areas was marred by delays, disorder, low turnout—only 18% of voters cast ballots—and sporadic violence. Organization of American States (OAS) electoral observers found that such irregularities were not sufficient to invalidate the results as a whole. Nonetheless, violence and technical irregularities were severe enough that the CEP invalidated the vote in 13% of polling centers; these races were re-held in the ensuing October elections. Local observer organizations said the problems were more widespread, reporting fraud, irregularities, and violence in half of all voting centers. For the first time, according to the head of the United Nations Stabilization Mission in Haiti (MINUSTAH), Sandra Honoré, Haiti had penalized instigators of electoral violence. Electoral officials disqualified 14 candidates for engaging in or inciting violence during the elections. Some opposition parties and protesters expressed a lack of confidence in the CEP, citing election-day problems and inconsistent decisions on election outcomes. Verite, a major party backed by former President Rene Preval, said it was boycotting the October elections after the CEP barred its presidential candidate, despite reportedly admitting it had made an error. Nonetheless, the party won some congressional seats. A member of the CEP resigned in early October, expressing concerns about CEP's processes and the need for "inclusive and impartial elections." Runoff legislative , first - round presidential , and municipal elections . Despite those issues, the CEP managed runoff legislative elections for 18 of the 20 Senate seats and most of the 119 Chamber of Deputies seats and first-round presidential elections simultaneously with elections for 1,280 municipal administrations on October 25. There were 54 presidential candidates, most representing parties organized around personalities more than platforms. The OAS electoral observation mission called the October round a "significant improvement" over the August vote. The elections were relatively peaceful, and the voter turnout was higher, at about 26%. Various observers credited the Haitian National Police with improving security over the previous round. The relative calm of the election day has been followed by protests and disputes over the vote's validity. The CEP declared that Jovenel Moise, the candidate for Martelly's party (the Haitian Bald Head party, PHTK) and a political novice, and Jude Celestin, who lost to Martelly in 2011, would proceed to a runoff. Moise, a relatively unknown agricultural businessman who campaigned as "The Banana Man," garnered almost 33% of the vote, to Celestin's 25%. Celestin was the government's construction chief under the Préval administration. He was the government-backed candidate in the last presidential elections, and his campaign faced charges of fraud in those elections. Eight candidates calling themselves the G-8 alleged fraud, including by the government; rallied street protests; and called for an independent commission to conduct a recount. They did not file formal complaints of their charges, however. Among them is Celestin, who says he may not run in the runoff. As in August, some called for the cancellation of the elections and the formation of an interim government. Maryse Narcysse—who ran for Fanmi Lavalas, founded by former President Jean-Bertrand Aristide—placed fourth. She and another candidate—neither are part of the G-8—filed fraud complaints that were heard and resolved by the CEP, although Narcisse's lawyer reportedly found fault with the CEP process. Others have joined the call for an independent recount, including religious leaders and a coalition of U.S.-based diaspora groups. A local observation group published a report with long lists of irregularities, saying that there was a "vast operation of electoral fraud." The report stated that the majority of political parties were "clearly involved in the commission of violence and electoral fraud," and that the governing party was one of the most aggressive. It also said the CEP lacked transparency in its tabulation. Still others acknowledge that irregularities occurred, but say that the opposition has failed to present evidence that they constitute orchestrated fraud, and instead continue to demand remedies outside established procedures for electoral dispute resolution. One independent national observer group expressed concern that "a group of presidential candidates have refused to take the path of formal dispute and preferred to ... demand verification of the tabulation of votes by an Independent Commission." Haiti Special Coordinator Kenneth Merten has repeatedly urged candidates to use the appeals process to file complaints and evidence of fraud with the CEP. In December, allegations emerged that candidates paid CEP members bribes to secure places in runoffs. This further heightened tensions and demands that an independent commission be formed. Runoff presidential and local elections delayed . Just one week before they were to be held, the government postponed the runoff presidential elections scheduled for December 27. Under pressure to resolve the impasse with the opposition, President Martelly formed a five-member commission, sworn in on December 22. He said that because the commission is independent it can set the scope of its investigation, but that it only has a week to do so. The CEP says it will set a date after it receives the commission's recommendations. U.N. Secretary-General Ban Ki-Moon is urging that power be transferred through elections and within the constitutional time frame. According to the constitution, the newly elected legislators are to take office on January 11 and the new president on February 7, 2016. Elections for 1,280 local administrations were to be held simultaneously with the presidential runoff elections. About 38,000 candidates are participating in those races. Those are single-round political contests; a simple majority suffices to win. Now it is unclear whether the local races will still be held with the presidential runoff elections, whenever they take place, or be held separately. This would simplify the process but incur additional costs. Election funding . Experts estimated the cost to conduct three rounds of elections in Haiti to be $66 million. The U.N. Development Programme (UNDP) manages the "Basket Fund" of contributions from various donors. The Haitian government has allocated the largest portion of the funding, followed by the U.S. government. See Table 1 for the amounts pledged by international donors. Trinidad and Tobago became the first Caribbean country to make a contribution, in October. Mexico has said it would also provide a financial contribution. That the election process has been contentious is not surprising. As Haiti has been making its transition from a legacy of authoritarian rule to a democratic government, elections have usually been a source of increased political tensions and instability in the short term. It is important to note, however, that in the long term elected governments in Haiti have contributed to the gradual strengthening of government capacity and transparency. Still, in the present circumstances, the international community has expressed concern that continual delays have exacerbated political polarization and threatened stability. Also fueling concern about security during the election cycle has been the United Nations' reduction in the number of international troops it has in the country. As of June 30, 2015, the United Nations Stabilization Mission in Haiti (MINUSTAH) had decreased its military troops from 5,021 to 2,338, leaving peacekeeping troops in only 4 of Haiti's 10 departments (slightly below the mandated level of 2,370). The Haitian government asked the U.N. Security Council to delay the plan until after elections were held, but the drawdown proceeded as scheduled. The Haitian National Police had primary responsibility for election security. During most of Martelly's first year in office, Haiti was without a prime minister, which severely limited the government's ability to act and the international community's ability to move forward with reconstruction efforts. Martelly was not able to form a government for almost five months because of disputes with a parliament dominated by the opposition Inité coalition over his first two nominees for prime minister. Dr. Garry Conille, a senior U.N. development specialist and former aide to then-U.N. Special Envoy to Haiti Bill Clinton, was confirmed as prime minister on October 4, 2011. Conille lasted only four months in the position, after which he was reportedly pressured by President Martelly to resign in part because of disagreements over an investigation of $300 million-$500 million in post-earthquake contracts linked to Martelly and former Prime Minister Jean-Max Bellerive. Bellerive, now an adviser to Martelly, and also his cousin, said he was the victim of a smear campaign. Authorities in the Dominican Republic are also investigating corruption allegations linked to President Martelly. According to Dominican journalist Nuria Piera, a company owned by Dominican Senator Felix Bautista was awarded a $350 million contract for reconstruction work in Haiti, despite not meeting Haitian procurement requirements. Bautista allegedly gave over $2.5 million to President Martelly before and after he won the election. Martelly has denied the charges. After the first prime minister resigned, another three months went by before a new prime minister was confirmed. Laurent Lamothe, Martelly's foreign affairs minister and a former telecommunications executive, was named prime minister in May 2012. Parliament approved his cabinet and government plan soon thereafter. The cabinet included two new posts: one minister to address poverty and another to support farmers. Because Martelly and much of his team—reportedly mostly childhood friends—lack political or management experience, many observers are concerned about the president's ability to carry out his promises of free and compulsory education, job creation, agricultural development, and strengthened rule of law. That political inexperience may have contributed to the gridlock and animosity between Martelly's administration and the parliament that have characterized Haitian politics since he took office. His justice minister resigned after police violated the immunity legislators have and arrested a legislator who had allegedly escaped from jail. Legislators responded by blocking many of Martelly's legislative proposals, and opening an investigation into whether he held U.S. citizenship, which would make him ineligible for office. International donors, including the United States, have been working with the Haitian government at all levels to rebuild government infrastructure, support the development of transparency and accountability within government institutions, and broaden and strengthen the provision of public services. International assistance continues to professionalize and strengthen the Haitian National Police force and reform other elements of Haiti's weak judicial system. Donors also are training Haiti's public sector workforce so that it will eventually be able to coordinate and carry out development programs. In late 2011, the Haitian government adopted a "Roadmap for the Rule of Law," created with support from MINUSTAH, outlining short-, middle-, and long-term actions to develop and guarantee the rule of law in Haiti. Martelly began several other initiatives during his first year. He inaugurated a housing loan program and appointed advisers to an earthquake recovery panel. He launched a free education initiative being funded through taxes on phone calls and wired remittances from abroad. Critics express concern that the fund lacks transparency and a clear policy. In May 2012 the government launched a program in which it transfers cash credits of up to $20 a month to mothers who keep their children in school. The program initially was to benefit 100,000 families in four of Port-au-Prince's poorest neighborhoods, and then extend nation-wide by year's end. In May 2012 the president also launched two health initiatives in the government's Office of Workers' Compensation Insurance, Illness, and Maternity. He opened a new physiotherapy department, supported by the French Red Cross. He also announced a pilot program that will give about 500 workers, including 100 in the informal sector, free health insurance cards facilitating access to health care. Martelly stated that "we are fighting for all of Haiti to fully enjoy its right to health by the end of my term." President Martelly named three members to the Supreme Court, including its president. The latter post had been vacant for six years. According to the State Department, this is the first time in over 25 years that Haiti has those three branches of government in place. As mentioned above, Martelly, the legislature, and the court finally agreed on the nine new electoral council members needed to organize overdue elections in April 2013. The publication of the constitutional amendments was supposed to have made that process easier to accomplish. The amendments also created a high council to conduct administrative management of the judicial branch, and a constitutional court to resolve disputes between the executive branch and the parliament. The amendments also require that at least 30% of government posts be held by women. In July 2012 then Prime Minister Lamothe visited Washington, DC, meeting with then Secretary of State Hillary Clinton. Clinton noted that she had made Haiti "a foreign policy priority" when she came into office, and has been committed to "building the capacity of the Haitian government and the Haitian society so they can have the means and the experience and the expertise to solve their own problems." Lamothe said progress had been made toward that end, as Haiti was building its capacity to collect its own revenues through taxes and custom duties, among other programs. Lamothe said the Haitian government had made improving the fight against corruption its "number one priority," along with education and reducing extreme poverty. In his last report before resigning in March 2013, the U.N. human rights expert, Michel Forst, acknowledged progress made against corruption, but also expressed serious concerns. Forst praised the Haitian government's commitment to building police and judicial capacity for investigating transnational crimes, corruption, and political crimes, and the allocation of both human and financial resources to two anti-corruption units. He also said, however, that he was "struck by the corrosive effect that corruption has had on [Haiti's] judicial institutions …" and that "corruption remains rife at all levels." Some progress has been made on that front, however. By the end of 2013, the Martelly Administration had detained or indicted over 90 people, including government officials. The U.N. human rights expert also voiced concern over the politicization of the judiciary and the national police under the Martelly Administration, stating that "the practice of appointing or removing judges to advance partisan or political ends … continues unabated." U.N. Secretary General Ban Ki-Moon echoed that concern, adding that institutional politicization and frequent Cabinet changes hindered the efforts of MINUSTAH and other international donors to build capacity within those institutions. Human rights expert Forst also criticized the Martelly Administration for making arbitrary and illegal arrests and for threatening journalists. The international community increasingly pressed the Martelly Administration to end the political impasse that donors and other analysts believed was inhibiting development and threatening stability. The outgoing head of MINUSTAH said in February 2013 that, in addition to the government's failure to organize elections, its failure to address vast unemployment also needed to be addressed as soon as possible. "They have a work force of 4.2 million people and in formal jobs they have only 200,000," said Mariano Fernandez, adding that "this is a permanent source of instability." Throughout much of President Martelly's five-year term, Congress and the donor community have expressed concern about his commitment to the democratic process. Members on both sides of the aisle have expressed dismay that if the Haitian government does not soon hold elections already two years overdue, Martelly might rule by decree. At a House Foreign Affairs Committee (HFAC) hearing on Haiti on October 9, 2013, they added that the failure to hold legislative and municipal elections could affect U.S. assistance to Haiti. Martelly visited Washington in February 2014, meeting with President Obama, Secretary of State Kerry, and Members of Congress. Encouraging continuing progress towards elections appeared to be on the agenda of all of his meetings. Nine months later, elections are still not scheduled, and the international community continues to press for them. Before a meeting with Prime Minister Lamothe in Washington in October, Secretary of State John Kerry said, "the unwillingness to allow the people to be able to have this vote—really challenges the overall growth and development progress of the country. You need to have a fully functioning government." Some observers are concerned that, without the checks and balances of a legislature, corruption may expand unchecked. There have been investigations into corruption involving President Martelly, some of his advisers, and family members—including his wife, Sophia Martelly—along with reports that prosecutors who objected to interference from the executive branch in these cases were fired or fled the country. In April 2015 Woodly Etheart, an indicted head of a kidnapping ring with close ties to the president's family, was freed from prison. Etheart's trial lasted about two hours and was run by a judge who has previously been accused of bowing to the executive branch's wishes. Human rights activists and other critics say the hasty decision was a setback in the fight against organized crime. A potentially destabilizing factor over the last four years has been the reappearance on the scene of two of Haiti's most divisive leaders shortly before Martelly's election and the possibility of trials for both of them. Former dictator Jean-Claude "Baby Doc" Duvalier returned unexpectedly from 25 years in exile on January 16, 2011. Two days later, the Haitian government under President Préval formally charged him with corruption and embezzlement. Private citizens filed charges of human rights violations against Duvalier for abuses they allege they suffered under his 15-year regime. Duvalier died of a heart attack on October 4, 2014. The Office of the U.N. High Commissioner for Human Rights said that investigations into abuses committed during his regime by Duvalier associates must continue after Duvalier's death. After Duvalier's return, former President Jean-Bertrand Aristide, in exile since his government collapsed in the face of political conflict in 2001, then said that he would also like to return. He did so, with a Haitian government-issued passport, on March 18, 2011, two days before the second round elections. Reportedly greeted by thousands of supporters, Aristide did not directly support any candidate, and has kept a low profile since his arrival. President Préval, once an Aristide protégé, had long said Aristide was free to return, but that he should be prepared to face corruption and other charges as well. For details on the status of charges against both Aristide and Duvalier, see " Investigations of the Late Duvalier and Aristide for Human Rights Violations " below. The investigation into the murder of reporter Jean Dominique, in which Aristide associates were named as suspects, is also discussed there. It is a significant accomplishment that Haiti, long characterized by impunity for its leaders, has brought charges against its former dictator, and is questioning another former head of state. The judicial system is not considered independent, though, and various U.N. officials have criticized the Martelly Administration for interfering in the judicial system for political purposes. Trying Duvalier or, now, his associates, and/or Aristide could be a severe strain on Haiti's weak judicial system. Both Duvalier and Aristide were seen as highly polarizing figures able to stir up unrest. Aristide has said that his Lavalas party plans to participate in upcoming elections. President Martelly met privately with Aristide in September 2013, as one of a series of meetings with political party leaders. Before his death, Duvalier opened offices for his former political party and said that his party would field candidates as well. The United Nations Stabilization Mission in Haiti (MINUSTAH) has been in Haiti to help restore order for 10 years, since the collapse of former President Jean-Bertrand Aristide's government. Armed rebellion and diminished international support for Aristide led him to flee into exile in February 2004. An international force authorized by the U.N. arrived shortly after his departure, and was replaced by MINUSTAH in June 2004. MINUSTAH worked closely with the interim government from 2004 to 2006, when, after several delays, elections were held. The mission continued to work closely with the Préval Administration. Although some Haitians call for the removal of foreign troops, former President Préval supported the mission's presence, saying that he would "not adopt a falsely nationalist position," and that MINUSTAH should stay until Haiti is ready to assume responsibility for security. More recently, popular protests have called for MINUSTAH's removal because of allegations of its role in introducing cholera to the country, and sexual abuse by some of its forces. Although critical of some aspects of MINUSTAH, President Martelly nonetheless advocates extending MINUSTAH's term to help maintain stability and to assist in the reconstruction effort. He has called for its eventual replacement with a revived Haitian army. The U.N. Security Council and international donors call instead for a continued strengthening of the Haitian National Police. MINUSTAH's mandate includes three basic components: (1) to help create a secure and stable environment; (2) to support the political process by fostering effective democratic governance and institutional development, supporting government efforts to promote national dialogue and reconciliation and to organize elections; and (3) to support government and nongovernmental efforts to promote and protect human rights, as well as to monitor and report on the human rights situation. MINUSTAH has played a key role in emergency responses to natural disasters, including facilitating the delivery of emergency humanitarian assistance. As part of its work, the mission has also conducted campaigns to combat gangs and drug trafficking with the Haitian police. Reduction of MINUSTAH troops. MINUSTAH's current authorization runs through October 15, 2015. The mission's budget for this year (July 1, 2014-June 30, 2015) is about $500 million. The U.N. has been gradually reducing MINUSTAH's number of troops since 2012. In October 2014 the Security Council passed a resolution that will reduce military personnel by more than half, to a maximum of 2,370 military personnel. The Group of Friends of Haiti (Argentina, Brazil, Canada, Chile, Colombia, France, Guatemala, Peru, the United States, and Uruguay) expressed concern during the U.N.'s debate that reducing the size of the military contingent before elections are held could hinder MINUSTAH's ability to respond to a crisis and that decisions regarding withdrawing MINUSTAH should be based on conditions on the ground, not just budgetary factors. The European Union stated that while overall security had improved, the number of demonstrations accompanied by violence had doubled. In addition to emphasizing the importance of holding elections, speakers also stressed the role economic disparity plays in instability. The European Union stated that demonstrations with a socioeconomic angle had increased by 30%, and that "there continue to be grave social and economic inequalities that represent a real threat to Haiti's stability and security." The Group of Friends stated that: security, respect for human rights and the rule of law, and development are interdependent and reinforce stability. We therefore underscore the importance of systematically addressing the issues of unemployment, education and the delivery of basic social services, and of ensuring the economic and political empowerment of women. The Security Council agreed that it could change the force level at any time if warranted. The United States supports the drawdown of military forces. Haiti supported the resolution at the time, but has since asked the Security Council to delay the plan until after elections are held because of security concerns. When the 2014 resolution was passed, the Council said it would maintain U.N. police in Haiti at about the same level. However, figures show that the number of police is falling as well as the number of military officers. MINUSTAH had 2,449 police in December 2014 and 2,378 in June 2015; the resolution allows for up to 2,601 U.N. police officers. According to the State Department, the U.N. has promised to try to bring the police component to its authorized level before elections, but its deployment process is lengthy and no date has been given for doing so. MINUSTAH and c holera. MINUSTAH and the U.N. have been widely criticized for not responding strongly enough to an outbreak of cholera in October 2010, the first such outbreak in at least a century in Haiti. A team of researchers from France and Haiti conducted an investigation at the request of the Haitian government. They reported that their findings "strongly suggest that contamination of the Artibonite [River in Haiti] and 1[sic] of its tributaries downstream from a [MINUSTAH] military camp triggered the epidemic," noting that there was "an exact correlation in time and places between the arrival of a Nepalese battalion from an area experiencing a cholera outbreak and the appearance of the first cases in [the nearby town of] Meille a few days after." Other studies have come to the same conclusion. While the authors of the study caution that the findings are not definitive, they and others have suggested that "to avoid actual contamination or suspicion happening again, it will be important to rigorously ensure that the sewage of military camps is handled properly." The U.N. has been under increasing pressure to take full responsibility for introduction of the disease. Over 5,000 cholera victims or relatives of victims have filed legal claims against the U.N., demanding reparations, a public apology, and a nationwide response including "medical treatment for current and future victims, and clean water and sanitation infrastructure." The U.N. announced in early 2013, however, that it would not compensate cholera victims, claiming diplomatic immunity. The Boston-based Institute for Justice and Democracy in Haiti filed a class action suit against the U.N. on behalf of victims in a U.S. federal court in October 2013, seeking establishment by the U.N. of a standing claims commission to address claims for harm, and compensation for victims, including remediation of Haiti's waterways, provision of adequate sanitation, and "$2.2 billion that the Haitian government requires to eradicate cholera." In January 2015, a U.S. federal judge dismissed that class action suit, determining the U.N. to be immune because of treaties. Two other lawsuits by cholera victims are still pending in U.S. courts. Many Haitians' mistrust of the U.N. has manifested itself in protests and strained relations between MINUSTAH and the population for which it is there to help provide protection and stability. MINUSTAH and Charges of Sexual Abuse . Charges of sexual abuse by MINUSTAH personnel have also fueled anti-MINUSTAH sentiment. The U.N. has a zero-tolerance policy toward sexual abuse and exploitation. In the case of peacekeepers, the U.N. is responsible for investigating charges against police personnel, but the sending country is responsible for investigating charges against its military personnel. The U.N. returns alleged perpetrators to their home country for punishment. Five MINUSTAH peacekeepers from Uruguay were sent home in 2011, to be tried on charges of sexually abusing an 18-year-old man at a U.N. base while filming it on a cellphone. According to the U.N., among 11 substantiated cases in 2012 were at least two cases of sexual exploitation of children by U.N. police. The investigations led to three members of a Pakistani police unit being convicted of raping a 14-year-old boy in one of the cases. The trial took place in March 2012 in Haiti but was conducted by a Pakistani military tribunal, which dismissed the men from the military and sentenced them to one year in prison. The unit had five cases pending as of June 1, 2015. A major U.N. review of peacekeeping missions recommended that countries that disregard children's rights in armed conflict should be barred from U.N. peacekeeping missions; that disciplinary action, or lack thereof, against sexual exploitation and abuse by U.N. personnel should be made public; and that investigations should be required to be completed in six months, rather than the average 16 months it currently takes. Long before the earthquake struck, Haiti was a country socially and ecologically at risk, possessing some of the lowest socioeconomic indicators in the world, and in an acute environmental crisis. Following several hurricanes that hit Haiti in 2008, the president of the Inter-American Development Bank (IDB), Luis Moreno, called Haiti the most fragile of IDB's member countries, saying that no other nation in Latin America and the Caribbean is as vulnerable to economic shocks and natural disasters as is Haiti. Plagued by chronic political instability and frequent natural disasters, Haiti is the poorest country in the Western Hemisphere. Haiti's poverty is massive and deep. There is extreme economic disparity between a small privileged class and the majority of the population. Over half the population (54%) of 10 million people lives in extreme poverty, living on less than $1 a day; about 80% live on $2 or less a day, according to the World Bank. Poverty among the rural population is even more widespread: 69% of rural dwellers live on less than $1 a day, and 86% live on less than $2 a day. Hunger is also widespread: 81% of the national population and 87% of the rural population do not get the minimum daily ration of food defined by the World Health Organization. In remote parts of Haiti, children have been dying of malnutrition. Food security worsened throughout Haiti following Hurricanes Isaac and Sandy in 2012, which destroyed about 70% of Haiti's crops. Some 1.5 million people live in severe food insecurity in rural areas affected by the storms. As many as 450,000 people were at risk of severe acute malnutrition, including at least 4,000 children less than five years of age. Over 40 years, from the late 1960s until the early 2000s, Haiti's per capita real GDP declined by 30%. By around 2007, Haiti began making some macroeconomic progress: the Haitian economy was growing for three years prior to the earthquake, and the government had improved management of its resources. In order to reach its Millennium Development Goal of eradicating extreme poverty and hunger by 2015, Haiti's Gross Domestic Product (GDP) would have to grow 3.5% per year, a goal the IMF says Haiti is not considered likely to achieve. Therefore, economic growth, even if it is greater than population growth, is not expected to be enough to reduce poverty; programs specifically targeted at poverty reduction are needed as well. The global economic crisis led to a drop of about 10% in remittances from Haitians abroad, which amounted to about $1.65 billion in 2008, more than a fourth of Haiti's annual income. Damage and losses caused by the 2010 earthquake were estimated to be $7.8 billion, an amount greater than Haiti's gross domestic product (GDP) in 2009. Haiti's GDP contracted by slightly more than 5% in 2010, but grew by 5.6% in 2011. Growth fell again, to 2.8% in 2012, slowed by hurricanes, drought, and "delays in implementing key public investment projects." According to the Economist Intelligence Unit, Haiti's GDP (gross domestic product) growth rate was 4.3% in 2013; estimated at 2.7% in 2014, dropping slightly due to the effect of drought on the agricultural sector and the underperformance of government projects; and expected to rise to 4.2 % by 2016. Compared to developing countries in Latin America and the Caribbean, however, Haiti's socioeconomic indicators continue to rate extremely low. The GNI (gross national income) per capita in the region's developing countries has climbed steadily since 2000, from $4,415 to $9,536 in 2013. During the same period, Haiti's GNI per capita has remained stubbornly low, rising only from $410 to $810. The likelihood that economic growth will contribute to the reduction of poverty in Haiti is further reduced by its enormous income distribution gap. Haiti has the second-largest income disparity in the world. Over 68% of the total national income accrues to the wealthiest 20% of the population, while less than 1.5% of Haiti's national income is accumulated by the poorest 20% of the population. When the level of inequality is as high as Haiti's, according to the World Bank, the capacity of economic growth to reduce poverty "approaches zero." In 2009, Haiti passed a minimum wage law. The law mandated increases in wages in two phases. In 2010, the minimum wage rose from about $1.75 per day to $3.75 per day, and in October 2012, it increased to $5.00 per day. The average daily wage for textile assembly workers is $5.25, above the new minimum wage, so some manufacturers said that they would have to raise wages proportionally. Despite the wage increase, the fundamental inequality of Haitian society remains basically unchanged. The Haitian government and international donors have focused efforts on manufacturing and agricultural production; both were initially making a steady recovery. But agriculture faces significant limitations in Haiti, with all but 2% of the forest cover deforested, 85% of the watersheds degraded, little or no rural infrastructure, and limited access to credit. Hurricane Sandy caused further loss of agricultural land; the U.N. estimated that an addition $40 million would be needed to address the new needs arising from that storm. High rates of unemployment, income inequality, and poverty continue to be serious roadblocks to overall economic development. Nonetheless, U.S. Ambassador Pamela White said last year that Haiti had made much progress, including: "Tens of thousands of Haitian farmers have higher incomes, ... exports to the United States are up 41 percent since 2010 thanks to job creation in the manufacturing sector ... [c]rime rates are down, and security is improved." She said that "Haiti has made the transition to a period of building and long-term development." Cholera broke out in October 2010, in what may be the first such outbreak ever in Haiti. There is strong evidence linking the outbreak to inadequate sanitation facilities at a MINUSTAH camp (see " The United Nations Stabilization Mission in Haiti (MINUSTAH) " above). Because Haitians had not been exposed to it previously and lacked immunity, and Haiti lacks adequate sewage and sanitation facilities, the waterborne disease spread quickly. Less than two years later, according to the U.S. Centers for Disease Control and Prevention, Haiti had the highest number of cholera cases in the world. The Haitian government has recorded about 712,330 cases, with many cases believed to go unreported. Over 8,600 people have died because of cholera. The number of new cases has decreased over time but spikes during the rainy season, when flooding spreads the disease. Haiti continues to have the largest cholera epidemic in the Western Hemisphere. President Martelly authorized a cholera vaccination program that began in April 2012. (The previous government declined a pilot vaccination program, arguing that vaccinating only a portion of the population would incite tensions among those not vaccinated.) The pilot program inoculated only about 1% of the population: 90,000-100,000 people in some of the poorest areas of Port-au-Prince and in the rural Artibonite River Valley. Partners in Health (PIH), a Boston-based nongovernmental organization, which has worked in Haiti for decades, and its Haitian partner in the pilot program, GHESKIO, say the program's success led the Haitian Ministry of Health to conduct targeted immunization campaigns in other parts of the country. About 300,000 more vaccinations were planned for late 2014. The vaccination is 60% to 85% effective and costs $3.70 per patient for the two-dose treatment. "[T]here is zero funding available" for the Haitian government's $3 million plan to vaccinate 300,000 people in 2015, however, according to Senior U.N. Coordinator for the Cholera Response in Haiti Pedro Medrano. Other, immediate, small-scale preventive measures include building latrines and distributing soap, bleach, and water-purification tablets. Treatment includes oral rehydration salts, antibiotics, and IV fluids. The United States has spent over $95 million for such preventive measures, and supporting staff and supplies for 45 cholera treatment centers and 117 oral rehydration posts, and working with the Haitian Ministry of Health to set up a national system for tracking the disease. But most observers say cholera will persist in Haiti until nationwide water and sanitation systems are developed. This would cost approximately $800 million to $1.1 billion, according to the New York Times . Haiti's first wastewater treatment site was opened in the fall of 2011. A study released by the U.S. Centers for Disease Control and Prevention indicated that the strain of cholera in Haiti is changing as survivors develop some immunity to the original strain. This could be an indication that the disease is becoming endemic in Haiti. The number of total cases and deaths began to decline in 2012. Nonetheless, some critics assert that the international response to the epidemic has been inadequate, and warn that the closing of cholera treatment centers is reducing the country's ability to respond to the disease and contributed to an increase in the mortality rate in late 2012. The U.N. also expressed concern, noting that, "the number of international actors engaged in cholera responses [in Haiti] has declined from 120 in 2011 to 43 in 2013, while national capacity has not increased by any comparable degree," causing a significant gap in quality treatment coverage. The number of donors has decreased as well. In 2012 the U.N. announced an effort to raise over $2 billion for a 10-year cholera eradication plan, to which it will contribute $23 million, or about 1% of what it says is needed. Of the total amount, about $450 million was needed for the first two years (February 2013-February 2015); only 40% of that had been "mobilized" as of November 2014. Of the $72 million needed for 2014-2015, donors have contributed only $40 million. In late 2014, the senior U.N. coordinator for the cholera response in Haiti warned that, at the current "disappointing" rate of funding, "it would take more than 40 years to get the funds needed for Haitians to gain the same access as its regional neighbors to basic health, water and sanitations systems." Medrano suggested that with better funding cholera could be eliminated from Haiti in about a decade. "Like Ebola," he said, "cholera feeds on weak public health systems, and requires a sustained response.… The donor community has to do better." Prior to the earthquake in 2010, the United Nations had already designated Haiti as one of the 50 least developed countries in the world, facing greater risk than other countries of failing to emerge from poverty, and therefore needing the highest degree of attention from the international community. After the earthquake, the Haitian government established a framework for reconstruction in the 10-year recovery plan, Action Plan for the Reconstruction and National Development of Haiti , with four areas of concentration: Territorial building , including creating centers of economic growth to support settlement of displaced populations around the country and to make Port-au-Prince less congested, developing infrastructure to promote growth, and managing land tenure; Economic rebuilding , including modernizing the agricultural sector for both export and food security, promoting manufacturing and tourism, and providing access to electricity; Social rebuilding , prioritizing building education and health systems; and Institutional rebuilding , focusing on making government institutions operational again and able to manage reconstruction, and strengthening governmental authority while also decentralizing basic services, and creating a social safety net for the poorest population. Some of the overarching goals of the plan are including environmental factors and risk and disaster management in all recovery and reconstruction activities; actively providing employment and vocational training; and providing assistance to the population affected by the earthquake while hastening recovery efforts with an eye to reducing dependence on foreign aid. Some analysts emphasize that the Haitian government and civil society must be partners in designing any development strategy if they are to succeed and be sustainable. They also warn that job creation and other development efforts must occur not only in the cities, but also in rural areas, to reduce urban migration, dependence on imported food, and environmental degradation. As mentioned above, economic growth alone is unlikely to reduce poverty in Haiti. Therefore, the Haitian government and many in the international donor community maintain that donors must continue to make a long-term commitment to Haitian development. Furthermore, in order to reduce poverty across the board, some observers say that development strategies must specifically target improving the living conditions of the poor and address the inequities and prejudices that have contributed to Haiti's enormous income disparity. The Haitian government, the Obama Administration, other international donors, and other observers have all stated the need for improved accountability of all donor assistance to Haiti, to improve aid effectiveness and reduce the potential for corruption. Recent Haitian governments have made major progress in reducing corruption, increasing transparency, and improving fiscal management. These improvements qualified Haiti for Heavily Indebted Poor Country (HIPC) debt relief in 2009. To ensure transparency further, the U.S. Agency for International Development has helped Haiti establish an online system to monitor both donor pledges and spending and implementation of assistance. Since Haiti's developmental needs and priorities are many, and deeply intertwined, the Haitian government and the international donor community are implementing an assistance strategy that attempts to address these many needs simultaneously. The challenge is to accomplish short-term projects that will boost public and investor confidence, while also pursuing long-term development plans to improve living conditions for Haiti's vast poor population. The challenge has been made more daunting by developments such as rising food and gasoline prices world-wide, internal political crises, and, of course, the lingering damage done by the earthquake and other natural disasters. The Haitian government has criticized the donor community for not dispersing funds quickly enough. Some international donors complain that the instability generated first by the elections process, then by the prolonged lack of a prime minister, the ongoing gridlock between the Haitian executive and legislative branches and the inability to organize elections hinder reconstruction efforts as well. There are other frustrations on the part of both donors and the Haitian government regarding foreign assistance. The Haitian government is frustrated that U.S. and other foreign aid is provided primarily through nongovernmental organizations (NGOs) rather than directly to the government. Donors are worried about the lack of Haitian capacity to design and implement programs, as well as corruption. The donor community has grown extremely frustrated at the lack of coordination and the inability or unwillingness of various government actors to seek consensus on development priorities and plans, such as elections that are now more than a year overdue. The State Department's Special Coordinator for Haiti, Thomas Adams, warned that, "Haiti will lose international support if it is seen as undemocratic," by failing to address corruption, human rights violations, or government accountability through elections. At a House Foreign Affairs Committee (HFAC) hearing on Haiti on October 9, 2013, Members on both sides of the aisle suggested that the failure to hold legislative elections already two years overdue then could affect U.S. assistance to Haiti. Since then, the Haitian government and the opposition have occasionally reached consensus only to fall back into gridlock. The United States and other donors continue to press all sides to reach an agreement and move forward on elections now three years overdue. They are not likely to take place until mid-2015 at the earliest, when it will also be time to prepare for the next presidential elections. The Interim Haiti Reconstruction Commission (IHRC) was created after the earthquake to coordinate foreign aid and reconstruction activities. It was co-chaired by the Government of Haiti and the U.N. Special Envoy to Haiti, former President Bill Clinton. Its 18-month mandate expired in October 2011 without the establishment of the Haitian-run Haitian Development Authority, which was to take its place. (Clinton's mandate as Special Envoy expired January 31, 2013, and was not extended.) While there has been criticism that the IHRC was not approving and distributing aid effectively, there has also been widespread concern that the Haitian government is not ready to assume full control of the process either. The government's nascent institutions, which had limited capacity before the earthquake, were set back severely by the earthquake's destruction. The president asked the legislature to pass an extension of the IHRC while an alternative mechanism was developed; it failed to do so. In the meantime, the 12 largest international donors continued to coordinate among themselves and with the Haitian government. The Haitian government presented to the donor community a plan for the coordination of foreign aid, the Framework for Coordination of Foreign Aid for Haitian Development (Cadre de Coordination de l'aide Externe au Developpement d'Haiti, CAED) in November 2012. Headed by the Prime Minister and the Minister of Planning and External Cooperation, it will have an international committee that is supposed to meet at least twice a year, a national committee that is supposed to meet four to six times a year, and working groups to address various development priorities such as education, employment, energy, extreme poverty, and rule of law. Although some parts of the framework have begun to function, the government is seeking donor funds to support the CAED. In February 2013, donors told the government they would not attend a CAED international committee meeting because it still had no plans or date for elections. Coordinating aid and funding the CAED have been made more difficult by the political gridlock between the Haitian executive and legislative branches. Despite the economic and social problems currently existing in Haiti and the comprehensive and complex challenges facing the country, Haiti could become a middle-income country, according to the State Department's Special Coordinator for Haiti, Thomas Adams. Such a transition could take about 30 years, even with good economic growth, Adams said, and would require continued development of "credible democratic institutions" and private investment, in addition to support from the international donor community. Statements by U.N. officials and other donors indicate growing frustration with the ongoing political stalemate in Haiti, however. Political polarization is inhibiting the capacity building needed to strengthen democratic institutions, keeping away private investment, they say, and contributing to donor fatigue. As discussed earlier, donors and other analysts say that unless some sort of national consensus is reached on a legislative agenda and development priorities, Haiti's reconstruction will continue to be stalled, and stability and security threatened. Prior to the earthquake, prominent analysts noted with optimism the progress Haiti had made and its potential for sustainable development. In the wake of the damage wrought by the earthquake, Haiti must recover from the enormous losses suffered and build on the advances and advantages pointed out by these analysts. The U.N. Security Council noted in 2009 that the country had made significant improvements in security and judicial reform, although it still needed to contend with widespread poverty and susceptibility to natural disasters. The two governments preceding the Martelly government (the Préval and the preceding interim government) also made progress toward goals outlined in Haiti's international assistance strategy, including improved macroeconomic management, procurement processes, and fiscal transparency; increased voter registration; and jobs creation. The government had also made progress in providing broader access to clean water and other services. The U.N. secretary-general also had commissioned a report, which recommended a strategy to move Haiti beyond recovery to economic security. Although published in 2009, many of its findings still apply to a post-earthquake Haiti. According to the U.N. report, "the opportunities for [economic development in] Haiti are far more favorable than those of the 'fragile states' with which it is habitually grouped." The report's author, economist Paul Collier, is known for his book, The Bottom Billion , which explores why there is poverty and how it can be reduced. Among his reasons for optimism regarding Haiti: Haiti is part of a peaceful and prosperous region, not a conflictive one; and while political divisions and limited capacity make governing difficult, Collier believed that Haiti's leadership at the time was "good by the standards of most post-conflict situations … [exhibiting] integrity, experience and ability, and a deep concern with the maintenance of social peace." The U.N. report recommended that modest and focused actions be taken to build economic security on the foundation of social stability that has been built in Haiti in recent years. Because that stability was—and remains—fragile, the report advised that such actions should be taken immediately and should focus on strengthening security by creating jobs, especially in the garment and agricultural sectors; providing basic services; enhancing food security; and fostering environmental sustainability. These strategies remain part of the post-earthquake approach to development. Collier and other analysts note that Haiti has an important resource in the 1.5 million Haitians living abroad, for their remittances sent back home, technical skills, and political lobbying. The efforts of Haitian Americans and others lobbying on Haiti's behalf led to another advantage Haiti has: the most advantageous access to the U.S. market for apparel of any country, through the HOPE II Act (the Haitian Hemispheric Opportunity through Partnership Encouragement Act, P.L. 110-246 ; see " Trade Preferences for Haiti " section below). Supporters say the HOPE Act provides jobs and stimulates the Haitian economy. Critics worry that it exploits Haitians as a source of cheap labor for foreign manufacturers, and hurts the agricultural economy by drawing more people away from farming. U.S. and Canadian companies have conducted exploratory drilling in Haiti, reporting a potential $20 billion worth of gold, copper, and silver below Haiti's northeastern mountains. While discoveries of such mineral wealth have led to economic booms in many countries, they also bring risks such as environmental contamination, health problems, and displacement of communities. And like many poor countries that could use the revenue from mineral extraction, Haiti does not have the government infrastructure to enforce laws that would regulate mining—reportedly, the last time gold was mined there was in the 1500s. The Préval government negotiated the agreement with the only company that has full concessions; the terms of that agreement would return to Haiti $1 out of every $2 of profits, a high return. Prime Minister Lamothe said the government is already drafting mining legislation to establish royalties paid to the government and safeguards for citizens and the environment in mining areas. Obama Administration officials have said that Haiti is a key foreign policy priority and the Administration's top priority in the Latin America and Caribbean region in terms of bilateral foreign assistance. In its FY2016 budget request, the Administration stated that Haiti had made progress by taking steps to improve the business climate, attract investments, and create jobs; and by supporting judicial sector reforms, which have contributed to the increased capability of Haitian officials to deliver better services. It also said the Haitian government had "reinforced its commitment to improving and strengthening the health system," and was working to enhance school standards and increase student enrollment "drastically" by 2016. The Administration noted that "despite these positive developments, however, the pace of much needed progress is still hindered by weak public institutions, conflicts between the executive and legislative branches, lack of accountability, and weak state capacity to provide basic services." The Administration says that current U.S. assistance programs are emphasizing country leadership and ownership, and strengthening local institutions, so that Haiti can "further chart its own development and promote sustainability." To spur greater progress, the Administration says Haiti "needs to enact key laws to improve its investment climate, enact the new Criminal Code ... and enact an anti-corruption law." Other concerns for U.S. policy regarding Haiti include the cost and effectiveness of U.S. aid; protecting human rights; combating narcotics, arms, and human trafficking; addressing Haitian migration; and alleviating poverty. The United States and other members of the international community continue to support efforts to hold free and fair elections in Haiti in the belief that in the long run they will contribute to improved governance and, eventually, improved services to Haitian citizens and greater stability, which will allow for increased development. Congress has given bipartisan support to this policy approach. The Obama Administration's request for FY2016 assistance for Haiti is approximately $242 million. This represents about a $33 million decrease from the FY2015 funding request. (See Table 2 .) U.S. assistance to Haiti focuses on the four key sectors outlined in the Action Plan for Reconstruction and National Development of Haiti, with funding directed toward infrastructure and energy projects, governance and rule-of-law programs, programs for health and other basic services, and food and economic security programs. Many of the latter type of programs are carried out under the President's Feed the Future initiative, which aims to implement a country-led comprehensive food security strategy to reduce hunger and increase farmers' incomes. The Administration's approach is detailed in its "Post-Earthquake USG Haiti Strategy toward Renewal and Economic Opportunity." Figure 2 shows the distribution of reconstruction and development spending by type of program. The FY2016 Consolidated Appropriations Act ( P.L. 114-113 ) prohibits assistance to the central Haitian government unless the Secretary of State certifies and reports to the Committees on Appropriations that the Haitian government "is taking effective steps" to hold free and fair parliamentary elections and seat a new parliament; strengthen the rule of law in Haiti, including by selecting judges in a transparent manner; respect judicial independence; improve governance by implementing reforms to increase transparency and accountability; combat corruption, including by implementing the anti-corruption law enacted in 2014 and prosecuting corrupt officials; and increase government revenues, including by implementing tax reforms, and increase expenditures on public services. Over the years, after various domestic crises, Haitians repeatedly sought Temporary Protected Status (TPS), which would allow them to remain in the United States without threat of deportation for a specific amount of time. The Haitian government and others argued that the return of deportees would contribute to instability and be a further drain on already inadequate services, and that Haiti depends on the remittances those in the United States send back to Haiti. Opponents of TPS argued that granting it could encourage a wave of new immigrants. After 2010's devastating earthquake, the United States granted TPS to Haitians living in the United States at the time of the disaster. Department of Homeland Security (DHS) Secretary Janet Napolitano has extended TPS on a yearly basis, and allowed eligible Haitians who came to the United States up to one year after the earthquake to be granted TPS. The policy of interdicting Haitian migrants on the high seas and returning them to Haiti continues. U.S. citizens or permanent residents may apply for a residency visa, or green card, on behalf of relatives living in Haiti. Currently, over 100,000 Haitians must wait—some for as long as 12 years—to join family members in the United States, even though they have already been approved by the U.S. government to do so, because of annual caps on such visas. In 2015 DHS began to implement the Haitian Family Reunification Parole Program to expedite the reunification of eligible families. Because this program will expedite reunification only for those scheduled to receive their entry visas within two years, just a small portion of all Haitians approved for residency will benefit from the program. DHS also warned Haitians against trying to enter the United States illegally, stating that only people living in Haiti would be eligible to participate in the reunification program. Potential beneficiaries in Haiti cannot apply for themselves. The sponsoring family members in the United States, or "petitioner," must wait for the Department of State's National Visa Center to invite them to apply for the program. There has been bipartisan support in Congress to assist Haiti both before and since the earthquake. In the years preceding the earthquake, Congress passed several bills, in addition to appropriations bills, to support Haiti. This included a series of trade preferences for Haiti, which are described in more detail below. Another issue of concern to Congress has been efforts to ensure that free, fair, and safe elections are held in Haiti. As mentioned above (see " Overdue Elections Process: Delays and Disputes …"), one-third of the Haitian Senate seats expired on May 8, 2012. Elections for those seats and for municipal councils, town delegates, and other posts, which are also long overdue, have yet to be held, although they have finally been scheduled for later this year. At a House Foreign Affairs Committee (HFAC) hearing on Haiti on October 9, 2013, Members on both sides of the aisle suggested that the failure to hold legislative elections already two years overdue could affect U.S. assistance to Haiti. Other congressional concerns include post-earthquake reconstruction; transparency and accountability of the Haitian government; respect for human rights, particularly for women; security issues, including Martelly's proposal to reconstitute the Haitian army; and counternarcotics efforts. Another concern is the consequences for Haiti of a September 2013 court ruling in the Dominican Republic that could retroactively strip some 200,000 Dominicans, mostly of Haitian descent, of citizenship. The end of the registration period in June 2015 raises concerns that there will be mass deportations to Haiti. Congress passed the Assessing Progress in Haiti Act of 2013; it was signed into law in August 2014. It directs the Secretary of State to report to Congress within 120 days, and every six months thereafter through September 30, 2016, on the status of specific aspects of post-earthquake recovery and development efforts in Haiti. As it considered FY2016 funding for Haiti, the House Appropriations Committee said it "remains concerned about the lack of progress in self-reliance and governance in Haiti more than five years after the earthquake," and that it expects the Department of State to provide regular updates on progress in Haiti. The committee also notes "the significant unobligated balances for assistance for Haiti from prior years and, given the continued high level of need in the country, directs the Department of State and USAID to review and prioritize programs and take steps to execute these funds in a responsible manner." See " Legislation in the 114th Congress " below. In the aftermath of the earthquake, Congress appropriated $2.9 billion for aid to Haiti in the 2010 supplemental appropriations bill ( P.L. 111-212 ). This included $1.6 billion for relief efforts, $1.1 billion for reconstruction, and $147 million for diplomatic operations. Since then, Congress has expressed concern about the pace and effectiveness of U.S. aid to Haiti. According to the U.N. Special Envoy for Haiti's office, of the approximately $1.2 billion the United States pledged at the 2010 donors conference for aid to Haiti, 19% had been disbursed as of March 2012, and about 33% as of December 2012. All donors had pledged about $6.4 billion, disbursed just over 45% of that as of March 2012, and disbursed 56% of it by the end of 2012. The U.S. Government Accountability Office (GAO) has issued several reports on USAID funding for post-earthquake reconstruction in Haiti. In a 2013 report, GAO concluded that "the majority of supplemental funding ha[d] not been obligated and disbursed" as of March 31, 2013. The report said that USAID had obligated 45% and disbursed 31% of the $651 million allocated in the FY2010 Supplemental Appropriations Act for bilateral earthquake reconstruction activities. These figures refer only to Economic Support Funds (ESF) provided in the FY2010 supplemental. The supplemental required the State Department to submit five reports to Congress. GAO criticized the State Department for "incomplete and not timely" reports, noting that only four reports were submitted and that they lacked some of the information specifically requested by the Senate Committee on Appropriations, such as a description, by goal and objective, and an assessment of the progress of U.S. programs. The State Department countered that it provides information to Congress through other means as well, such as in-person briefings, according to GAO. In June 2015 GAO released its latest report, Haiti Reconstruction: USAID Has Achieved Mixed Results and Should Enhance Sustainability Planning . GAO reported that the USAID Mission in Haiti reduced planned outcomes for 5 of 6 key infrastructure activities and 3 of 17 key non-infrastructure activities. USAID met or exceeded the target for half of all performance indicators for key non-infrastructure activities. Mission officials said that inadequate staffing and unrealistic initial plans affected results and caused delays. The mission has therefore increased staffing and extended its reconstruction time frame for another three years, to 2018. GAO concluded that although the mission in Haiti took steps to ensure the sustainability of its reconstruction efforts, sustainability planning could be improved at both the mission- and agency-wide levels. Looking at the broader range of funding available for Haiti, USAID and the State Department report that 100% of the $1.3 billion allotted for humanitarian relief assistance, and 71% of the $2.3 billion allotted for recovery, reconstruction, and development assistance had been distributed as of March 31, 2015. The recovery, reconstruction, and development assistance includes the amount pledged at the U.N. recovery conference (and appropriated through the FY2010 supplemental appropriations bill), plus other appropriated fiscal year funds (base FY2010, and FY2011-FY2014). (It does not include USAID prior year funds reallocated to meet urgent Haitian recovery and reconstruction needs.) Using these figures, the Administration calculates that it has disbursed 80% of funding available for Haiti. (See Figure 3 below.) While Haiti is making some progress in its overall recovery effort, enormous challenges remain. International donors responded to the earthquake with a massive humanitarian effort. Most of the rubble created by the earthquake has been removed and three-fourths of those living in tent shelters have left the camps. Nevertheless, many criticize the pace and methods of the recovery process regarding displaced persons. About 61,000 of those who left the camps were forcibly evicted, and about 78,000 live on private land under threat of eviction, with the U.N. expressing concern about the human rights violations involved in such expulsions. Various 2014 estimates on the number of people still living in tent shelters range from 147,000 to 280,000. The latter figure is from the Office of the United Nations High Commissioner for Refugees, which estimates there are another 200,000 people living with host families or in internal settlements, for a total of 480,000 internally displaced persons. The Caracol Industrial Park. A major element of U.S. aid to Haiti has been the development of the Caracol Industrial Park in Haiti's northern region. Although the region was not hit by the earthquake, the project is part of an effort—begun before the earthquake—to "decentralize" development, stimulating the economy and creating jobs outside of overcrowded Port-au-Prince. The Obama Administration said the Caracol park was supposed to create 20,000 permanent jobs initially, with the potential for up to 65,000 jobs; as of October 2012 then-Secretary of State Hillary Rodham Clinton said about 1,000 Haitians were employed there. As of April 2015 there were 6,200 jobs at the park. The Caracol Industrial Park has generated much controversy. According to the New York Times , State Department officials acknowledged that they did not conduct a full inquiry into allegations of labor and criminal law violations by Sae-A in Guatemala before choosing the company to anchor the park. Environmentalists, who had marked Caracol Bay to become Haiti's first marine protected area, were reportedly "shocked" to learn an industrial park would be built next to it. U.S. consultants who helped pick the site said they had not conducted an environmental analysis before recommending the site, the Times reported, and in a follow-up study said the site posed a high environmental risk and that, even if wastewater were treated the bay would be endangered, and the U.S.-financed power plant would have "a 'strongly negative' impact on air quality." Civil society groups argue that the park, built on some of Haiti's rare arable land, displaced farmers and promotes manufacturing at the expense of agriculture. A Haitian government website defended the park, saying Sae-A's Guatemalan branch took corrective action, and that the U.S. Department of Labor has led several delegations to review the manufacturer's compliance with labor law. The Ministry of Economy and Finances said that "environmental protection activity" was already underway, including development of a modern wastewater treatment plant, and that "complementary alternative energy sources" were also being pursued. As for the agricultural issues, the government said the farmers were given compensation packages, including title to farmland elsewhere, and a U.S.-sponsored training program would help local residents gain skills for new job opportunities. The U.S. Government Accountability Office (GAO) reported mixed results for U.S. funding at Caracol, which includes $170 million for a power plant and port to support the Industrial Park. USAID completed the first phase of the power plant with less funding than allocated, and in time to supply the park's first tenant with power. GAO reports that the Caracol Industrial Park, the power plant, and the port are interdependent, that "each must be completed and remain viable for the others to succeed." Yet port construction is at least two years behind schedule, and USAID funding will be insufficient to pay for most of the projected costs, leaving a cost gap of $117 million to $189 million. GAO said it was unclear whether the government of Haiti could find a private company willing to fund the rest of the port costs. Two recent reports criticized labor practices in Haitian factories, including at the U.S.-funded Caracol Industrial Park, alleging widespread underpayment of workers and unsafe working conditions at many of them. As part of its concern about the effectiveness of U.S. aid to Haiti, Congress has supported efforts over the years to improve the transparency and accountability of the Haitian government's spending. Congress prohibited certain aid to the central government of any country that does not meet minimum standards of fiscal transparency through the foreign assistance appropriations act for 2012 ( P.L. 112-74 ). While acknowledging Haiti's progress toward fiscal transparency, the State Department reported that Haiti did not meet those minimum standards, but waived the restriction on the basis of national interest. In its memorandum of justification, the department argued that, "Without assistance and support, Haiti could become a haven for criminal activities…. Without sufficient job creation, Haiti could become a greater source of refugee flows…." The justification noted progress made, such as the government's routine posting of budgetary, public finance, and investment documents and legislation online, public discussions of the draft national budget for the first time, the increasing role of the parliament in budget oversight, and the adoption of an integrated financial management system to track expenditures in one central database. Some of Haiti's transparency shortcomings include the failure to identify natural resource revenues in the budget; inadequate access to contracting procedures for investors trying to engage in public procurement; extra-budgetary spending; and the lack of skill within the Supreme Audit Authority to carry out its oversight of public enterprises. Congress has long advocated for the respect for human rights in Haiti, which has improved dramatically under civilian democratic government. The government is no longer an agent of officially sanctioned and executed violations of human rights. Nonetheless, many problems remain. According to the U.S. Department of State's Human Rights report from 2013: The most serious impediments to human rights involved weak democratic governance in the country; the near absence of the rule of law, exacerbated by a judicial system vulnerable to political influence, and chronic, severe corruption in all branches of government. Basic human rights problems included some arbitrary and unlawful killings by government officials; excessive use of force against suspects and protesters; overcrowding and poor sanitation in prisons; prolonged pretrial detention; an inefficient, unreliable, and inconsistent judiciary subject to significant outside and personal influence; rape, other violence, and societal discrimination against women; child abuse; social marginalization of minority communities; and human trafficking. Allegations continued of sexual exploitation and abuse by members of … MINUSTAH. Violence and crime within camps for approximately 369,000 internally displaced persons (IDPs) remained a problem. Other human rights problems included torture and excessive use of force against suspects and prisoners; overcrowding and poor sanitation in prisons; prolonged pretrial detention; an inefficient, unreliable, and inconsistent judiciary subject to significant outside and personal influence; rape, other violence, and societal discrimination against women; child abuse; and human trafficking. In addition there were multiple incidents of mob violence and vigilante retribution against both government security forces and ordinary citizens, including setting houses on fire, burning police stations, throwing rocks, beheadings, and lynchings. The U.N. Independent Expert on the Situation of Human Rights in Haiti, Michel Forst, made a blunt assessment of the current state of human rights in Haiti in his final address before the U.N.'s Human Rights Council. Before stepping down from the position he said, "I cannot, and I do not want to hide from you my anxiety and disappointment regarding developments in the fields of the rule of law and human rights…." Saying that "impunity reigns," the human rights expert said, "It is inconceivable that, under the rule of law, those responsible for enforcing the law feel authorized not to respect the law and that such behavior goes unanswered by the judicial system." Forst strongly criticized the nomination of magistrates for political ends, citing the case in which he said the current Minister of Justice appointed a judge especially for the purpose of ordering the release of Calixte Valentin, a presidential adviser being held in preventive detention on a murder charge. His statement bemoaned threats against journalists, arbitrary and illegal arrests, and the failure to implement identified solutions that would improve conditions in the Haitian prison system—which he said "remains a cruel, inhuman and degrading place." He expressed his wish that the Martelly Administration take up the work of the Ministry of Justice under President Préval in the revision of the penal code. Forst applauded the strong efforts of the Préval and Martelly Administrations in strengthening the police, with international support, and the renewed public confidence in the police. He noted persisting problems however, commenting that the case of a person tortured to death in a police station in a Port-au-Prince suburb was not an isolated incident. The human rights specialist also noted positive developments in human rights, including the role played by the Office of Citizen Protection, Haiti's human rights ombudsman, in promoting respect for human rights, and a strong civil society with professional human rights organizations advocating for issues such as women's rights and food security. Forst also praised the appointment of a Minister for Human Rights and the Fight against Extreme Poverty. An aide to the Prime Minister, George Henry Honorat, was killed March 23, 2013, in a drive-by shooting. Motives are not known, but Honorat was also the editor in chief for a weekly newspaper, Haiti Progres , and was secretary general of the Popular National Party that opposed the Duvalier regimes. A September 2013 court ruling in the Dominican Republic caused enormous controversy because it could deny citizenship to some 200,000 Dominican-born people, mostly of Haitian descent, making them stateless. The Dominican Republic's 1929 constitution adhered to the principle that citizenship was determined by place of birth. The country's 2010 constitution excluded from citizenship "those born to ... foreigners who are in transit or reside illegally in Dominican territory." For decades, Haitians have been brought into the Dominican Republic to work in sugar fields and, more recently, construction. The Dominican Constitutional Court ruled that the 2010 definition must be applied retroactively. It also reinterpreted the provision in the 1929 constitution which excluded from citizenship children born to foreigners "in transit," so that it excluded all those born to undocumented foreigners. (Previously, the "in transit" clause had mostly been applied to members of the diplomatic corps or others in the country for a limited, defined period.) The decision stripped a 29-year old Dominican-born woman of Haitian descent of her citizenship, and denied citizenship to her Dominican-born children. The court also ordered Dominican authorities to conduct an audit of birth records to identify similar cases of people formally registered as Dominicans since 1929, saying they would no longer qualify for citizenship under the new constitution. The decision cannot be appealed. Dominican authorities argue that such people will not be stateless, because they will qualify as Haitian citizens or will be given a path to Dominican citizenship. The Haitian constitution grants citizenship to children born of a Haitian parent, but does not address second and third generations descended from Haitian citizens. There are thousands more who will not be on Dominican registries because for decades, Dominican officials have denied birth certificates and other documents to many Dominican-born people of, or perceived to be of, Haitian descent. The ruling has heightened tensions with Haiti. With the possibility that the Dominican Republic could render thousands of second and third generation Dominicans of Haitian descent stateless and deport them to Haiti, the potential impact on Haiti could be enormous. Haiti has limited resources to deal effectively with an influx of that size of possible deportees who were not born in Haiti and have little or no ties to Haiti. The Haitian government initially recalled its ambassador from the Dominican Republic in response to the court ruling. Relations were further strained when the Dominican Republic repatriated over 200 Haitians in November 2013, after the murder of an elderly Dominican couple in a border town, which locals blamed on Haitians. Nonetheless, some activists have criticized the Martelly Administration for not speaking out strongly enough against the court decision. Haitian and Dominican officials held talks in January 2014. The Dominican government said it would not negotiate the court decision or how it plans to implement it. According to a press report, Haiti recognized Dominican sovereignty on migration policy and the Dominican government assured Haiti that "concrete measures will be taken to safeguard the basic rights of people of Haitian descent" living in the country. But Haitians also advocated at the talks for better treatment of Haitian migrant workers in the Dominican Republic, long a subject of human rights concerns. The U.S. Department of Labor issued a report in September 2013 citing evidence of violations of labor law in the Dominican sugar sector such as payments below minimum wage, 12-hour work days and 7-day work weeks, lack of potable water, absence of safety equipment, child labor, and forced labor. Haiti also asked for better treatment of its students in the Dominican Republic. Further talks in February 2014 led to agreement on several immigration issues, according to the Dominican government, including a new type of Dominican visa for workers. The Dominican Republic reviewed its rules and practices related to Haitian students. The Haitian government reportedly reaffirmed its commitment to expedite the issuance of passports and national civil registration cards at border posts and in consulates in the Dominican Republic. The Dominican Republic says it provided details of how it will implement its "National Plan for regularization of foreigners." Dominican President Danilo Medina issued a decree in November 2013, outlining the plan as a special naturalization process for undocumented "foreigners" and their children born in the Dominican Republic who currently lack any documentation. The decree said that those who do not choose to seek eligibility can request repatriation or will face deportation. The Dominican government says it is trying to normalize a complicated immigration system. But U.N. and Organization of American States (OAS) agencies, foreign leaders, and human rights groups have challenged the decision's legitimacy, concerned that it violates international human rights obligations to which the Dominican Republic is party. The Inter-American Commission on Human Rights (IACHR) concluded that the Constitutional Court's ruling "implies an arbitrary deprivation of nationality" and "has a discriminatory effect, given that it primarily impacts Dominicans of Haitian descent." The Caribbean Community (CARICOM) "condemn[ed] the abhorrent and discriminatory ruling," and said it was "especially repugnant that the ruling ignores the 2005 judgment made by the Inter-American Court on Human Rights that the Dominican Republic adapt its immigration laws and practices in accordance with the provision of the American Convention on Human Rights." CARICOM then suspended the Dominican Republic's request for membership. The Obama Administration did not publicly address the Dominican court ruling until almost three months after it was issued, in mid-December 2013. It then said it had "deep concern" about the ruling's impact on the status of people of Haitian descent born in the Dominican Republic. Some Members of Congress have expressed concern that the ruling places hundreds of thousands of Dominican born persons, most of whom are of Haitian descent, at risk of statelessness (see H.Res. 443 in " Legislation in the 114th Congress "). In May 2014, the Dominican Congress passed a bill proposed by President Medina setting up a system to grant citizenship to Dominican-born children of immigrants. The law created different categories, depending on whether people have documents proving they were born in the country. According to the Dominican government, those with birth certificates that are "irregular" because of their parents' lack of immigration status will have their certificates legalized and will be confirmed as Dominican citizens. People without documents had 90 days to prove they were born in the Dominican Republic and register with the government; after two years of residency they could then apply for citizenship. Critics say the law continues to discriminate against people without documents. On November 14, 2014, the Dominican Republic withdrew its membership in the Inter-American Court of Human Rights. The Inter-American Court found that the Dominican Republic discriminates against Dominicans of Haitian descent and gave the government six months to invalidate the ruling of the Constitutional Court. The Dominican government charged that the findings were "unacceptable" and "biased." The Dominican Republic ended its "immigrant regularization" process on June 17, 2015, raising concerns that it may deport tens of thousands of people to Haiti. Most of those, according to the United Nations High Commissioner for Refugees (UNHCR), are Dominican-born people of Haitian descent. The UNHCR appealed to the Dominican Republic government to ensure that "people who were arbitrarily deprived of their nationality as a result of [the] 2013 ruling ... will not be deported." The UNHCR expressed concern about the possible expulsion of people who are not considered Haitian citizens, which could create a new refugee situation. The UNHCR offered to work with the Dominican authorities to find an "adequate solution for this population and to ensure the protection of their human rights." The government is giving conflicting signals of its intentions, which are said to reflect internal divisions over the issue. The head of the Dominican immigration agency, Army General Ruben Paulino, said his agency and the army would begin patrolling neighborhoods with high numbers of migrants and would deport those who were not registered. Meanwhile, Interior Minister Ramon Fadul issued a statement saying there would be no mass deportations after the registration period expired. Legal proceedings against both the late former dictator Jean-Claude "Baby Doc" Duvalier and former President Jean-Bertrand Aristide have posed extremely challenging tests of Haiti's judicial system and its ability to prosecute human rights abuses and other crimes. As mentioned above, about a third of U.S. assistance to Haiti supports governance and rule-of-law programs, which include judicial reform and strengthening. Duvalier died at age 63 in Haiti on October 4, 2014. After he had unexpectedly returned from exile in 2011, private citizens filed charges of human rights violations against him for abuses they allege they suffered under his 15-year regime. In 2012 a judge ruled that Duvalier could be tried for corruption, but that a statute of limitations would prevent him from being tried for any murder claims. Upon appeal, however, a three-judge panel reversed that decision in February 2013. The appellate court ruled that Duvalier could be charged with crimes against humanity—such as political torture, disappearances and murder—for which there is no statute of limitations under international law. Haitian human rights lawyer Pierre Esperance called the decision "monumental." Duvalier's defense attorney Fritzo Canton said the judicial panel acted under the influence of "extreme leftist human rights organizations." After Duvalier's return, the U.N. High Commissioner for Human Rights offered to help Haitian authorities prosecute crimes committed during Duvalier's rule. U.N. Secretary General Ban Ki-Moon called on the international community to continue to work with the Haitian government to bring about systemic rule-of-law reform, saying that ... the return of Jean-Claude Duvalier has brought the country's turbulent history of State-sponsored violence to the fore. It is of vital importance that the Haitian authorities pursue all legal and judicial avenues in this matter. The prosecution of those responsible for crimes against their own people will deliver a clear message to the people of Haiti that there can be no impunity. It will also be incumbent upon the incoming Administration to build on the achievements of the Préval presidency, which put an end to State-sponsored political violence and allowed Haitians to enjoy freedom of association and expression. Duvalier repeatedly failed to appear in court, then, under threat of arrest from the judge, appeared in court on February 28, 2013, much to the astonishment of many observers. When asked about murders, political imprisonment, summary execution, and forced exile under his government, the former dictator replied that "Murders exist in all countries; I did not intervene in the activities of the police." Initially, Duvalier was not allowed to leave Haiti, but in December 2012 the Martelly government re-issued his diplomatic passport. He remained in the country, and was President Martelly's guest at official government ceremonies. After Duvalier's death, the Office of the U.N. High Commissioner for Human Rights called it "essential" that legal proceedings and investigations against people associated with Duvalier continue. Former President Jean-Bertrand Aristide is also facing charges since his return in March 2011. A small group of people has filed a complaint against Aristide, alleging they were physically abused and used to raise money when they were children in the care of Aristide's Fanmi se Lavi organization, created in the late 1980s to house and educate homeless children. A prosecutor questioned Aristide in January 2013. Now a court must decide whether to dismiss the case or refer it to a judge to decide whether to file formal charges. In May 2013 Aristide testified before a judge regarding an investigation into the murder of prominent Haitian journalist Jean Dominique in 2000. Thousands of supporters followed his motorcade through the capital. Earlier in the year, former President Rene Préval, who was in office at the time of the murder, also testified in the case. Both men were once friends of Dominique. At the time of his death Dominique was seen as a possible presidential candidate; Aristide was already preparing to run for a second term. Several people allegedly involved in the assassination and witnesses have been killed or disappeared over the years. Dominique's widow, Michele Montas, is a former journalist and U.N. spokeswoman. She says, "The investigation has led to people close to the high levels of the Lavalas Family party that Aristide headed.... I am sure he knows who did it." In January 2014 a Haitian appellate judge recommended that nine people be charged for their alleged roles in Dominique's murder. The investigative report alleged that a former Lavalas senator was the mastermind behind the crime and that several others involved belonged to Aristide's Lavalas Family party as well. It is now up to the Court of Appeals to accept or reject the judge's report. The government has an ongoing investigation into corruption, money laundering, and drug trafficking charges against Aristide. A judge issued an arrest warrant for Aristide in August 2014, after which protesters blocked access to Aristide's home. The same judges placed Aristide under house arrest on September 9, 2014. Some in the opposition claim the judge is close to President Martelly. According to IHS Global Insight, Aristide's house arrest "is likely to strengthen opposition claims of persecution ... [and] reduces the likelihood of a compromise agreement that would allow a second candidate registration process and the participation of opposition parties" in the overdue elections. Because the judicial system is not fully independent, the attitudes of the president could have a large impact on any judicial process. As a candidate, Martelly called for clemency for the former leaders, saying that, "If I come to power, I would like all the former presidents to become my advisors in order to profit from their experience." He also said he was "ready" to work with officials who had served under the Duvalier regimes, and adult children of Duvalierists hold high positions in his government. Since becoming president, Martelly repeated the possibility that he would pardon Duvalier, citing a need for national reconciliation. He retracted at least one of those statements, and Prime Minister Lamothe stated that the Haitian state was not pursuing a pardon for Duvalier. The U.N.'s Deputy High Commissioner for Human Rights, Kyung-wha Kang, in a visit to Port-au-Prince in July 2011, urged the creation of a truth commission, which she said would help promote national reconciliation in Haiti. The U.N. expert on human rights in Haiti, Michel Forst, called the appearance of former president Jean-Claude Duvalier before the Haitian courts a victory for the rule of law. He also said that despite assurances "at the highest level of State" that the executive branch would not interfere in the judicial proceedings, "that unfortunately was not the case." Some Members of Congress have expressed special concern about violence against women in Haiti. Discrimination against women has been practiced in Haiti throughout its history. The widespread nature and Haitian society's tolerance of this sexual discrimination, says the Inter-American Commission on Human Rights, "has in turn fueled brutal acts of violence and abuse towards women on a regular basis." Gender-based or sexual violence against women and girls has been described by many sources for many years as common and under-reported in Haiti. The most prevalent forms of this violence are domestic abuse, rape—sometimes as a political weapon—and childhood slavery. Violence against women has also included murder. Haitian girls and women in the poor majority are at particular risk of violence. The issue gained new attention after the earthquake, when women in tent camps became especially vulnerable to gender-based violence. Haitian government enforcement of or adherence to its obligations to protect rights that would protect women and girls from gender-based or sexual violence in particular is weak and inadequate. The Martelly Administration has dramatically increased the budget of the Ministry for Women's Affairs and Rights, which is responsible for developing national equality policies and the advancement of women. The FY2012 budget for the ministry was US$40.76 million, an increase of 828.2% (from 0.17% of the government's budget in FY2011 to 1.41% in FY2012). For years, Congress has expressed concern over citizen security in Haiti. Congress has supported various U.N. missions in Haiti, and the professionalization and strengthening of the Haitian National Police force and other elements of Haiti's judicial system in order to improve security conditions in Haiti. In what proved to be a very controversial move, President Martelly proposed recreating the Haitian army to replace MINUSTAH in a few years. The army, which committed gross violations of human rights over decades, according to numerous reports by the State Department, the OAS Inter-American Human Rights Commission, Amnesty International, and others, and carried out numerous coups, was disbanded by President Aristide in 1995. Martelly's initial plan called for creation of a 3,500-member army to be built over three and a half years, at a cost of approximately $95 million, including $15 million to compensate former soldiers who were discharged. In January 2012 Martelly reportedly acknowledged that a new army was not realistic, but also pledged to build a new Haitian security force of 3,000-5,000 members. It was not clear what difference there was between an army and a new security force. Martelly is proceeding with steps for re-creating a military force, although on a smaller scale for now. Ecuador trained 41 Haitian military recruits—30 soldiers, 10 engineers, and 1 officer—in 2013, who will now work on engineering projects such as road repair, and will report to the Defense Ministry. According to a press report, Defense Minister Jean-Rodolphe Joazile said the troops "won't carry weapons for now but could carry handguns, in three to four years, if either the recruits pay for the weapon themselves or the government receives financing to do so." While some observers express concern over such steps, others say they are token gestures to address Martelly's campaign promise to reinstate the army. State Department officials have said that there has been virtually no funding of the Defense Ministry to carry out larger plans. Former members of the Haitian army and would-be soldiers have protested in favor of reestablishing the army, and in 2012 occupied 10 old military bases. About 50 such protestors, wearing fatigues and some bearing arms, disrupted a session of parliament in April 2012 to voice their demands. After months of inaction, and under pressure from the U.N., the Haitian government closed the occupied bases and arrested dozens of pro-army protesters—including two U.S. citizens—after a march turned violent in May 2012. Under Haitian law, Parliament is supposed to approve recreating the force, which it has not done. The majority Inité coalition said the government cannot afford an army, and should further develop the Haitian National Police, which MINUSTAH is already training to assume its functions. The United States and other international donors support reform and capacity building in the police force as the best means of continuing to improve citizen security. Others have also suggested establishing civilian corps to carry out disaster response and other duties Martelly is proposing for the army. A U.N. Security Council mission to Haiti lamented the slow pace of police strengthening and worried that it could foster pro-army sentiments: Although the performance of the Haitian National Police has been slowly improving … it still lacks the quantity and quality of personnel necessary to assume full responsibility for internal security…. The pace of recruitment, vetting and training, however, has been unsatisfactory. The mission was informed that the start of training for the next group of cadets was delayed owing to funding shortfalls and other administrative difficulties. The mission heard accounts that the slower-than-expected pace of development of the Haitian police risks fuelling support among certain Haitian sectors for the near-term creation of a national army. When MINUSTAH arrived in Haiti in 2004, there were about 5,000 officers in the HNP. About 1,000 new officers have been graduated from the police academy in recent years. The HNP now has about 11,900 officers, including 1,022 women. MINUSTAH's goal was to have at least 15,000 police officers trained by 2016. Haiti is a transit point for cocaine being shipped by both sea and air from South America, and for marijuana coming from Jamaica to the United States, Canada, Europe, and other Caribbean countries. Some drugs are also sent through Haiti by land to the Dominican Republic. Weak institutions, poorly protected borders and coastlines, and widespread corruption are conditions that make Haiti attractive to drug traffickers and make it difficult for Haiti to combat trafficking. Nonetheless, the Haitian government has committed itself to combating narcotics trafficking in recent years. According to the State Department's International Narcotics Control Strategy Report (INCSR) published in March 2013, the Martelly Administration is planning to strengthen the Haitian National Police to make them more effective in counternarcotics efforts, approving a new five-year development plan for the Haitian National Police (HNP) which will expand the counternarcotics unit to 200 officers. The Obama Administration worked with other donors to update the development plan for the Haitian Coast Guard, and coordinate international efforts. Although corruption is a widespread problem, the State Department reports that the government does not encourage or facilitate distribution of illicit drugs or the laundering of drug trafficking profits, and has fully staffed the HNP Inspectorate General at the upper leadership level for the first time in its 17-year history. Low pay and widespread poverty make low-level police and other officials vulnerable to bribery, however. The State Department has noted in the past that Haitian law enforcement officials cannot investigate allegations that some legislators may be involved in illicit activities because the constitution provides them with blanket immunity. The 2013 INCSR adds that "… resource shortages, a lack of expertise, and insufficient political will represent substantial obstacles to anti-corruption efforts." Since 2008, Congress has included counternarcotics funds for Haiti in regional initiatives in addition to bilateral funding—first through the Merida Initiative, and then through the Caribbean Basin Security Initiative (CBSI). The Merida aid package aimed to "combat drug trafficking and related violence and organized crime." Although the Merida Initiative initially included Central America, the Dominican Republic, and Haiti, its main focus was Mexico. CBSI, launched by the Obama Administration in 2010, is a regional security effort by the United States and Caribbean nations aiming to reduce illicit trafficking, advance public safety and security, and promote social justice. U.S. counternarcotics programs in Haiti aim to enhance the professionalism and capability of the Haitian National Police. Such support ranges from providing police cadets with food and uniforms, to training in community-oriented policing and investigation methodology, to renovation of an operating base for the police's counternarcotics unit, joint enforcement operations, and support of five Haitian Coast Guard vessels. In its 2013 report the Administration concludes that, "despite progress, the tempo of drug enforcement actions in Haiti remains stubbornly low." Congress passed several bills, before and after the earthquake, to provide trade preferences for Haiti. In 2006 Congress passed the HOPE Act, or the Haitian Hemispheric Opportunity through Partnership Encouragement Act ( P.L. 109-432 , Title V), providing trade preferences for U.S. imports of Haitian apparel. The act allows duty-free entry to specified apparel articles 50% of which were made and/or assembled in Haiti, the United States, or a country that is either a beneficiary of a U.S. trade preference program, or party to a U.S. free trade agreement (for the first three years; the percentage became higher after that). The act requires ongoing Haitian compliance with certain conditions, including making progress toward establishing a market-based economy, the rule of law, elimination of trade barriers, economic policies to reduce poverty, a system to combat corruption, and protection of internationally recognized worker rights. It also stipulates that Haiti not engage in activities that undermine U.S. national security or foreign policy interests, or in gross violations of human rights. Those trade preferences were expanded in 2008 with passage of the second HOPE Act as part of the 2008 farm bill (Title XV, P.L. 110-246 ), in response to a food crisis and then-President Préval's calls for increased U.S. investment in Haiti. HOPE II, as it is commonly referred to, extended tariff preferences through 2018, simplified the act's rules, extended the types of fabric eligible for duty-free status, and permitted qualifying apparel to be shipped from the Dominican Republic as well as from Haiti. The act mandated creation of a program to monitor labor conditions in the apparel sector, and of a Labor Ombudsman to ensure the sector complies with internationally recognized worker rights. Congress again amended the HOPE Act after the 2010 earthquake. Through the HELP, or Haiti Economic Lift Program Act ( P.L. 111-171 ), Congress made the HOPE trade preferences more flexible and expansive, and extended them through September 2020. Supporters of these trade preferences maintain that they will encourage foreign investment and create jobs. Others argue that while the textile manufacturing sector may create jobs, some of the new industrial parks are being built on arable land and putting more farmers out of jobs, and that the manufacturing sector is being supported at the expense of the agricultural sector. In October 2013, two reports by nongovernmental organizations criticized labor practices in Haitian factories, alleging widespread underpayment of workers and unsafe working conditions at many of them. Both the House and Senate passed versions of the Trade Preferences Extension Act of 2015 ( H.R. 1295 ), which would extend the preferential duty treatment program for Haiti, in spring 2015. In June, the two chambers were resolving their differences. P.L. 113-76 / H.R. 3547 . The Consolidated Appropriations Act, 2014, prohibits assistance to the central government of Haiti until the Secretary of State certifies that Haiti has held free and fair parliamentary elections, is respecting judicial independence, and is taking effective steps to combat corruption and improve governance. The bill also prohibits the obligation or expenditure of funds for Haiti except as provided through the regular notification procedures of the Committees on Appropriations, but allows Haiti to purchase defense articles and services under the Arms Export Control Act for its Coast Guard. Signed into law January 17, 2014. P.L. 113-162 / H.R. 1749 / S. 1104 . The Assessing Progress in Haiti Act would measure the progress of recovery and development efforts in Haiti following the earthquake of January 12, 2010. It directs the Secretary of State to coordinate and transmit to Congress a three-year strategy for Haiti that identifies constraints to economic growth and to consolidation of democratic government institutions; includes an action plan that outlines policy tools, technical assistance, and resources for addressing the highest priority constraints; and identifies specific steps and benchmarks for providing direct assistance to the Haitian government. The act also requires the Secretary of State to report to Congress annually through December 31, 2017, on the status of specific aspects of post-earthquake recovery and development efforts in Haiti. Signed into law August 8, 2014. P.L. 113-235 / H.R. 83 . The FY2015 Consolidated and Further Continuing Appropriations Act conditions aid to Haiti. It prohibits assistance to the central government of Haiti until the Secretary of State certifies that Haiti "is taking steps" to hold free and fair parliamentary elections, respecting judicial independence, selecting judges in a transparent manner, combating corruption, and improving governance and financial transparency. H.R. 52 . The Save America Comprehensive Immigration Act of 2015 would authorize adjustments of status for certain nationals or citizens of Haiti and would amend the Haitian Refugee Immigration Fairness Act of 1998 to (1) waive document fraud as a ground of inadmissibility and (2) address determinations with respect to children. Introduced January 6, 2015, referred to the House Judiciary Committee, Committees on Homeland Security and Oversight and Government Reform January 23, 2015. H.R. 1295 . The Trade Preferences Extension Act of 2015 would extend preferential duty treatment program for Haiti. Introduced March 4, 2015; House passed on April 15; Senate passed amended version May 14; resolving differences as of June 11, 2015. H.R. 1891 . AGOA Extension and Enhancement Act of 2015 would extend the African Growth and Opportunity Act, the Generalized System of Preferences, and the preferential duty treatment program for Haiti, and for other purposes. Introduced April 17, 2015, referred to the House Committee on Ways and Means. Referred to the Union Calendar, Calendar No. 70, May 1, 2015. H.Res. 25 . Would recognize the anniversary of the tragic earthquake in Haiti on January 12, 2010, honoring those who lost their lives, and expressing continued solidarity with the Haitian people. Introduced January 9, 2015, referred to the House Foreign Affairs Subcommittee on the Western Hemisphere on February 11, 2015. S. 503 . Haitian Partnership Renewal Act would amend the Caribbean Basin Economic Recovery Act to extend (1) the 60% applicable percentage requirement for duty-free entry apparel articles assembled in Haiti and import from Haiti or the Dominican Republic to the United States, and (2) duty-free entry for such articles through December 19, 2030. Introduced, referred to the Senate Finance Committee, read twice, and referred to the Committee on Finance on February 12, 2015. S. 1009 . AGOA Extension and Enhancement Act of 2015 would extend the African Growth and Opportunity Act, the Generalized System of Preferences, the preferential duty treatment program for Haiti, and for other purposes. Introduced, referred to the Senate Finance Committee, read twice and referred to the Committee on Finance on April 20, 2015. S. 1267 . The Trade Preferences Extension Act of 2015 would amend the Caribbean Basin Economic Recovery Act to extend through December 19, 2025, the duty-free entry of apparel articles, including woven articles and certain knit articles, assembled in Haiti and imported from Haiti or other Dominican Republic to the United States; the special duty-free rules for Haiti shall now extend through September 30, 2025. Introduced May 11, 2015, referred to Senate Finance Committee. By Senator Hatch from Committee on Finance filed written report, S.Rept. 114-43 , on May 12, 2015. | Haiti shares the island of Hispaniola with the Dominican Republic. Since the fall of the Duvalier dictatorship in 1986, Haiti has struggled to overcome its centuries-long legacy of authoritarianism, extreme poverty, and underdevelopment. Economic and social stability improved considerably, and many analysts believed Haiti was turning a corner toward sustainable development when it was set back by a massive earthquake in January 2010 that devastated much of the capital of Port-au-Prince. Although it is recovering, poverty remains massive and deep, and economic disparity is wide: Haiti remains the poorest country in the Western Hemisphere. Throughout President Michel Martelly's five-year term, Haiti has found itself in a prolonged political crisis due to the government's failure to hold a series of elections that were long overdue. The government failed to hold elections by the end of 2012, leaving the Senate without one-third of its members. Thousands of Haitians took to the streets to protest the lack of elections. When the terms for another third of the Senate as well as the entire 99-seat Chamber of Deputies expired on January 12, the legislature was immediately dissolved, and Martelly began ruling by decree. A new Provisional Electoral Council (CEP) organized legislative elections in August, which were marred by violence, and runoff legislative, presidential, and local elections in October 2015. Some presidential candidates have led protests alleging fraud but have failed to file legal complaints. Runoff presidential elections scheduled for December 27 have been postponed while an independent commission makes recommendations. No new date has been set. Haiti is a key foreign assistance priority for the Obama Administration in Latin American and the Caribbean. Haiti's developmental needs and priorities are many. The Haitian government and the international donor community are implementing a 10-year recovery plan focusing on territorial, economic, social, and institutional rebuilding. An outbreak of cholera in late 2010 has swept across most of the country and further complicated assistance efforts. Progress has been made in developing democratic institutions, although, as evident in the current crisis, they remain weak. The United Nations Stabilization Mission in Haiti (MINUSTAH) has been in Haiti to help restore order since 2004. The mission has helped facilitate elections, combated gangs and drug trafficking with the Haitian National Police, and responded to natural disasters. MINUSTAH has been criticized because of sexual abuse by some of its forces and scientific findings that its troops apparently introduced cholera to the country. The U.N. says it will not compensate cholera victims, citing diplomatic immunity. As of June 30, 2015, MINUSTAH had decreased its military troops from 5,021 to 2,338, leaving peacekeeping troops in only 4 of Haiti's 10 departments. The Haitian National Police had primary responsibility for election security. The Dominican Republic ended its "immigrant regularization" process in June 2015. Since then tens of thousands of Dominican-born people of Haitian descent have relocated to Haiti, some out of fear of or intimidation by Dominican communities or authorities, increasing bilateral tensions. The main priorities for U.S. policy regarding Haiti are to strengthen fragile democratic processes, continue to improve security, and promote economic development. Other concerns include the cost and effectiveness of U.S. aid; protecting human rights; combating narcotics, arms, and human trafficking; and alleviating poverty. Congress shares these concerns. The immediate priorities are that free and fair elections be held as quickly as possible and a new administration takes office, with hopes that that will reduce political tensions and instability. Current legislation related to Haiti includes P.L. 114-113, P.L. 113-76, P.L. 113-162, P.L. 113-235, H.R. 52, H.R. 1295, H.R. 1891, H.Res. 25, S. 503, S. 1009, and S. 1267. |
Each year, the House and Senate Armed Services Committees take up their respective versions of the National Defense Authorization Act (NDAA). These bills contain numerous provisions that affect military personnel, retirees, and their family members. Provisions in one version are often not included in another; are treated differently; or, in certain cases, are identical. Following passage of these bills by the respective legislative bodies, a conference committee is usually convened to resolve the various differences between the House and Senate versions. In the course of a typical authorization cycle, congressional staffs receive many requests for information on provisions contained in the annual NDAA. This report highlights those personnel-related issues that seem likely to generate high levels of congressional and constituent interest, and tracks their status in the House and Senate versions of the FY2014 NDAA. The process was not typical for the 2014 NDAA. The initial House version of the National Defense Authorization Act for Fiscal Year 2014, H.R. 1960 (113 th Congress), was introduced in the House on May 14, 2013; reported by the House Committee on Armed Services on June 7, 2013 ( H.Rept. 113-102 ); and passed by the House on June 14, 2013. A Senate version, S. 1197 (113 th Congress), was introduced in the Senate on June 20, 2013, and reported by the Senate Committee on Armed Services ( S.Rept. 113-44 ) on the same day without amendment. The Senate did not pass this bill however. Instead, the House passed a second bill, H.R. 3304 , on October 28, 2013, the text of which had been negotiated between members of the House and Senate. The Senate agreed to the House bill on December 19, 2013 without amendment. The bill was presented to the President on December 23 and signed into law on December 26 ( P.L. 113-66 ). No reports or explanatory statements for the enacted bill were approved by either body. The entries under the heading "House" in the tables on the following pages are based on language from the initial bill, H.R. 1960 , unless otherwise indicated. The entries under the heading "Enacted" refer to H.R. 3304 as enacted. Related CRS products are identified to provide more detailed background information and analysis of the issues. For each issue, a CRS analyst is identified and contact information is provided. Some issues were addressed in the FY2013 National Defense Authorization Act and discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. Those issues that were considered previously are designated with a " * " in the relevant section titles of this report. Background: The authorized active duty end strengths for FY2001, enacted in the year prior to the September 11 terrorist attacks, were as follows: Army (480,000), Navy (372,642), Marine Corps (172,600), and Air Force (357,000). Over the next decade, in response to the demands of wars in Iraq and Afghanistan, Congress increased the authorized personnel strength of the Army and Marine Corps. Some of these increases were quite substantial, particularly after FY2006, but Congress began reversing these increases in light of the withdrawal of U.S. forces from Iraq in 2011 and a drawdown of U.S. forces in Afghanistan which began in 2012. In FY2013, the authorized end strength for the Army was 552,100, while the authorized end strength for the Marine Corps was 197,300. The Army has proposed reducing its personnel strength to 490,000 by FY2015 while the Marine Corps has proposed reducing its personnel strength to 175,000 by FY2017. End-strength for the Air Force and Navy has decreased since 2001. The authorized end strength for FY2013 was 329,460 for the Air Force and 322,700 for the Navy. Discussion: With the withdrawal of U.S. forces from Iraq and the ongoing drawdown in Afghanistan, the final bill included major reductions in Army (-32,100) and Marine Corps (-7,100) end strengths in comparison to their FY2013 authorized end strengths. It also slightly reduced the end strength for the Air Force (-1,860) while slightly increasing it for the Navy (+900). The figures in H.R. 1960, the Senate committee-reported bill ( S. 1197 ), and H.R. 3304 are identical to the Administration's proposal. Taken together, the final bill stipulates a total active duty end strength which is 40,160 lower than the FY2013 level, almost entirely due to reductions in the size of the Army and Marine Corps. However, both the Army and the Marine Corps finished FY2013 well below their authorized end strength levels. The Army's strength at the end of FY2013 was 532,043 (instead of the authorized 552,100) and the Marine Corps' was 195,848 (instead of the authorized 197,300). Therefore, the required strength reductions in those services for FY2014 would be around 18,000. Reference(s): Previously discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed], and similar reports from earlier years. See also CRS Report RL32965, Recruiting and Retention: An Overview of FY2011 and FY2012 Results for Active and Reserve Component Enlisted Personnel , by [author name scrubbed], Recruiting and Retention: An Overview of FY2011 and FY2012 Results for Active and Reserve Component Enlisted Personnel, by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Although the Reserves have been used extensively in support of operations since September 11, 2001, the overall authorized end strength of the Selected Reserves has declined by about 3% over the past 12 years (874,664 in FY2001 versus 850,880 in FY2013). Much of this can be attributed to the reduction in Navy Reserve strength during this period. There were also modest shifts in strength for some other components of the Selected Reserve. For comparative purposes, the authorized end strengths for the Selected Reserves for FY2001 were as follows: Army National Guard (350,526), Army Reserve (205,300), Navy Reserve (88,900), Marine Corps Reserve (39,558), Air National Guard (108,022), Air Force Reserve (74,358), and Coast Guard Reserve (8,000). Between FY2001 and FY2013, the largest shifts in authorized end strength occurred in the Army National Guard (+7,674 or +2.2%), Coast Guard Reserve (+1,000 or +12.5%), Air Force Reserve (-3,478 or -4.7%), and Navy Reserve (-26,400 or -29.7%). A smaller change occurred in the Air National Guard (-2,322 or -2.1%), while the authorized end strengths of the Army Reserve (-300 or -0.15%) and the Marine Corps Reserve (+42 or +0.11%) have been largely unchanged during this period. Discussion: The provisions in H.R. 1960, the Senate committee-reported bill ( S. 1197 ), and H.R. 3304 were identical. In the final bill, the authorized Selected Reserve end strengths for FY2014 are the same as those for FY2013 for the Army Reserve, the Marine Corps Reserve, and the Coast Guard Reserve. The Navy Reserve's authorized end strength was 62,500 in FY2013, but the Administration requested a decrease to 59,100 (-3,400) which the final bill approved. The Army National Guard's authorized end strength in FY2013 was 358,200; the Administration requested a decrease to 354,200 (-4,000) which the final bill also approved. The Air National Guard's end strength in FY2013 was 105,700 and the Air Force Reserve's was 70,880. The Administration proposed reducing these slightly to 105,400 (-300) and 70,400 (-480), respectively, and the final bill agreed. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Increasing concern with the overall cost of military personnel, combined with ongoing military operations in Afghanistan, has continued to focus interest on the military pay raise. Section 1009 of Title 37 provides a permanent formula for an automatic annual increase in basic pay that is indexed to the annual increase in the Employment Cost Index (ECI). The increase in basic pay for 2014 under this statutory formula would be 1.8%; however, Congress can pass a law to provide otherwise and the President asserts that he has authority under 37 USC 1009(e) to specify an alternative pay adjustment. The FY2014 President's Budget requested a 1.0% military pay raise, lower than the statutory formula. According to the Department of Defense, this smaller increase would save "$540 million in FY 2014 and nearly $3.5 billion through FY 2018." On August 30, 2013, the President sent a letter to Congress stating "I have determined it is appropriate to exercise my authority under Section 1009(e) of title 37, United States Code, to set the 2014 monthly basic pay increase at 1.0 percent...The adjustments described above shall take effect on the first applicable pay period beginning on or after January 1, 2014." Discussion: The House-passed bill contained no provision to specify the rate of increase in basic pay, while the Senate committee-reported bill ( S. 1197 ) specified an increase of 1%. The final bill contained no provision regarding the rate of increase in basic pay. Normally, this would leave in place the statutory pay raise formula specified in 37 U.S.C. 1009, which equates to an increase of 1.8% on January 1, 2014. However, the President stated that he would direct a 1% pay raise under the authority of 37 USC 1009(e). Thus, basic pay for military personnel increased by 1% on January 1, 2014. Reference(s): Previously discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed]. See also CRS Report RL33446, Military Pay and Benefits: Key Questions and Answers , by [author name scrubbed], Military Pay and Benefits: Key Questions and Answers, by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background : Congress sets limits on the number of general officers (officers in paygrades O-7 through O-10 in the Army, Air Force, and Marine Corps) and flag officers (officers in paygrades O -7 through O -10 in the Navy) on active duty. As specified in 10 U.S.C. 526, the number of general and flag officers (GO/FO) on active duty may not exceed the following as of October 1, 2013: 231 for the Army, 162 for the Navy, 198 for the Air Force, and 61 for the Marine Corps. In addition to these service-specific positions, the Secretary of Defense may designate up to 310 GO/FO for joint duty positions. Unless otherwise directed by the Secretary of Defense, at least 85 of these officers for these joint duty positions shall be Army officers, 61 from the Navy, 73 from the Air Force, and 21 from the Marine Corps. These figures do not include most reserve GO/FO. Discussion: The wars in Iraq and Afghanistan resulted in a substantial expansion in the size of the Army and Marine Corps and in GO/FO authorizations. In 2001, there were 889 general and flag officers on active duty; 10 years later there were 971 (though DOD projects this figure to drop over the next few years). With the end of the war in Iraq, the ongoing drawdown in Afghanistan, and the substantial reductions in Army and Marine Corps strength that is underway, there has been growing interest in Congress to reduce the number of generals and admirals in the Armed Forces. Section 501 of the House bill would reduce current authorizations for GO/FO on active duty from 962 (effective October 1, 2013) to 937 (effective October 1, 2014). The Senate committee-reported bill ( S. 1197 ) contained no similar provision. The final bill included a provision requiring DOD to notify the House and Senate Armed Services of any proposed action to increase in Service or joint duty GO/FO above specified baselines, and wait 60 days after such notification before the proposed action can go into effect. It also establishes an annual reporting requirement on the number of GO/FO. Reference(s): For historical background on general and flag officer authorizations, see Library of Congress, Federal Research Division, "General and Flag Officer Authorizations for the Active and Reserve Components: a Comparative and Historical Analysis," 2007. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Section 515 of the FY2008 National Defense Authorization Act ( P.L. 110-181 ) required the Secretaries of the military departments to provide advance notice to reservists who were going to be ordered to active duty in support of a contingency operation for more than 30 days. The provision also specified that "[i]n so far as is practicable, the notice shall be provided not less than 30 days before the mobilization date, but with a goal of 90 days before the mobilization date of a pending activation." The Secretary of Defense was granted fairly broad authority to waive or reduce this requirement, but has to submit a report to Congress detailing the reasons for the waiver or the reduction in certain circumstances. DOD policy, as contained in DOD Instruction 1235.12, provides that mobilization orders are normally to be approved 180 days before mobilization, but allows the Secretaries of the military departments to approve "individual mobilization orders for emergent requirements and special capabilities provided that no less than 30 days' notification has been given...." The policy also acknowledges that "[i]n crisis situations, some RC forces may be required immediately" and allows the Secretary of Defense to approve mobilizations with less than 30 days between mobilization order approval and the mobilization date. DOD policy also specifies that in the event of changes to operational requirements that alter the need for already notified reservists "DOD Components will seek other missions for all RC units and members identified for mobilization" and "[t]he Military Services will identify and make efforts to mitigate individual hardships for RC units and members who have mobilized or are within 90 days of mobilization." Under DOD policy, reservists who wish to volunteer for duty in support of a contingency operation are able to waive the 30-day notification requirement of P.L. 110-181 . Discussion: Although DOD policy provides for reserve notification prior to mobilization, there have been complaints when the shorter notification limits have been invoked. More recently, there was dissatisfaction when the Army elected to use active duty units to replace four Army National Guard units that had already been notified of mobilization in support of Operation Enduring Freedom-Trans Sahara and the Multinational Force Observer Task Force Sinai. The House provision sought to provide greater advance notice to reservists of deployments and changes to deployment orders, though the Service Secretaries would still have had the option of providing less than 120 days of notice coupled with a report to Congress justifying the decision. The Senate committee-reported bill ( S. 1197 ) contained a provision (Section 508) which would prohibit cancelling the deployment of certain reserve units unless the Secretary of Defense approved the cancelation in writing. The prohibition would affect reserve units within 180 days of their scheduled deployment, if the cancellation were due to the deployment of an active component unit in lieu of the reserve unit. Section 513 would have required the Secretary of Defense to notify the congressional defense committees and the governor concerned of any approved cancellations. The final enacted provision incorporates the Senate committee-reported provision, and a modified version of the House-passed provision. Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Free Exercise Clause of the U.S. Constitution is meant to protect individual religious exercise and requires a heightened standard of review for government actions that may interfere with a person's free exercise of religion. However, the Establishment Clause is meant to stop the government from endorsing a national religion, or favoring one religion over another. Actions taken must be carefully balanced to avoid being in violation of one of these Clauses. There are already sections in Title 10 under the Army, Navy, and Air Force that address chaplains' duties. The provision in the first House-passed bill would have amended these sections (§§3547, 6031, and 8547). Section 533 of the National Defense Authorization Act for Fiscal Year 2013 (P.L. 112-239) required the Armed Forces to accommodate the moral principles and religious beliefs of service members concerning appropriate and inappropriate expression of human sexuality and that such beliefs may not be used as a basis for any adverse personnel actions. Discussion: DOD Instruction 1300.17 acts to accommodate religious practices in the military services. This instruction indicates that DOD places a high value on the rights of military personnel to practice their respective religions. There have been instances where military personnel have become upset because the chaplain closed the prayer at a mandatory ceremony, such as a deployment ceremony, with a specific religious remark, such as "praise be Jesus." In February, an atheist soldier at Fort Sam Houston in San Antonio, TX, threatened the U.S. Army with a lawsuit because a chaplain allegedly prayed to the Heavenly Father during a secular event. However, no personnel are required to recognize the prayer, or participate in it (for example, they do not have to respond). Religious proselytizing is considered by some to be a prominent issue in the Armed Forces. Some believe it could destroy the bonds that keep soldiers together, which could be viewed as a national security threat. The ability for a chaplain to be able to close a prayer outside of a religious service may heighten the tension between soldiers and may worsen the problem. Others disagree and argue that it is inappropriate to curtail a chaplain's activities. Reference(s): Previously discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed]. See also CRS Report R41171, Military Personnel and Freedom of Religion: Selected Legal Issues , by [author name scrubbed] and Cynthia Brougher. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Military members who are single parents are subjected to the same assignment and deployment requirements as other servicemembers. Deployments to areas that do not allow dependents (such as aboard ships or in hostile fire zones) require the servicemember to have contingency plans to provide for their dependents, usually a temporary custody arrangement. Difficulties with child custody could in some cases potentially affect the welfare of military children as well as servicemembers' ability to effectively serve their country. (See U.S. Department of Defense, Instruction No. 1342.19, "Family Care Plans," May 7, 2010.) Concerns have been raised that the possibility or actuality of military deployments may encourage courts to deny custodial rights of a servicemember in favor of a former spouse or others. Also, concerns have been raised that custody changes may occur while the military member is deployed and unable to attend court proceedings. Discussion: The House language would have amended the law to allow courts to assign temporary custody of a child for the purposes of deployment without allowing the (possibility of) deployment to be prejudicially considered against the servicemember in a custody hearing. The enacted bill does not amend current law. Reference(s): Previously discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. See also CRS Report R43091, Military Parents and Child Custody: State and Federal Issues , by [author name scrubbed] and [author name scrubbed]. CRS Point of Contact: David Burrelli, [phone number scrubbed]. Background: The Purple Heart is awarded to any member of the Armed Forces who has been (1) wounded or killed in action against an enemy, while serving with friendly forces against a belligerent party, resulting from a hostile foreign force, while serving as a member of a peacekeeping force while outside the United States; or (2) killed or wounded by friendly fire under certain circumstances. On June 9, 2009, a civilian who was angry over the killing of Muslims in Iraq and Afghanistan opened fire on two U.S. Army soldiers near a recruiting station in Little Rock, AR. On November 5, 2009, an Army major opened fire at Ft. Hood, TX, killing 13 and wounding 29. Both the civilian and the Army major were charged with murder and other crimes. Discussion: These shootings on U.S. soil have spurred new debate on the eligibility criteria for the Purple Heart. Some now feel that the eligibility requirements for the Purple Heart should be modified, while others feel that the modifications would cheapen the value of the medal and sacrifices recipients have made. Authorities considered these specific acts to be crimes and not acts perpetrated by an enemy or hostile force. Because these acts involved Muslim perpetrators angered over U.S. actions in Iraq and Afghanistan, some believe they should be viewed as acts of war. Some are concerned that awarding the Purple Heart in these situations could have anti-Muslim overtones. Reference(s): Previously discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. See also CRS Report R42704, The Purple Heart: Background and Issues for Congress , by [author name scrubbed]. CRS Point of Contact: David Burrelli, [phone number scrubbed]. Background: Sexual assault in the military has been a continuing problem. The number of sexual assaults reported in the most recent year (2011) represented an approximate increase of 6% over the previous. Earlier this year, the Senate Armed Services Committee held hearings on the topic. Discussion: Many believe that more can and should be done to address the issue of sexual assault in the military. There is significant legislative activity on the issue with a number of options being considered. These provisions detail the congressional attention to the issues of sexual assault in the military requiring more focus on prevention, reporting, protecting alleged victims, judicial proceedings, and addressing the needs of the victims. Reference(s): CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], [phone number scrubbed] or [author name scrubbed], [phone number scrubbed]. Background: For many in the service who were injured, particularly reservists and those returning from overseas deployments, the disability evaluation process can take many months. In many cases, efforts to speed up the process have resulted in longer waits. Discussion: Injured military personnel waiting through this evaluation process can linger for over a year. Such waits lead to delays in the receipt of possible benefits. Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: In early 2013, then-Secretary of Defense Panetta rescinded the rule that restricted women from serving in combat units. Section 535 of P.L. 111-383 required the Secretary of Defense to submit a report to Congress to determine if changes in laws, policies, and regulations are needed to ensure women have an "equitable opportunity" to serve in the Armed Forces. That report was due April 15, 2012, but has not been submitted to date. Discussion: In many ways, the report mandated by Section 535 of P.L. 111-383 has been overtaken by events. Nevertheless, some in Congress are concerned that DOD is not taking seriously the review of policies affecting female servicemembers. Some are concerned that the use of the term "equitable," used above, does not mean the same as "equal." The service leadership has already begun assessing the occupational requirements. Reference(s): CRS Report R42075, Women in Combat: Issues for Congress , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Reports of crimes committed at military facilities, including reports of sexual assaults at Lackland Air Base and the shootings at Ft. Hood, have raised concerns over the safety of military personnel, their families, and others serving and/or living on bases. Discussion: These changes are intended to increase safety and welfare at military facilities. Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The District of Columbia has some of the most restrictive gun laws in the United States. On June 26, 2008, the Supreme Court held in the case of District of Columbia v. Heller that the District's handgun ban and certain requirements regarding the storage and carrying of firearms for rifles and shotguns were unconstitutional. Following this decision, the District of Columbia enacted the Firearms Control Emergency Amendment Act to comply with the ruling in Heller, although some assert the new requirements place "onerous restrictions on the ability of law-abiding citizens from possessing firearms." Discussion: "Sense of Congress" provisions are non-binding. Nevertheless, the House provision did suggest the displeasure of some in Congress of the effect of the District of Columbia's laws on gun control as they relate to members of the Armed Forces who are stationed or reside in the District. Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Military veterans may have difficulty translating their military training and skills to jobs in the civilian market. The Transition Assistance Program (TAP) was created to address this initial hardship to provide opportunities and aids for the successful transition of retiring or separating personnel into "career ready" civilians. Discussion: This provision would be partially integrated with TAP, providing information on civilian credentialing opportunities and improving access of accredited civilian credentialing agencies to military training content. This will allow personnel to evaluate the extent to which their training correlates with the skills and training required for various civilian certifications and licenses. Reference(s): CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Section 1433(b)(1) of P.L. 103-160 , signed into law on November 30, 1993, provided transitional assistance to dependents of military members where the military member was separated for dependent abuse, including compensation and commissary and exchange benefits. This language was enacted following a report of a servicemember being tried and convicted of abusing his family. As part of his sentence, the court ordered that he forfeit all pay and benefits. This situation left the family stranded without the means to return home. This law (as subsequently amended) afforded the family compensation and access to military stores. Discussion: Family members suffering abuse are often afraid to report the abuse out of fear they will lose all support if the member or retired member is convicted of a crime and has to forfeit all pay and benefits. Such dependents may feel isolated especially if they are living far away from friends and family at the same time. The House-passed provision would have expanded these transitional benefits to dependents of retirement-eligible members and encouraged them to come forward and report the abuse. The enacted provision requires that a study on the subject be reported to Congress within 180 days of enactment of the bill. Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Stolen Valor Act of 2005 ( P.L. 109-437 ) was signed into law by President Bush on December 20, 2006. This act broadened existing law making it a crime to falsely represent oneself as having received any U.S. military decoration or medal. On June 28, 2012, the Supreme Court ruled ( United States v. Alvarez ) that the Stolen Valor Act was an unconstitutional abridgment of freedom of speech. Discussion: This language is intended to revise the Stolen Valor Act so that it meets constitutional standards by narrowing the category of proscribed claims to those made for the purpose of gaining money, property, etc. Reference(s): CRS Report 95-519, Medal of Honor: History and Issues , by [author name scrubbed] and [author name scrubbed], Medal of Honor: History and Issues, by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Transition Assistance Program (TAP) was authorized by Congress in 1990 to assist separating military servicemembers and their families in their transition to civilian life. The program was designed to provide pre-separation services and counseling on various transition-related topics such as civilian employment, relocation, education and training, health and life insurance, finances, entrepreneurship, disability benefits, and retirement. TAP is available to servicemembers 12 months before separation and 24 months before for those retiring. The program is supported by interagency efforts from the Departments of Defense, Labor, Homeland Security, Education, and Veterans Affairs; the Office of Personnel Management; and the Small Business Administration. In 2012, TAP was redesigned as Transition Goals Plans Success, or Transition GPS. The Transition GPS redesign was initiated by the executive branch's Veterans' Employment Initiative Task Force and intended to conform with the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011. The VOW Act made participation in TAP mandatory for nearly all separating military personnel and required that each TAP participant receive "an individualized assessment of the various positions of civilian employment in the private sector for which such member may be qualified" as a result of their military training. The core Transition GPS was implemented in November 2012 and optional tracks are expected to take place by the end of 2013. Discussion: Section 524 of the House bill would amend Section 1144 of Title 10, United States Code, by adding a provision requiring the TAP to provide information regarding disability-related employment and education protections for servicemembers. Section 524 would also add a new program requirement to instruct participants on the use of veterans' educational benefits, "courses of post-secondary education appropriate for the member, courses of post-secondary education compatible with the member's educational goals, and instruction on how to finance the member's post-secondary education," and instruction on other veterans' benefits not later than April 1, 2015. This section also requires that the Secretary of Veterans Affairs, within 270 days after the date of the enactment of this act, submit to the Committees on Veterans' Affairs and the Committees on Armed Services the results of a feasibility study of providing the pre-separation counseling specified in 10 U.S.C. 1142(b) at all overseas locations where such instruction is provided by entering into a contract jointly with the Secretary of Labor for the provision of such instruction. The Senate bill ( S. 1197 ) contained no similar provision. The enacted bill includes that part of the House provision related to providing information related to disability related employment and education protections. Reference(s): See also CRS Report R42790, Employment for Veterans: Trends and Programs , coordinated by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: According to DOD, many servicemembers deployed in Afghanistan have free Internet access via several hundred Internet cafes located on bases. Internet access allows servicemembers to communicate with family and friends, access personal email, and browse websites. Service-members stationed in remote locations have more limited access to the Internet, but the Department of Defense tries to provide some access at these locations through the Cheetah Program, which uses Humvee mounted satellite units and laptops with webcams to provide Internet access. The portability of this system allows servicemembers to keep in touch with family and friends even in remote locations. However, despite these efforts, there have been periodic complaints from servicemembers about the availability of Internet access in Afghanistan. Discussion: Section 569 of H.R. 1960 mandated that free Internet service be provided to members of the military serving in combat zones. The section was added to H.R. 1960 by amendment #63, which was offered by Representative Gene Green (D-TX 29) and adopted by the House. Representative Green indicated in debate that his amendment was intended as a response to concerns expressed by servicemembers from his district who are serving in Afghanistan. The Senate committee-reported bill ( S. 1197 ) contained no similar provision, nor did the enacted bill. Reference(s): None. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Transitional Assistance Management Program (TAMP) provides 180 days of premium-free transitional medical and dental benefits after regular TRICARE benefits end for servicemembers and their families separating from active duty. The 180-day health care coverage period begins the day after separation from active duty. Once eligible, servicemembers and their families will be automatically covered under TRICARE Standard and TRICARE extra or the TRICARE Overseas program (TOP) Standard (if overseas). Discussion: The enacted provision would authorize DOD to provide an additional 180 days for medical treatment provided through telemedicine to servicemembers as an extension of the Transitional Assistance Management Program. "Telemedicine" has been defined as "the use of medical information exchanged from one site to another via electronic communications to improve a patient's clinical health status. Telemedicine includes a growing variety of applications and services using two-way video, email, smart phones, wireless tools and other forms of telecommunications technology." This provision is intended to help ensure a more seamless transition for servicemembers from military to civilian life, particularly those who may endure mental or physical injuries. The provision states that the requirement to carry out this mandate would terminate on December 31, 2018, if suicide rates are 50% less than rates of December 31, 2012. Reference(s): None. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: Under Section 101 of Title 38, United States Code, 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." "Active military, naval or air service" does not include active duty for training (ADT) or inactive duty training (IDT) unless the individual was disabled or died from a disease or injury incurred or aggravated in the line of duty. Thus, reservists who are ordered to active duty during the course of their careers—for example, a deployment to Afghanistan—or who were disabled or died while on ADT or IDT, are considered veterans. However, some reservists only serve on ADT or IDT during the course of their careers, and do so without dying or suffering a disabling injury or disease in the line of duty. These individuals are not technically veterans under the Title 38 definition, even if they have completed a full reserve career and are eligible for reserve retirement. However, this does not necessarily mean these individuals are ineligible for veterans benefits, which may be granted based on eligibility criteria other than the definition of 38 U.S.C. 101. Discussion: Reservists typically become eligible for retired pay at age 60, after having completed at least 20 years of qualifying service, although in certain circumstances they can draw retired pay at early as age 50. Section 642 of the House bill would honor as "veterans" those reservists who are entitled to reserve retired pay, or who would be entitled to reserve retired pay except that they are too young to receive it. This honorary designation as a veteran would not entitle the retiree to any benefit. The Congressional Budget Office scored this provision as "cost neutral" because there is no cost in giving recognition to retired members of the reserve in the absence of providing additional benefits. The Senate committee-reported bill ( S. 1197 ) contained no similar provision, nor did the final bill. Reference(s): CRS Report R42324, "Who is a Veteran?"—Basic Eligibility for Veterans' Benefits , by [author name scrubbed], "Who is a Veteran?"—Basic Eligibility for Veterans' Benefits, by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed] or [author name scrubbed], x[phone number scrubbed] Background : TRICARE is a health care program serving uniformed servicemembers, retirees, their dependents, and survivors. Neither H.R. 1960 , as passed by the House, nor the Senate committee-reported bill ( S. 1197 ) included the Administration's 2014 budget proposals to raise premiums for military retirees using a three-tier model based on retirement pay brackets, to index the TRICARE catastrophic cap to the National Health Expenditure, and to introduce enrollment fees for TRICARE Standard/Extra and TRICARE for Life. Discussion: The enacted bill did not adopt the Administration's proposals to increase the share of health care costs paid by military retirees. The enacted bill, however, does not prevent DOD from implementing its proposal to increase the TRICARE Prime non-mental health office visit co-pay for retirees and their families from $12 to $16 per visit. Reference(s): Previously discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]; CRS Report R41874, FY2012 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2012 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed] ; CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed] ; and CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed] . CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: Issues of the mental health of servicemembers in the Armed Forces have been of concern to Congress for decades. Over the years, Congress has addressed the issue via studies, hearings, and legislation. In H.R. 1960, Title V contains three provisions related to servicemember mental health in Subtitles C and I, while Title VI, "Health Care Provisions," contains 10 provisions concerning mental health. These provisions deal with varied mental health concerns, including post-traumatic stress disorder (PTSD) and traumatic brain injury (TBI), among other mental health diagnoses. Note: Section numbers and order do not necessarily correspond across bills. Discussion: The sections in the first House-passed bill would have expanded mental health assessments; require evaluations of the role of mental health disorders in servicemembers' encounters with the Uniform Code of Military Justice system and separations from the Armed Forces, and build on previous efforts to ensure appropriate identification, diagnosis, treatment, and access to psychological health resources to active duty servicemembers, reservists, and military families. The Senate committee-reported bill ( S. 1197 ) contained no similar provisions. Reference(s): CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background : DOD announced that as of October 1, 2013, TRICARE Prime will no longer be available to beneficiaries living in certain areas in the United States. Prime Service Areas (PSAs) are geographic areas where TRICARE Prime is offered. PSAs were created to ensure medical readiness of the active duty force by augmenting the capability and capacity of military treatment facilities (MTFs). The affected areas are not close to existing MTFs and have never augmented care around MTF or Base Realignment and Closure (BRAC) locations. This change is estimated to affect approximately 171,000 military retirees. Elimination of the TRICARE Prime option for these individuals means that they need to either use TRICARE Standard/Extra, obtain a waiver to use TRICARE Prime if within the limits of another PSA, or use some other form of health coverage (such as employer sponsored insurance). DOD had planned to make PSA reductions since 2007, when proposals were requested for the next generation of TRICARE contracts. DOD determined that existing PSAs be kept in place in all regions until October 1, 2013, to coincide with the deadline for annual TRICARE Prime enrollments and fee adjustments. Both TRICARE's general Prime enrollment policy (see TRICARE Operations Manual (TOM), Chapter 6, Section 1, para 9.0), as well as the guidance provided to the managed care support contractors and TRICARE beneficiaries as part of DOD's PSA reduction (see TOM, Chapter 27, Section 1), permitted beneficiaries who live outside of a T-3 PSA but within 100 miles of an available Primary Care Manager (whether civilian network or MTF) in a remaining PSA to execute a drive time waiver and apply for Prime enrollment. We are not aware any T-PSA beneficiary being denied re-enrollment in a remaining T-3 PSA from Jan-Oct 2013, but there could be some who were within 100 miles of a PCM, but that PCM's enrollment panel was at capacity. Discussion : Section 701of the enacted bill requires DOD to ensure certain affected beneficiaries (specifically those that were disenrolled from TRICARE Prime on October 1, 2013 due to the PSA changes but that reside within 100 miles of a MTF) are provided the right to make a one-time election to continue their enrollment in Prime. Section 701 provides a guarantee that those within 100 miles of an MTF can continue their enrollment in Prime. DOD has stated that it will ensure these affected beneficiaries are informed of this statutory right and that a PCM in a remaining PSA is made available to any beneficiary who makes the one-time election per Section 701. DOD has stated that the existing enrollment policy that allowed a beneficiary to waive the drive-time standard and apply for Prime enrollment at a remaining PSA within 100 miles of a Primary Care Manager is not being changed and the beneficiaries who re-enrolled under that policy will not be dis-enrolled. Under this general enrollment policy, contractors are not required to establish sufficient network capacity and capability to grant enrollment to beneficiaries who reside outside of the PSA - enrollment for those individuals is based on availability/capacity and is not a matter of right. DOD's plans to eliminate TRICARE Prime coverage for certain PSAs would have been completely overridden by Section 711 of the House-passed bill. The initial House provision would have allowed individuals who were enrolled in TRICARE Prime in affected services areas to elect to remain in TRICARE Prime for as long as they reside in the affected service area. DOD would still, however, been able to prevent any new enrollments in TRICARE Prime in the affected areas. The Senate committee-reported bill ( S. 1197 ) contained no similar provision. The enacted provision limits the election opportunity to individuals who live within 100 miles of a military treatment facility (MTF). Such individuals, however, were already allowed to waive access standards and enroll in the Prime Service Area associated with the military treatment facility. Previously, Section 732 of the FY2013 NDAA required the Secretary of Defense to submit within 90 days to the Committees on Armed Services of the Senate and the House of Representatives a report setting forth the policy of the Department of Defense on the future availability of TRICARE Prime for eligible beneficiaries in all TRICARE regions throughout the United States. The report was submitted to Congress on March 22, 2013. References : CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact : Don Jansen, x[phone number scrubbed]. Background : In 2011, the Secretaries of Defense and Veterans Affairs signed a commitment to implement a "single common platform" for an integrated electronic health record (EHR) system. However, in February 2013, the Secretaries announced that the departments would instead acquire EHRs separately. They cited cost savings and meeting needs sooner rather than later as reasons for this decision. Discussion : Since 1998, DOD and VA have undertaken numerous initiatives to achieve greater EHR interoperability. These have included efforts to share viewable data in existing systems; link and share computable data between the Departments' health data repositories; establish interoperability objectives to meet specific data-sharing needs; and implement electronic sharing capabilities for the first joint federal health care center. These initiatives have increased data-sharing in various capacities but have not achieved the fully interoperable electronic health record capabilities required in previous legislation. The Senate committee-reported bill S. 1197 ) included a "Sense of the Senate" provision. References : CRS Report R42970, Departments of Defense and Veterans Affairs: Status of the Integrated Electronic Health Record (iEHR) , by [author name scrubbed] and [author name scrubbed]. CRS Point of Contact : Don Jansen, x[phone number scrubbed]. | Military personnel issues typically generate significant interest from many Members of Congress and their staffs. Ongoing operations in Afghanistan, along with the operational role of the Reserve Components, further heighten interest in a wide range of military personnel policies and issues. The Congressional Research Service (CRS) has selected a number of the military personnel issues considered in deliberations on the initial House-passed version of the National Defense Authorization Act for Fiscal Year 2014 and on the bill that was enacted and became law (P.L. 113-66). This report provides a brief synopsis of sections that pertain to personnel policy. These include end strengths, pay raises, health care, and sexual assault, as well as less prominent issues that nonetheless generate significant public interest. This report focuses exclusively on the annual defense authorization process. It does not include language concerning appropriations, veterans' affairs, tax implications of policy choices, or any discussion of separately introduced legislation, topics which are addressed in other CRS products. Some issues were addressed in the FY2013 National Defense Authorization Act and discussed in CRS Report R42651, FY2013 National Defense Authorization Act: Selected Military Personnel Policy Issues, coordinated by [author name scrubbed]. Those issues that were considered previously are designated with a "*" in the relevant section titles of this report. |
U.S. relations with Malaysia have been generally positive over the last few years. Both countries share interests in maintaining regional stability, dealing with militant Islamists and separatists, developing close trade and investment relationships, securing the safety of ships passing through the strategically important Strait of Malacca, and establishing mutually beneficial military cooperation. However, efforts to negotiate a bilateral free trade agreement (FTA) appear to be stalled. In addition, Malaysia and the United States appear to have conflicting views of the future of regional economic integration in East Asia. U.S.-Malaysia relations improved after former Prime Minister Mahathir Mohamad turned over power to his former Deputy Prime Minister Datuk Seri Abdullah Badawi on October 31, 2003, ending 22 years of rule by Mahathir. However, an unexpectedly weak showing for Badawi's political party, the United Malays National Organization (UMNO), and its Barisan Nasional (BN) coalition partners in the March 8, 2008 parliamentary elections may have implications for U.S.-Malaysian relations. This report provides an overview of recent political and economic developments in Malaysia, and examines implications for U.S. policy. UMNO and its coalition partners have been in power since Malaysia's independence in 1957. In the first general election in 1959, UMNO and its coalition partners received just over half the votes, but won 74 out of the 104 seats in the Dewan Rakyat (People's Hall), the more powerful lower house of Malaysia's parliament. In every parliamentary election from 1959 to 2004, an UMNO-led coalition has won at least two-thirds of the seats in parliament—with the exception of 1969, when the coalition won 95 out of 144 seats (66.0%). A two-thirds "supermajority" is important because it allows the BN to amend Malaysia's constitution without support from opposition parties. In the election of 2004, the BN won 198 out of 219, or 90.4%, of the seats. The outcome of the parliamentary elections of March 8, 2008, surprised many people. A major Malaysian newspaper, The Star , quoted one opposition leader who compared the results to a tsunami. The BN barely received half of the popular vote, and won just 140 of the 222 seats in the Dewan Rakyat —eight seats less than it needed to retain a "supermajority." The biggest losers among the BN members were: UMNO, which saw its seats decline from 109 to 79; The Malaysian Chinese Association (MCA), which dropped from 31 to 15 seats; and The Malaysian People's Movement Party ( Parti Gerakan Rakyat Malaysia , or Gerakan), which held onto only 2 of its 10 seats in the Dewan Rakyat . Most commentators stated the 2008 elections were the BN's worst results since 1959. The main opposition parties—the Democratic Action Party (DAP), the Islamic Party of Malaysia ( Parti Islam SeMalaysia , or PAS), and the People's Justice Party ( Parti Keadilan Rakyat , or PKR)—all increased their number of seats in the parliament. The PKR experienced the greatest rise—jumping from just one to 31 seats. The DAP and PAS both increased their seats on the Dewan Rakyat by 16 seats, for a total of 28 and 23, respectively. Altogether, Malaysia's opposition parties received 46.8% of the popular vote, and won 82 out of the 222 seats on the Dewan Rakyat . The BN's weakness was also reflected in the results of the 12 concurrent state elections. Opposition parties took control of five of the 13 Malaysian states, including surprise victories in Kedah, Penang, and Selangor. The PAS retained its control over the state of Kelantan and the DAP leads a small opposition majority in the state of Perak. Among the seven contested states in which the BN retained control, the opposition gained seats in all but two states—Perlis and Sabah. There are differing opinions on why the BN lost so much of its support, and the opposition parties gained so much support. Some commentators maintain that Badawi was responsible because he had failed to make adequate reforms within the BN and the government . Others stated that economic factors, and in particular rising income disparities and inflation, had led voters to switch from the BN to the opposition parties. Another group of political observers saw the election results as evidence that Malaysia's ethnicity-based political system was obsolete and no longer a reliable base of power for the BN. In the immediate aftermath of the elections, ex-prime minister Mahathir suggested Badawi should consider resigning. While Badawi did not resign, he did reorganize his cabinet, reducing the number of ministers (from 90 to 70) and removing several long-standing members. According to Badawi, half of the members of the cabinet announced on March 18, 2008, were "new faces." Among the people removed from the cabinet was Datuk Seri Rafidah Aziz, who had held the position of Minister of International Trade and Industry for over 20 years. Aziz has been an important figure in U.S.-Malaysian trade relations. It is unclear what impact, if any, the new cabinet will have on Malaysia's policies. The dramatic drop in support for two of Malaysia's ethnically-based political parties—the MCA and the Malaysian Indian Congress (MIC)—has also led to calls for political changes. Gerakan party chief Datuk Chang Ko Youn, who lost his seat in the parliament to a DAP candidate, has suggested that BN member parties should consider eliminating ethnic restrictions on party membership as a first step to the formation of a single party. However, MIC president Seri S. Samy Vellu, who also lost his bid for reelection to the parliament to an opposition candidate, rejected Chang's suggestion, saying "such an action will dilute the rights of the Indian community." Some commentators have suggested that the shift in Chinese and Indian support to opposition party candidates reflects a growing sense among Malaysia's influential ethnic minorities that the BN no longer adequate reflects their interests. Others attribute the desertion of the BN by Malaysia's Chinese and Indian to economic issues, such as food price inflation and rising income disparities. The strengthening of opposition party power in the Dewan Rakyat and in state governments is also expected to restrict the power of Badawi and the BN to implement changes in policy. The loss of a supermajority in the Dewan Rakyat is considered by some a psychological and political blow to the BN, which has ruled virtually unchallenged in Malaysia since independence. There is discussion that the election results may be the first sign that politics in Malaysia are starting the process of transformation into a two-party, non-ethnic system, and possibly a more truly democratic process. In addition, opposition control of five of Malaysia's 13 states may also curtail Badawi's power. For example, the new state government in Penang has already announced that it will no longer abide by the BN's long-standing "New Economic Policy" that grants preferential treatment to Malaysia's bumiputera . However, a past judicial tradition of broadly interpreting the federal government's power under Malaysia's constitution may mitigate the opposition's ability to use the state governments to exert power or influence. A final concern raised by the BN's weak showing in the 2008 is the potential for social unrest and governmental policy change. The last time the BN (or its predecessors) did as poorly in a parliamentary election was in 1969. Following the 1969 elections, there were violent ethnic riots in Malaysia between May and July (precipitated by the "May 13 Incident" in Kuala Lumpur) during which approximately 200 people were killed. Following the riots of 1969, the BN announced a series of economic reforms, known as the "New Economic Policy" (NEP). The events of 1969 are discussed in more detail below. However, in the weeks following the election, there has been virtually no violence or ethnic unrest in Malaysia. For U.S.-Malaysia relations, the 2008 elections will have little direct or immediate impact, with the possible exception of the removal of Aziz as Minister of International Trade and Industry. Aziz has been Malaysia's chief negotiator during the U.S.-Malaysia free trade agreement (FTA) talks. Her departure implies a loss of "institutional knowledge" for the Malaysian negotiation team. Her replacement, Tan Sri Muhyiddin Yassin, was Minister of Agriculture and Agro-based Industry in the previous cabinet. Many of the political cleavages of Malaysian society, which continue to have relevance to today's political dynamics, find their root in Malaysia's colonial past. Malaysia inherited a diverse demographic mix from the British. Through the importation of labor, the British added ethnic Chinese and Indians to the Malay and other indigenous populations of peninsular Malaya, Sabah, and Sarawak. The demographic composition of Sabah and Sarawak includes a higher percentage of indigenous groups, such as the Iban. Together the Malay and indigenous population—collectively known as the bumiputeras —comprise about 58% of the population compared to 24% for the Chinese and 7% for the Indians. Traditionally, ethnic Chinese and Indians have controlled a disproportionately greater share of the nation's wealth than bumiputeras. Malaysia has a complex history of inter-communal politics. A British plan after World War II to create the Malaysian Union that incorporated all of the Malayan territories except Singapore would have provided for common citizenship regardless of ethnicity. Concerns among the Malays that they could not compete with the more commercially-minded Chinese led to the creation of UMNO—a conservative, Malay nationalist organization that later reformed itself into a political party. Negotiations between the British and UMNO led to the creation of the Federation of Malaya in 1948, which included Singapore and provided special rights for the bumiputeras and Malaysia's sultans. Sabah and Sarawak joined the Federation to form Malaysia later in 1963, while Singapore left the Federation in 1965. At independence in 1957, there was an understanding that Malays would exert a dominant position in political life in Malaya, while ethnic Chinese and Indians would be given citizenship and allowed to continue their role in the economy. This accommodation between Malaysia's ethnic groups has not always been tranquil. Between 1948 and 1960, the Communist Party of Malaysia, which was largely comprised of ethnic Chinese, waged a guerilla war against the British. This came to be known as the "Malayan Emergency." The Internal Security Act (ISA), which continues to be used to suppress groups that threaten the regime, originally was put in place by the British to combat "communist subversion." The Special Branch, which Malaysia inherited from the British, continues to act as the primary intelligence and security unit under the Royal Malaysian Police. During the "Emergency," Malays generally sided with the British against the communists whose ranks were drawn largely from the Chinese community. By the mid-1950s, the insurrection had collapsed. Added to this history of inter-communal strife were the riots of May to July 1969 in which reportedly 196 were killed. Most of those killed were ethnic Chinese. Rioting began on May 13, three days after the Alliance Party, a predecessor to the BN, failed to win two-thirds of the seats in the Dewan Rakyat , and lost control of Selangor and Perak. Much like the results of the 2008 elections, one of the main losers in the 1969 elections was MCA, which lost 14 of its 27 seats in the Dewan Rakyat . Because of the rioting, elections to be held in Sabah and Sarawak were suspended and a state of emergency was declared. Partly in response to the 1969 riots, the New Economic Policy (NEP) was instituted in 1971. NEP provided preferential treatment for the bumiputera majority via a kind of quota system in order to increase their share of the economic wealth of the country. The New Development Policy (NDP) replaced the NEP in 1990. The NDP retained NEP goals, such as 30% bumiputera control of corporate assets. Prime Minister Mahathir's subsequent Vision 2020 policy had similar elements, but was more inclusive and attempted to do more to foster national ethnic unity. The BN appears to be relying on an expanding economy to be able to disproportionately favor bumiputeras, while not undermining its economic appeal to Malaysia's Chinese and Indian population. In this way, Malaysia's social harmony—and support for the BN—may be linked to economic growth. For this reason, periods of economic stagnation could carry the prospect of eroding the delicate balance between ethnic groups in Malaysia and undermining support for the BN. Malaysia is a Constitutional Monarchy, but of an unusual kind, whose structure includes 13 states and three federal territories. Every five years, the nine hereditary Sultans elect one from among their group to be the Yang di Pertuan Agong, a traditional title equating to a King. The Agong exercises limited authority and acts on the advice of the Prime Minister, Parliament and the Cabinet. The Prime Minister is the head of the Federal Government, which has 25 ministries. Out of a total of 13 states four are ruled by State Governors appointed by the Federal Government. In the nine other states, the hereditary Sultan fulfills this function. Each state has a state legislature. The lower house of Malaysia's Parliament, the Dewan Rakyat , has 222 members elected for terms not to exceed five years. The upper house, the Dewan Negara , has 70 members—44 members appointed by the King and 26 elected members with two from each state. Malaysia is an "ambiguous, mixed" or "semi" democracy that has both democratic and authoritarian elements. The constitution is largely democratic and provides for regular elections that are responsive to the electorate. The government is based on a parliamentary system and the judiciary is designed to be independent. Despite this democratic structure, authoritarian control limits the ability of the opposition to defeat the ruling coalition at the polls. Prime Minister Badawi heads the United Malays National Organization (UMNO), the key party in the BN. The BN also includes the Malaysian Chinese Association (MCA), the Malaysian Indian Congress (MIC), the Parti Gerakan Rakyat Malaysia (Malaysian People's Movement Party, or Gerakan), and a number of smaller political parties. The opposition is led by the Pan-Malaysian Islamic Party ( Parti Islam Se-Malaysia , or PAS), the People's Justice Party (Parti Keadilan Rakyat, or PKR), and the Democratic Action Party (DAP). In 1999, PAS, DAP, PKR, and Malaysian People's Party ( Parti Rakyat Malaysia , or PRM) formed an opposition alliance known as the Barisan Alternatif (Alternative Front), but the alliance fragmented in 2001 following the withdrawal of the DAP. For the 2008 elections, DAP, PAS, and the PKR formed an alliance called the Barisan Rakyat (People's Front) with a number of smaller parties. UMNO is the most influential party in Malaysia today and represents the interests of the mostly Sunni Malays. The Malaysian administration, under both Mahathir and Badawi, has promoted a moderate form of Islam— Islam Hadhari (see below )—under a secular polity while opposing the rise of Islamic extremists whose policies are more closely associated with PAS. The ruling BN, under Mahathir's leadership, used the power of the state, including the ISA, to thwart political gains by PAS, which advocates a more conservative view of Islam. PAS's influence is traditionally found in the northeast states of Kelantan and Terengganu. The transition from Mahathir to Badawi was consolidated in the March 21, 2004 elections that expanded the ruling BN's hold on parliament from 77% to 90% of the seats. The BN also increased its share of votes from 57% to 64%. Following the 2004 elections, the government's coalition controlled 11 of 12 state governments. The election was viewed by observers as a vote of confidence by Malaysians in Badawi's relatively moderate form of Islamic practice as opposed to the hard-line approach of PAS. The PAS, which offered a more Islamist agenda, lost voter confidence, including in its area of traditional support in northeast peninsular Malaya. The political transition from Mahathir to Badawi led to an improvement of U.S.-Malaysian relations. Some think Badawi, who was first elected to Parliament in 1978, is attempting to strike a balance between providing continuity of leadership to produce stability, and meeting expectations for a more open and consultative style of government. Badawi pledged to work with the BN to realize the policy goals articulated in Vision 2020 . It is thought that Badawi's political legitimacy will at least in part be dependent on his ability to deliver sound economic growth and to counter the perceived rise of Islamic extremism in Malaysia. Badawi's respected religious background has helped him counter the rising popularity of PAS and the forces of Islamic extremism. However, Badawi's government has been beset by division within UMNO. In part, these are based on differences between former Prime Minister Mahathir Muhammad and Prime Minister Badawi. More recently, now ex-Minister Aziz has supposedly used her leadership of the Wanita Umno, UMNO's main women's organization, in an attempt to influence government and party policies. It is thought that party divisions led Badawi to call for the early general elections of 2008 in hopes of securing a fresh mandate and reinforcing his position within his party. The outcome of the elections was clearly contrary to his hopes. Under Badawi's leadership, Malaysia has been developing a concept, Islam Hadhari , that seeks to promote a moderate or progressive view of Islamic civilization. Badawi has stated that "we are responsible for ensuring that the culture of extremism and violent acts in the name of Islam does not happen in Malaysia." Some observers believe that Islam Hadhari could promote a view of Islam that encourages and emphasizes development, social justice and tolerance. Increasing attention appears to be focused on the role that moderate Islamic ideology and moderate Islamic states can play in countering the forces of Islamic extremism within the region and beyond. However, some analysts are concerned about what they see as an "increasing Islamisation trend in Malaysia" and that "a more conservative form of Islam is emerging" in Malaysia despite government efforts through Islam Hadhari to "pave the way for the development of Malaysia as a bastion of Islamic moderation." Malaysia has been playing an active role in international organizations both in its region and beyond. Besides Asia Pacific Economic Cooperation (APEC), ASEAN, and the World Trade organization (WTO), Malaysia is also a member of the Asian Development Bank (ADB), the Islamic Development Bank, the Non-Aligned Movement (NAM), Organization of Islamic Conference (OIC), the United Nations, and the World Bank. In 2006, Malaysia chaired ASEAN, the Organization of Islamic Conference (OIC), and the Non-Aligned Movement (NAM). Malaysia has been an active contributor to international peacekeeping, including most recently in East Timor. It also sent personnel to assist the Aceh Monitoring Mission in Indonesia in 2005 and 2006. Malaysia has also been seeking to facilitate negotiations between the government of the Philippines and the Moro Islamic Liberation Front. Malaysia has placed much emphasis on regional cooperation despite its differences with certain regional states. In the past, Malaysia and the Philippines have differed over the Philippines' claim to parts of Sabah. Indonesia and Malaysia came into conflict as a result of Indonesian military raids over the border in Borneo in 1963. These were part of its policy of confrontasi and repelled by Malaysian and Commonwealth forces. Malaysia remains a member in the Five Power Defense Arrangements along with Australia, New Zealand, the United Kingdom, and Singapore, which has its roots in Malaysia's colonial past. Malaysia has significant interest in the hydrocarbon potential of the South China Sea. In the past, this has put Malaysia in conflict with Brunei over the Baram Delta off the coast of Sabah and Sarawak. In July 2002, independent U.S. contractor Murphy Oil, working for Malaysia's state oil company Petronas, discovered the Kikeh field, which is estimated to hold 700 million barrels of oil. This represents 21% of Malaysia's current reserves, which are projected to run out in 15 years. Malaysia, China, the Philippines, and Vietnam have conflicting claims over the Spratly Islands and the South China Sea. Though continuing, this conflict has been less contentious in recent years than it was in the 1990s. Malaysia was a founding member of ASEAN in 1967 and in the 1990s was a strong advocate for expanding ASEAN to include Burma, Laos, and Vietnam. More recently, Malaysia has sought a more influential role in ASEAN and Southeast Asia, particularly with respect to trade issues. Malaysia hosted the East Asian Summit in Kuala Lumpur in December 2005 as part of its efforts to transform ASEAN into a more integrated regional association. Malaysia also promoted the drafting of the new ASEAN Charter and is one of the five members to ratify the new agreement. In addition, Malaysia has supported efforts to form closer trade relations with nations outside of ASEAN via the "ASEAN+3" and "ASEAN+6" models. However, Malaysia's relatively small size and a lack of consensus in ASEAN to follow a Malaysian lead place limits on the extent to which Malaysia can assume a leadership role within ASEAN and the region. The attitudes of Malaysia (and other ASEAN states) towards China have undergone a significant shift over the past two decades. Relations with China were once characterized by much suspicion. More recently, Malaysia has viewed China as both a major competitor and a major trading partner. There are some indications that Malaysia has attempted to maintain the value of its currency, the ringit, in line with the value of China's currency, the renminbi, to protect its competitive position in key commodity markets. Malaysia normalized relations with China in 1974, but has maintained close economic and trade relations with Taiwan. Over 2,000 Taiwanese companies have invested in Malaysia. In 2007, while China was Malaysia's 4 th largest trading partner, Taiwan was its 7 th largest trading partner. Hong Kong, a special administrative region of China, was Malaysia's 8 th largest trading partner in 2007. In recent years, issues of economic competition and cooperation have been more of a concern to ASEAN states than security concerns. China currently is said to be thought of "as more of an opportunity with concomitant challenges, rather than as a threat" as it was as recently as 1999, when China fortified Mischief Reef in the South China Sea which it had occupied in 1994. To assert its claims to the South China Sea, Malaysia constructed a concrete building on Investigator Shoal in the Spratlys in 1998. ASEAN states' perceptions could change again should China more actively reassert its claims in the South China Sea or go to war over Taiwan. Relations between Malaysia and Indonesia have at times been tense. Among the top issues between the two nations are differences over Malaysian policies towards illegal Indonesian workers and a maritime dispute off Borneo which has implications for control of valuable energy resources. The presence of thousands of illegal Indonesian workers in Malaysia that have supposedly displaced many of Malaysia's Indian workers may have contributed to Malaysia's Indian population deserting UMNO and the BN in the 2008 elections. Many undocumented Indonesians working in Malaysia were pressed to leave Malaysia in late 2004 and early 2005. There are also allegations of the human trafficking of Indonesian women and children to Malaysia for commercial sexual exploitation. Malaysia also awarded an oil concession to Royal Dutch Shell in 2005 in the waters off Sabah in northeastern Borneo that are also claimed by Indonesia. The conflict escalated to the point that both nations sent naval ships to assert their claims before diplomacy eased tensions. Malaysia agreed to participate in the monitoring of the peace treaty signed in August 2005 between Indonesia and Gerakan Aceh Merdeka (GAM) along with the international monitoring team led by the European Union. Malaysia has also called for ASEAN states to discuss defense issues as well as foreign and economic policy. Illegal forest fires in Sumatra in August 2005 led Malaysia to close schools, as well as Malaysia's largest seaport, and declare a state of emergency in Kuala Selangor and Port Kelang as smoke severely limited visibility and created a significant health risk. The Indonesian government reportedly placed the blame for the fires on 10 logging companies, of which 8 were Malaysian-owned. Given that illegal burning of forests in Indonesia has led to dangerous smoke pollution in Malaysia before, some observers have speculated that more must be done to put in place legal frameworks to control trans-border pollution. An estimated 70% of all logging in Indonesia is illegal. Badawi met with his Indonesian counterpart, President H. Susilo Bambang Yudhoyono, on January 11, 2008, in Putrajaya, Malaysia, as part of the "annual consultations" between the two countries. Their discussions focused on the land and maritime border issues, bilateral defense cooperation, Indonesian migrant workers in Malaysia, illegal logging, and bilateral economic cooperation. Malaysia's border with Thailand has been a source of friction in their bilateral relationship. Thailand's southern provinces are Muslim majority areas where separatist violence has been increasing. Malaysia agreed to work with Thailand under a Joint Development Strategy for border areas to develop the economy and living conditions of people in the border region. Badawi has highlighted the need to address poverty as a means of alleviating the conflict in Southern Thailand. Malaysia's relations with neighboring Singapore have been termed "bumpy" since Singapore's independence in 1965. The "bumpiness" of the relationship emerges from several factors, including ethnic tensions, economic and trade interdependency, and common security concerns. Singapore is a largely Chinese city-state with a large Malay minority; Malaysia is a largely Malay nation with a large Chinese minority. Economic conditions force Singapore to rely on Malaysia for many resources, including water and labor. At the same time, Malaysia relies on Singapore for capital investments and trade-related business opportunities, including the re-export of many Malaysian goods. Finally, both nations are reliant on the flow of shipments through the Strait of Malacca. In addition to the Five Power Defense Arrangement, Malaysia and Singapore also have established coordinated naval patrols with Indonesia to protect freight shipments in the region. According to Singapore's minister of foreign affairs, George Yeo, the results of the 2008 elections should not affect bilateral relations. Malaysia is a relatively mature industrialized nation, whose economy relies on both domestic forces (personal consumption and private investment) and external trade for its growth and development. Following a short, severe recession in 1998 and a mild turndown in 2001, Malaysia's real gross domestic product (GDP) has grown between 5% and 6% per year for the past five years. The current official government estimate has its real GDP increasing 6.0% in 2007 and projecting 6.0%-6.5% growth in 2008 (see Table 1 ). Malaysia's central bank, Bank Negara Malaysia, projected 2008 GDP growth of 5.0%-6.0% two weeks after the parliamentary elections, citing "turbulent global financial markets and slowing U.S. growth" as reasons for its less optimistic forecast. Malaysia's GDP and average per capita income classify it as a middle income country according the World Bank's system, comparable to Mexico and Russia. At official exchange rates, the per capita income in 2007 was $5,740, but its purchasing power parity value was estimated at $13,289. Since the 2001 economic downturn, Malaysia's economic growth has relied on a combination of strong domestic demand and continued export growth. In 2007, the main sources of real GDP growth were (in order): domestic consumption, public consumption, public investment, and private investment. Because imports grew more rapidly than exports, 6.2% compared to 4.1%, external trade actually lowered economic expansion in 2007. Government forecasts project private investment will play a greater role in economic growth in 2008, surpassing both public investment and public consumption. Another indication of the maturation of Malaysia's economy is its sectoral balance (see Table 2 ). While agriculture and manufacturing continue to play an important role in Malaysia's economy, the nation's GDP mainly comes from the service sectors. The sectoral structure of Malaysia's economy is more akin to those of South Korea and Thailand than Indonesia, the Philippines and Vietnam. Although agriculture provides a relatively small portion of Malaysia's GDP, it plays an important role in the nation's overall economy. One out of every three Malaysians live in rural areas. Approximately one out of every eight workers in Malaysia are employed in agriculture, animal husbandry, fishing, or forestry . Rice and palm oil are two crops of particular importance to Malaysia, the former for political reasons because many Malaysian farmers are reliant on rice for their livelihood and are opposed to the import of rice. The latter is important for economic reasons, as palm oil is a traditional major export crop for Malaysia. Malaysia's manufacturing sector accounts for nearly a third of the nation's GDP, employs about 30% of its workers, and accounts for over 80% of its export earnings. It is dominated by the production of automobiles, and electrical and electronic products. Malaysia is a regional leader in the production of automobiles, automotive components and parts. Its two major automobile manufacturers, Proton and Perodua, export their vehicles to over 40 countries, and Malaysia's leading motorcycle manufacturer, Modenas, exports to markets around the world, including Argentina, Greece, Iran, Malta, Mauritius, Singapore, Turkey, and Vietnam. Malaysia's automotive industry benefits from Malaysia's tariff and non-tariff trade restrictions on the import of automobiles, motorcycles, and components and parts for automobiles and motorcycles. The electrical and electronics (E&E) industry of Malaysia is a world-leader in the production of semiconductors and the assembly of E&E products, much of which is done under contract for leading international electronics companies. Approximately half of Malaysia's export earnings come from the E&E industry. However, over half of Malaysia's imports are raw materials, components, equipment, and capital goods to be used by its E&E manufacturers. As a result, the nation's economy is somewhat dependent on the global demand for electrical and electronic products. Malaysia's service sector is highly diversified, providing services for both the domestic and external segments of the economy. The service sector provides over 54% of the nation's GDP and more than half of its employment. Following the Asian financial crisis in 1997, Malaysia placed severe restriction on foreign participation in some service sectors, including financial services. Over the last five years, Malaysia has gradually loosened those restrictions, but access to Malaysia's financial markets is still very limited to foreign companies. Foreign trade was a major driver of Malaysia's economic growth in the past and continues to be important for its overall economic health. According to official figures, Malaysia's total trade exceeded 1 trillion ringgits for the first time in 2006. Over the last six years, Malaysia's exports increased 81.0% in value, while its imports rose by 80.2% (see Table 3 ). Malaysia runs a balance of trade surplus of about $30 billion per year. According to Malaysia's trade statistics, the United States was and continues to be its largest export market (see Table 4 ). In 2007, 15.6% of Malaysia's exports went to the United States, down from 18.8% in 2006. With the exception of the Netherlands and the United States, all of Malaysia's top 10 export markets are in the Asia-Pacific, indicating a regional export focus. Japan is historically the largest supplier of Malaysia's imports, but the United States was a close second in 2006 (see Table 5 ). Outside of Germany and the United States, all of Malaysia's leading suppliers of imports are in Asia, more evidence of its regional trade focus. Of Malaysia's largest trading partners, China, Japan, South Korea, and Taiwan have a bilateral merchandise trade surplus. Every other nation has a bilateral trade deficit, with the United States running the largest bilateral trade deficit. According to Malaysia's trade figures, both Malaysia's exports to the United States and its imports from the United States declined in 2007, by 14.6% and 9.1% respectively. The current goals for Malaysia's economic policies are to continue its strong economic growth, maintain full employment, reduce inflationary pressures, and lower the fiscal deficit. In addition, as part of its larger policy of Islam Hadhari , the government seeks to reduce poverty, improve living standards, and reduce income and wealth inequality between the nation's various ethnic groups. In particular, there is concern about the income and wealth differential between the bumiputera and the ethnic Chinese and Indian of Malaysia. For the period 2006 to 2010, the Malaysian government has established a set of objectives to achieve its overall economic goals as part of its Ninth Malaysia Plan. First, it will attempt to move its production into higher value-added activities by greater investment in education. Second, Malaysia seeks to improve the quality of the Malaysian work force by promoting the values of Islam Hadahari and improving the quality of Malaysia's educational system. Third, the government will address persistent sources of both regional and ethnic economic inequality. Fourth, Malaysia will seek to eliminate poverty by 2010 and continue to improve living standards. Fifth, in order to facilitate the achievement of the preceding objectives, the Malaysia government will strengthen the quality of its government agencies. The key macroeconomic policies for the Ninth Malaysia Plan emphasize continued growth by increasing the role of Malaysia's private sector and by attracting foreign direct investment (FDI), especially in higher value-added activities. In addition, the government will attempt to keep inflation under control. Also, there is the explicit objective of reducing the federal fiscal deficit from 3.8% of GDP in 2005 to 3.4% of GDP in 2010. Finally, having ended the peg of the ringgit to the U.S. dollar on July 21, 2005, Malaysia's central bank, the Bank Negara Malaysia, has officially adopted a managed float of the ringgit against several foreign currencies. However, there is some evidence that Malaysia's de facto exchange rate policy is to maintain the value of the ringgit relatively constant when compared to the value of China's renminbi. Malaysia's stated foreign trade policy for the next five years will continue to support trade and investment liberalization. Malaysia had projected the value of total trade (imports plus exports) will exceed 1 trillion ringgits ($286 billion) by 2010, but achieved that figure in 2006 and 2007. The government sees the formation of the proposed ASEAN Free Trade Area (AFTA), the trade liberalization and facilitation efforts of the Asia-Pacific Economic Cooperation (APEC), and the current efforts by the World Trade Organization (WTO) for greater liberalization of trade in goods and services as being consistent with its overall trade policy. In particular, Malaysia strongly supports ASEAN's discussions with China, Japan, and South Korea—the so-called "ASEAN+3"—about the possibility of forming an East Asian economic community. The successful conclusion of a free trade agreement with the United States would also be viewed as being consistent with its current trade policy. In general, trade relations between the United States and Malaysia are dominated by the outsourcing of the production of machinery, and electronic and electrical products by multinational corporations with operations within the United States and Malaysia. This trade pattern is revealed by the cross-shipment of similarly categorized goods to and from Malaysia, as well as the sector structure of U.S. foreign direct investment (FDI) in Malaysia. From 2001 to 2006, Malaysia's exports to the United States grew substantially, regardless of which nation's trade statistics are used, but then noticeably declined in 2007 (see Table 6 ). However, U.S. exports to Malaysia have not experienced similar growth. As a result, the U.S. bilateral trade deficit with Malaysia increased between 2001 and 2007—up $9.2 billion according to the United States and $5.6 billion according to Malaysia. In addition, the relative importance of each other as a trading partner has declined since 2001. From Malaysia's perspective, the United States purchased 20.2% of its exports in 2001, but only 15.6 of its exports in 2007. Similarly, the United States provided Malaysia with 16.0% of its imports in 2001, but just 10.8% of its imports in 2007. For the United States, Malaysia was the supplier of 2.0% of its imports in 2001 and 1.7% in 2007, and was the buyer of 1.3% of its exports in 2001 and 1.0% of its exports in 2007. Table 7 lists the top by categories of goods traded between Malaysia and the United States in 2007, according to U.S. trade data. The data reveals considerable reciprocal trade in machinery (HS84), electrical machinery (HS85); over three-quarters of bilateral trade in 2007 was in these two types of commodities. Much of this cross trade was due to outward processing of electronic and electrical products in Malaysia by major U.S. companies. In the bilateral exchange of machinery in 2007, the United States and Malaysia were shipping back and forth mostly computers and related equipment (HS8471) and parts and accessories for office equipment (HS8473). In the exchange of electronics and electrical products, the United States exports were mostly integrated circuits and microassemblies (HS8542) and its imports were primarily telephones and telephone parts (HS8517), as well as a significant amount of integrated circuits and microassemblies (HS8542). Since 2000, the United States has consistently been among the leading sources of foreign direct investment (FDI) in Malaysia, along with Hong Kong, Japan, and Singapore. In 2007, the United States invested 3.0 billion ringgits ($870 million) in Malaysia, which was 17.3% of Malaysia's total inward FDI for the year. The United States was Malaysia's fourth largest source of FDI in 2007, after (in order): Japan (6.5 billion ringgits), Germany (3.7 billion ringgits), and Iran (3.1 billion ringgits). The cumulative value of U.S. FDI in Malaysia is over $20 billion, with much of it being invested in electronics and electrical manufacturing, as well as the petrochemical industry. Malaysia and the United States currently hold similar positions on international trade relations in general, but occasionally differ on specific issues. Both nations support the general concept of trade and investment liberalization and facilitation. Also, both are actively pursuing trade and investment liberalization via multilateral and bilateral fora. However, on specific issues, there are differences between the United States and Malaysia on the goals and means of obtaining those goals. As a result, the two nations sometimes share the same view on trade issues, and sometimes have different, and even, opposing views. Since Malaysia and the United States are members of the World Trade Organization (WTO), there is a shared "baseline" for their bilateral trade relations. For example, both nations grant the other nation "normal trade relations," or NTR, status as required under the WTO. Also, since Malaysia and the United States are both members of the Asia-Pacific Economic Cooperation (APEC), they are both committed to APEC's Bogor Goals of open trade and investment in Asia by 2020. In addition, the United States and Malaysia concluded a trade and investment framework agreement (TIFA) in May 2004, are currently negotiating a free trade agreement (FTA), and are parties to various regional trade associations that are considering multilateral trade and investment agreements. On March 8, 2006, the United States and Malaysia announced they would begin negotiating a bilateral free trade agreement (FTA). The announcement was made by ex-U.S. Trade Representative Rob Portman and Malaysia's then-Minister of International Trade and Industry Rafidah Aziz on Capitol Hill with a bipartisan group of Members of Congress in attendance. The stated goals for the proposed FTA were to remove tariff and non-tariff trade barriers, and expand bilateral trade. Since the announcement, The United States and Malaysia have held six rounds of negotiations concerning the terms of the proposed FTA. The sixth round of talks were held in Kuala Lumpur on January 14-17, 2008. Among the outstanding issues in the negotiations are: (1) market access for U.S. exports to Malaysia of agricultural goods, automobiles, and automotive parts and components; (2) market access for Malaysian exports to the United States of agricultural goods; (3) market access for U.S. services, especially financial services, in Malaysia; (4) Malaysia's enforcement of intellectual property rights (IPR) protection; and (5) Malaysia's government procurement system and its preferential treatment for businesses owned and operated by ethic Malays, or bumiputera . Conditions for the fifth round of talks (held in Malaysia on February 5-8, 2007) were complicated at the end of January with the news of a $16 billion energy development deal between Malaysia's SKS Group and the National Iranian Oil Company that would develop Iranian gas fields and build liquefied natural gas plants. Over the last six years, trade between Iran and Malaysia has grown rapidly. According to Malaysia's Department of Statistics, total trade between Malaysia and Iran rose from $224 million in 2000 to over $1.045 billion in 2007. In addition, Iran was Malaysia's third largest source of inward FDI in 2007 (see above). During a House Committee on Foreign Affairs Hearing on January 31, 2007, then-Chairman Tom Lantos called the deal "abhorrent," and sent a letter to U.S. Trade Representative Susan Schwab requesting the suspension of negotiations on the proposed FTA until Malaysia renounced the deal with Iran. U.S. Trade Representative Schwab indicated that she intended to continue the negotiations with Malaysia. Malaysia sharply rejected the call to revoke the energy deal with Iran. Aziz reportedly stated that the United States has no right to block Malaysia trading with any country, even after the conclusion of the proposed FTA. Badawi also was firm on the issue, "We reject the pressure being inflicted upon us.... Do not bring any political matters into trade." In an official statement on February 6, MITI repeated Malaysia's objections to Representative Lantos' comments, stating: The call by Tom Lantos to suspend the free trade agreement negotiations because of a business deal by a Malaysian company with the National Iranian Oil company does not augur well for the negotiations.... Malaysia reiterates that the FTA negotiations cannot be held hostage to any political demand, and cannot be conducted under such threats. Malaysia is also ready to suspend negotiations if the situation warrants it. Further complicating the negotiations was the passing of the April 2, 2007 deadline for consideration under Trade Promotion Authority. Because President Bush did not notify Congress by the deadline, there are several scenarios under which Congress could consider the implementation bill for the proposed U.S.-Malaysia FTA. On May 10, 2004, Malaysia and the United States signed a bilateral trade and investment framework agreement. The U.S.-Malaysia TIFA states that both parties desire to develop trade and investment between the two countries, ensure that trade and environmental policies are supportive of sustainable development, and strengthen private sector contacts. To achieve these goals, the TIFA established a Joint Council on Trade and Investment, jointly chaired by Malaysia's Minister of International Trade and Industry and the U.S. Trade Representative, that is to meet at least once a year for the purpose of implementing the TIFA. The U.S.-Malaysia TIFA also set out a two-part work program. The first part committed both nations to consultation on trade and investment liberalization and facilitation, with explicit consideration to trade in services, information and communications technology, biotechnology, and tourism. The second part stipulated that the United States and Malaysia will "examine the most effective means of reducing trade and investment barriers between them, including examination and consultations on the elements of a possible free trade agreement." Both the United States and Malaysia have been members of the World Trade Organization, or WTO, since its creation on January 1, 1995. While the United States is generally seen as being a consistent supporter of trade and investment liberalization, Malaysia's trade policy has undergone significant changes over the last 12 years. However, under the Bawadi Administration, Malaysia has generally been supportive of trade and investment liberalization. For the current Doha Round, the United States and Malaysia are in general agreement on the overall goals of the talks, but have differed on some of the specifics. In particular, Malaysia joined its fellow ASEAN members in pushing the United States and the European Union to improve their market access offers for agricultural goods, including "making substantial reductions in trade distorting domestic support by the major players." The Asia-Pacific Economic Cooperation (APEC) group is another multilateral forum where the United States and Malaysia are both founding members. While Malaysia and the United States accept APEC's Bogor Goals for trade and investment liberalization by 2020, as well as APEC's "open regionalism" approach, there have been some differences of opinion on the future of APEC. During the 2006 APEC meetings, The United States proposed the transformation of APEC into a Free Trade Area of the Asia-Pacific, or FTAAP. This proposal received a mixed response from other APEC members. Many observers believe that Malaysia prefers the formation of an all-Asian free trade area that would exclude the United States (see below). During its January 2007 summit in Cebu, ASEAN invited Australia, India, Japan, New Zealand, the People's Republic of China, and South Korea—the so-called "ASEAN+6"—to attend as part of the second East Asia Summit (EAS). The first EAS was held in Kulua Lumpur in December 2005. ASEAN has also held talks about greater regional cooperation with just Japan, China, and South Korea—the ASEAN+3. ASEAN+3 met after ASEAN's last summit in Singapore in November 2007. Malaysia is a founding member of the Association of Southeast Asian Nations (ASEAN). ASEAN currently has 10 members; the United States is not a member. East Timor has applied to become ASEAN member. Malaysia is widely seen as a major supporter of the formation of an all-Asian free trade area that would exclude the United States. To some observers, Malaysia's support for the EAS is a continuation of Mahatir's East Asian Economic Caucus and its predecessor, the East Asian Economic Group. According to one source, the goal of forming an all-Asian free trade area was endorsed after the second EAS by China after overcoming its reluctance to include Australia and India. An attempt to forge a similar agreement during the 2005 East Asia Summit was unsuccessful. The possible creation of an all-Asian free trade area is seen by some observers as a response to the growing influence of the European Union and the United States in international trade relations. For the United States, the proposed all-Asian free trade area is a rival model to its proposed FTAAP. Malaysia is one of the five members of ASEAN that have ratified the new ASEAN Charter. One of the main outcomes of the November summit in Singapore was the signing of a new charter on November 20, 2007. To be officially adopted, the new charter must be ratified by all 10 members of ASEAN. Even before the charter was signed, the Philippines indicated that it was unlikely to ratify the charter unless Burma (Myanmar) upheld the document's provisions on democracy and human rights. Among its key provisions, the new charter commits the organization to its transformation into a regional economic community similar to the European Union by 2015. Included in its provisions are a collective commitment to the creation of an ASEAN Community "in which there is free flow of goods, services and investment; facilitated movement of business persons, professionals, talents and labour; and freer flow of capital." However, the charter also contains an "ASEAN minus X" provision that effectively allows any ASEAN member to opt out of economic commitments if it so chooses. It is unclear at this time how the creation of an ASEAN Community will affect U.S. policies in Southeast Asia. Bilateral relations between the United States and Malaysia are viewed as having improved since Badawi came to power. In the past, the relationship suffered from what a U.S. official called "blunt and intemperate public remarks" critical of the United States by former Prime Minister Mahathir, who generally subscribed to a view of the United States as a neo-colonial power strongly under the influence of a coterie of Zionist Jews. However, Mahathir's strong expression of sympathy and support following the attacks on September 11, 2001, apparently led to a thawing of a previously cool relationship that culminated with an official state visit to the White House by Mahathir in May 2002. The more cordial relationship between Malaysia and the United States has seemingly continued into the Badawi administration. However, there are aspects of U.S.-Malaysia relations that periodically raise tensions between the two nations. In particular, Malaysia was and continues to be opposed to the U.S.-led invasion of Iraq, and frequently critiques the U.S. approach to counterterrorism as lacking balance. In addition, the United States has expressed misgivings about Malaysia's relationships with certain nations (in particular, Iran and Sudan) and continues to include Malaysia in the State Department's annual Country Reports on Human Rights Practices . Prime Minister Badawi met with President Bush at the White House on July 19, 2004, during a three-day visit to the United States. Badawi's visit sought to further strengthen the bilateral relationship between Malaysia and the United States following this important transfer of political leadership. Malaysian Foreign Minister Syed Hamid Albar reportedly stated that Badawi would "exchange views on how we can deal with Islamic issues, how we can avoid the perception of prejudice, [and the] perception of marginalization of Muslims." Badawi has also focused on strengthening already strong bilateral trade and investment ties between the United States and Malaysia. During his 2004 visit to Washington, Prime Minister Abdullah Badawi and President Bush reportedly discussed the need to move the bilateral relationship forward and rebuild confidence. Prime Minister Badawi reportedly told the president that "we need to find the moderate center, we must not be driven by extremist impulses or extremist elements ... we need to bridge the great divide that has been created between the Muslim world and the West." During Badawi's visit, President Bush expressed his opinion that "the United States and Malaysia enjoy strong bilateral ties, ranging from trade and investment relationships to defense partnerships and active cooperation in the global war on terrorism. As a moderate Muslim nation, Malaysia offers the world an example of a modern, prosperous, multi-racial, and multi-religious society." Even before the invasion began, Malaysia was a vocal critic of a possible U.S.-led war against Saddam Hussain's government in Iraq. At an Extraordinary Islamic Summit Session of the OIC held in Doha on March 5, 2003—two weeks before the war began—then-Prime Minister Mahathir stated Malaysia's opposition to war against Iraq. In his speech to UMNO's 54 th General Assembly on June 19, 2003, Mahathir said, "The hunt for the terrorists has made the world tense and unsafe. Bombs explode in many parts of the world. Afghanistan and Iraq were attacked and Syria and Iran were similarly threatened unless they changed their governments." Malaysia's opposition to the Iraq war and the continued U.S. presence in Iraq continued after Badawi became prime minister. In a speech at the Oxford Centre for Islamic Studies in January 2004, Badawi said, "The world must never forget that Iraq was illegally invaded. The world was told before the fact that the invasion was necessary because of an imminent threat posed by weapons of mass destruction. We know today that this reason was baseless." During an UMNO party meeting in September 2004, Badawi reportedly said that Western countries had fueled international terrorism through the invasion of Iraq and their pro-Israel stance on the conflict between Israel and the Palestinians. Later on that same month, in his speech before the United Nations General Assembly, Badawi stated, "Malaysia is convinced that the fight against terrorism cannot succeed through force of arms alone." He went on to denounce "the increasing tendency to attribute linkages between international terrorism and Islam." Badawi also indicated that he believed that the United Nations should be "given the lead role" in returning Iraq to a peaceful, stable nation. Although the rhetoric has changed in tone and tenor over the last four years, Malaysia opposition to the U.S. military presence in Iraq remains strong, and its disagreement with U.S. approach to terrorism continues. On January 15, 2008, Badawi stated: The fundamental point I am making is that religion in general, and the teachings of Islam in particular, cannot be faulted as either the reason for economic deprivation in the Muslim world or the source of the discord which persists between the Muslim world and the West. The problems which continue to fester in Afghanistan, Iraq, the Golan Heights, Lebanon and Palestine are vestiges of the projections of power by the centres of world power. The resulting humiliation being felt by Muslims is the real cause of their loss of trust and confidence towards the West. Though Malaysia opposed the U.S.-led invasion of Iraq, the United States considers Malaysia a valuable ally in the war against militant Islam in Southeast Asia. Southeast Asian Islamic populations in Brunei, Indonesia, and Malaysia (and to a lesser extent in Burma, the Philippines, Singapore, and Thailand) constitute a third of the world's Islamic population and are experiencing a spiritual, social, and cultural revival at a time when there is also increased radicalization among some groups in the region as demonstrated by the terrorist group Jemaah Islamiya (JI) and Abu Sayyaf. Malaysia reportedly estimated that there were 465 members of JI in Malaysia in 2003. Malaysia has detained over 110 suspected terrorists since May 2001. The Malaysian government believes that it has effectively crippled the Kumpulan Mujahedin Malaysia (KMM), which is thought to have had close ties with the Jemaah Islamiya (JI) terrorist group. The KMM sought the overthrow of the Malaysian government and the establishment of an Islamic state over Malaysia, Indonesia and Muslim parts of Southern Thailand and Southern Philippines. Two of JI's leaders, Noordin Mohammad Top and Azahari Husin, the later now captured, are Malaysian, though Top is thought to be a fugitive in Indonesia. The increasingly perceived comity of interests after September 11, 2001, improved the bilateral relationship. Foreign Minister Syed Hamid Albar stated in January of 2001 that Malaysia was looking forward to closer ties with the United States when President Bush assumed office. The September 11, 2001 attacks against the United States were strongly criticized by former Prime Minister Mahathir, and the two nations subsequently began to work closely on counter-terror cooperation. Mahathir met with President Bush in Washington in May 2002, where they signed a memorandum of understanding on counterterrorism. Some Malaysian officials have, in general terms, equated the ISA with the USA Patriot Act. It has been argued that U.S. criticism of the ISA became muted following the passage of the USA Patriot Act. In May of 2002, the United States and Malaysia signed a declaration that provides a framework for counterterrorism cooperation. Malaysia has taken a leading regional role in the war against terror by establishing a regional counterterrorism center in Kuala Lumpur that facilitates access to counterterror technology, information and training. The concept for the center was announced in October 2002 following a meeting between President Bush and then-Deputy Prime Minister Badawi at the APEC meetings in Mexico. Malaysia hosted the ASEAN Regional Forum Inter-sessional Meeting on Counter-Terrorism in March of 2003. U.S. Coordinator for Counter-terrorism Ambassador Cofer Black emphasized the need to develop "sustained international political will and effective capacity building" to more effectively fight terrorism. Within this context Ambassador Black made special reference to Malaysia's contribution to the war against terror in Asia. He identified Malaysia's opening of the Southeast Asia Regional Center for Counter-terrorism in August 2003 as a key example of counterterrorism capacity building in Asia. Other observers have questioned the degree to which the center has established its effectiveness. Since becoming Prime Minister, Badawi has continued Malaysia's commitment to fight terrorism. While attending a regional counter-terror conference in Bali, Indonesia in February 2004, then-U.S. Attorney General Ashcroft reportedly stated that the United States is very satisfied with the role that Malaysia has played in fighting terrorism and that Malaysia has provided a good example to countries in the region. However, during an address to a regional defense conference in Singapore in June 2004, Malaysian Defense Minister Najib Tun Razak admonished the West when he stated, "Let there be no doubt, there is more (terrorism) to come if we continue to ignore the need for a balanced approach to this campaign against terror.... We are concerned that powerful states may not be going about this campaign in ways that will win the hearts and minds of millions of ordinary people worldwide." Some observers view this exchange as highlighting differences in regional Southeast Asian states' desires to include more "soft power" approaches to the war against terror as opposed to what they feel is an over reliance on "hard power" by the United States. Military cooperation between the United States and Malaysia includes high-level defense visits, training exchanges, military equipment sales, expert exchanges and combined exercises. The 2007 Congressional Budget Justification for Foreign Operations states that "exposure to U.S. ideals promotes respect for human rights." It goes on to state that "the Malaysian military has not been involved in systemic violations of human rights." In mid-2005, Deputy Secretary of State Zoellick and Malaysian Deputy Prime Minster Najib witnessed the renewal of an Acquisition and Cross Servicing Agreement that provides a framework for bilateral military cooperation. Malaysian officers train in the United States under the International Military Education and Training (IMET) program and there is a student exchange program between the Malaysian Armed Forces Staff College and the U.S. Army Staff College at Fort Leavenworth. United States troops also travel to the Malaysian Army's Jungle Warfare Training Center in Pulada. Humanitarian assistance, disaster relief, anti-piracy, and counterterrorism are areas that have been identified as areas of mutual interest. Between 15 and 20 U.S. Navy ships visit Malaysia annually. Bilateral military exercises include all branches of the service. Malaysia has also bought significant military equipment from the United States, including F-18/D aircraft. Recent military procurement is reportedly seeking to narrow the technology gap with small, but well armed, Singapore. Such purchases will also likely help Malaysia secure its maritime interests in the Strait of Malacca and the South China Sea. United States warships and U.S. military personnel go to Malaysia to participate in joint Cooperation Afloat Readiness and Training exercises with Malaysia in the South China Sea. The exercise is aimed at bolstering bilateral military ties and improving the ability of the United States Navy to operate in regional waters. In an address in Malaysia in June 2004, Admiral Fargo pointed to shared concerns over "transnational problems," including "terrorism and proliferation, trafficking in humans and drugs and piracy" and emphasized that "we have tremendous respect for sovereignty." The United States has sent Coast Guard officers to the Marine Patrol training Center in Johor Baharu to help train Malaysian officers in maritime enforcement. Malaysia established a Maritime Enforcement Agency in 2005 to increase maritime patrols. Over 50,000 ships a year pass through the Straits of Malacca. Some ships have been vulnerable to piracy in the 600 mile long strait. There is also concern that terrorists could seek to mount an attack against shipping in the strategically vital strait. After some apparent miscommunication, Malaysia and the United States reportedly have come to a mutual understanding on how best to secure the Straits of Malacca, which are territorial waters from possible terrorist acts. An estimated 30% of world trade and half of the world's oil transits through the Straits of Malacca. Testifying before the House Armed Services Committee on March 31, 2004, Admiral Thomas Fargo, Commander of the U.S. Pacific Command, identified the Straits of Malacca off Malaysia's coast as an area where there is concern that international terrorists might seek to attack shipping or seize a ship to use as a weapon. Fargo also reportedly suggested the idea that U.S. counterterrorism forces be positioned in the area to be able to deal with such a threat. This idea reportedly was announced without prior consultation with Malaysia, which reportedly responded "coolly" to the suggestion. Malaysia reportedly prefers an arrangement, in the words of Defense Minister Najib, where "the actual interdiction will be done by the littoral states." This approach was subsequently supported by Fargo during a visit to Malaysia, where he reportedly stated that U.S. cooperation would focus on intelligence sharing and capacity building to assist regional states in addressing the potential threat. On July 20, 2004, Malaysia, Indonesia, and Singapore began coordinated naval patrols of the Straits of Malacca. The State Department report on human rights practices in Malaysia stated that the Malaysian government "generally respected the human rights of its citizens; however, there were problems in some areas." Among the problems remaining are: abridgement of citizens' right to change their government, detentions of persons without trial, restrictions on freedom of the press, restrictions on freedom of assembly and association, ethnic discrimination, and incomplete investigation of detainee deaths. The report also mentioned that "the civilian authorities generally maintained effective control of the security forces." Although official bilateral trade in 2007 was small (less than $53 million in exports and only $42 million in imports), Prime Minister Badawi has publically stated that Malaysia hopes to increase trade and investment relations with Sudan. Malaysia already plays an important role in Sudan's trade with other nations. Malaysian companies—along with companies from China, France, India, Kuwait, and the United Kingdom—are reportedly major investors in Sudan's petroleum industry. In 2005, the Sudanese government received $2.3 billion in revenues from petroleum exports. The Malaysian newspaper, The New Straits Times , reports that Malaysia is the second largest investor in Sudan, after China. Malaysian companies reportedly provide substantial construction and transportation services to Sudan's oil industry. Petronas, Malaysia's state oil company, has interests in nine oil fields in Sudan, plus a refinery project on Port Sudan. Malaysia is the current chair of the Organization of the Islamic Conference (OIC); Sudan is also a member. During an April 2007 trip to Sudan, Prime Minister Badawi expressed some support for its fellow OIC member, saying the situation in Darfur was being exaggerated by the media. In addition, Malaysia would "approach the leaders of the Organization of the Islamic Conference and Islamic Development Bank to extend whatever help that can be given to the government of Sudan." Malaysia also opposes proposed U.N. sanctions on Sudan. In the opinion of Prime Minister Badawi, the sanctions would hurt the people of Malaysia. Instead, Malaysia prefers to allow more time for talks between the United Nations and Sudan. The United States has so far held off on unilateral sanctions on Sudan to give the United Nations time to convince Sudan to permit U.N. peacekeepers into Darfur. However, during Prime Minister Badawi's visit to Sudan, Sudan's President Omer Hassan Ahmed Al-Bashir told reporters he hoped Malaysia would help Sudan "confront Western pressure to accept international forces in Darfur." U.S. assistance to Malaysia is relatively modest in size, and has been declining in value over the last four years. United States foreign assistance to Malaysia has included International Military Education and Training (IMET), Non-Proliferation Anti-Terrorist Demining and Related Programs (NADR), Anti-Terrorism Assistance (ATA), and Export Control and Related Border Security Assistance (EXBS). For FY2009, the Bush Administration has requested funding for International Narcotics Control and Law Enforcement. IMET programs with Malaysia seek to contribute to regional stability by strengthening military-to-military ties and familiarizing the Malaysian military with U.S. military doctrine, equipment, and management that promotes interoperability. The U.S. is a leading training partner with Malaysia at its Southeast Asia Regional Counter-terrorism Center. | This report discusses key aspects of the U.S.-Malaysia relationship (including economics and trade, counterterrorism cooperation, and defense ties) and the possible impact of Malaysia's 2008 elections on the future of the relationship. In parliamentary elections held on March 8, 2008, the Barisan Nasional (BN), which has ruled Malaysia since independence in 1957, was struck by a "political tsunami" that saw it lose its two-thirds "supermajority" for the first time since 1969. Malaysia's major opposition parties won 82 of the 222 parliamentary seats up for election. In addition, the opposition parties won control of five of Malaysia's 13 state governments. The election results are widely seen as a vote against the current policies of the Malaysian government, which could have implications for relations with the United States. Prior to the elections, the bilateral relationship has been generally positive and constructive, particularly in the area of trade. Malaysia is a key trading partner of the United States and is regarded as an effective and cooperative regional player in the war against terror. The United States and Malaysia also have informal defense ties including commercial access to Malaysian ports and repair facilities. Despite these positive dynamics, the bilateral relationship has at times been strained. Past differences have stemmed from disagreements between Malaysia's former Prime Minister Mahathir Mohamad and the United States over such issues as the internal suppression of dissent in Malaysia, the Israeli-Palestinian conflict, Iraq, globalization, Western values, and world trade policy. Relations are perceived as having improved since Abdullah Badawi became prime minister in 2003. After years of strong economic growth, Malaysia has become a middle income country. Much of its gain in economic prosperity has come from the export of electronics and electrical products, with the United States as its top export market. According to U.S. trade figures, Malaysia exports over $30 billion of goods each year to the United States and imports over $11 billion from the United States. The United States and Malaysia have enjoyed a positive trade relationship over the last few years, in part because both nations favor trade and investment liberalization in Asia. Malaysia is the United States' 10th largest trading partner. Building on their common perspective of international trade, Malaysia and the United States concluded a trade and investment framework agreement in 2004 and are currently negotiating a bilateral free trade agreement. Key issues still to be resolved in the negotiations principally revolve around market access for key goods and services in both the United States and Malaysia, and intellectual property rights protection in Malaysia. In addition, the dismissal of Malaysia's chief negotiator, Trade Minister Datuk Seri Rafidah Aziz, may complicate future talks. This report will be updated as circumstances warrant. |
In the relatively short period of time since the United States resumed "normal trade relations" (NTR) with Vietnam in 2001, there have been several controversies regarding the importation of clothing from Vietnam into the United States. The controversies surrounding U.S. clothing imports from Vietnam include allegations of dumping, illegal transshipments, violations of the World Trade Organization (WTO) agreements, and a controversial import monitoring program. In addition, U.S. trade policy governing the import of Vietnamese clothing has changed course several times, leading to claims of significant market disruption and regulatory uncertainty. These claims are bolstered by the volatility of U.S. import data for Vietnamese clothing over the last seven years. There have been several shifts in U.S. trade policy with Vietnam since it was first granted NTR status in 2001 that have possibly affected U.S. clothing imports from Vietnam. A bilateral trade agreement concluded on July 13, 2000, significantly lowered tariff rates on clothing imported from Vietnam. A bilateral textile agreement that ran from May 1, 2003, until January 11, 2007, imposed quantity quotas on the import of certain categories of clothing imported from Vietnam. Also, as part of its accession into the WTO, Vietnam entered into an agreement with the United States that, among other provisions, requires that Vietnam terminate various non-WTO compliant subsidy programs for its clothing and textiles industries. Finally, on December 8, 2006, Congress passed legislation granting Vietnam permanent NTR status as of December 29, 2006. Much of the recent contention about Vietnamese clothing exports to the United States has focused on the U.S. Department of Commerce's (DOC) implementation of an "import monitoring program" for selected categories of Vietnamese clothing on the day Vietnam joined the WTO—January 11, 2007. The announced import monitoring program began on the same day Vietnam joined the WTO and is to expire with the end of the Bush Administration (taken to be January 19, 2008, by the DOC). Under the program, the DOC will collect monthly data on the quantity and unit values of five categories of clothing imported from Vietnam—shirts, sweaters, swimwear, trousers, and underwear—to determine if there is sufficient evidence to warrant the self-initiation of an anti-dumping investigation. While acknowledging that the program would have "an impact on a broad array of parties," the DOC maintained that the monitoring of some Vietnamese clothing imports "is not meant to inhibit legitimate trade." Supporters of the program—principally U.S. textile manufacturers—maintain that the monitoring is necessary because the Vietnamese government is "illegally" subsidizing its clothing industry and that Vietnamese exporters are dumping their products in the United States. According to the program's backers, the data being collected by the monitoring program will provide the necessary evidence to initiate an anti-dumping action against Vietnamese clothing exports. Opponents of the program—a mixture of clothing manufacturers, retailers and importers—assert that the collection of the data violates various provisions of the WTO agreement, runs counter to past anti-dumping practices, and has already had a negative effect on Vietnam's exports to the United States. Interest in the monitoring program was heightened by expectations of the DOC's first formal review of the Vietnamese clothing imports being monitored. According to the Federal Register announcement of the program, the DOC "intends to conduct its formal evaluations of the information gathered under the monitoring program on a biannual basis." The DOC has also indicated that the categories of products covered by the monitoring program (shirts, sweaters, swimwear, trousers, and underwear) are not "static," and may be changed "in response to input received from interested parties, changes in the trade, or as the Department [of Commerce] broadens its understanding of the composition and structure of the domestic textile and apparel industry." Trade statistics for the first six months of 2007 provided some support to both supporters and opponents of the monitoring program (see Table 1 ). U.S. imports of sweaters made in Vietnam from January to June 2007 increased by over 85% when compared to the same period last year. Meanwhile, the volume of shirts and trousers imported from Vietnam—the two largest imported categories being monitored in the DOC program—during the first six months of 2007 rose by 28.1% and 25.8% respectively, when compared to the first half of 2006. However, the amount of swimwear imported by the United States from Vietnam from January to June 2007 was virtually unchanged from a year ago, and the amount of underwear imported declined by over 20% when compared to last year. However, evaluating the growth in clothing imports from Vietnam using year-on-year data may be potentially misleading for various reasons. First, under the terms of the U.S.-Vietnam bilateral textile agreement, the United States was permitted to set quotas on the volume of clothing imported from Vietnam in the years 2003 to 2006. As a result, the import figures for the last four years may have been kept artificially low, and the ensuing growth in 2007 artificially enhanced. Second, the international trade in clothing is comparatively seasonal, so comparisons based on data from only part of a year may be biased. Third, because there is an approximately six month lead time in the contracting of clothing, the trade volumes for January to June 2007 supposedly reflect arrangements made prior to the announcement of the monitoring program, and therefore will not reflect the alleged negative impact the monitoring program has had on Vietnam's clothing exports to the United States. On October 26, 2007, the DOC issued a press release stating that it had concluded its first review of Vietnamese clothing imports and determined that, "There is insufficient evidence to warrant self-initiating an anti-dumping investigation." According to the press release, there were no imports from Vietnam for 317 of the 486 clothing items being monitored, and unit prices had increased for many of the items where there had been imports from Vietnam. Comparisons of imports from Vietnam to imports from other nations also failed to provide sufficient evidence to warrant self-initiating an anti-dumping investigation. Assistant Secretary for Import Administration David Spooner said that, despite the lack of evidence of dumping, "The Department will continue to monitor apparel imports from Vietnam until the end of the Administration and work with all stakeholders to ensure an open and transparent monitoring process." On May 6, 2008, the DOC completed its second six-month review of the monitoring data, and once again decided that "there is insufficient evidence to warrant self-initiating an antidumping investigation." According to the DOC, there were no clothing imports from Vietnam for 208 of the "nearly 500 ten-digit Harmonized Tariff System (HTS) lines" covered by the monitoring program. As was done in the first review, the DOC compared trends in unit values and import levels to other nations supplying these products to the United States, and concluded that the data did not support an antidumping investigation. The DOC also announced that a third six-month review was to be done in September 2008. While there was no requirement that the DOC take any action following the evaluations of the trade data, the program's continuation arguably will keep the monitoring program an issue of concern for the U.S. clothing manufacturers, the U.S. textile industry, major clothing importers, and large retail outlets in the United States. Among the possible Administration actions that could have been taken were the self-initiation of an anti-dumping investigation on select clothing imports from Vietnam, the opening of negotiations for a new bilateral textile agreement, and/or the termination of the monitoring program. For the next six months, it appears that the Administration has decided to take none of these options, but it is to continue to monitor clothing imports from Vietnam. The recent conduct of clothing trade between the United States and Vietnam has been relatively short in duration, but varied in practice. After President Clinton terminated a U.S. trade embargo against Vietnam on February 3, 1994, trade between the United States and Vietnam grew rather slowly, in part because of the nonpreferential treatment Vietnam received under U.S. trade laws. Vietnam was not a member of the World Trade Organization (WTO) so it was not eligible for "normal trade relations" (NTR) status via that mechanism. Also, under U.S. law, Vietnam could only be granted permanent NTR status by the passage of legislation, or granted temporary NTR status by the conclusion of a bilateral trade agreement and compliance with the "freedom of emigration" requirements of the Jackson-Vanik amendment. Lacking NTR status, Vietnam's exports to the United States were subject to higher tariff rates than products from almost all other nations. For clothing imports, products from Vietnam faced tariff rates two to nine times higher than goods imported from countries with NTR status. As a result, while U.S. imports from Vietnam steadily increased from virtually nothing in 1993 to just over $1 billion in 2001, U.S. clothing imports from Vietnam rose from zero to $48 million over the same period (see Figure 1 ). After nearly five years of negotiations, the United States and Vietnam concluded a bilateral trade agreement on July 13, 2000—the first of two steps for Vietnam to receive temporary NTR status. President Clinton exercised the authority granted to him under the Trade Act of 1974 ( P.L. 93-618 ) to waive the Jackson-Vanik amendment. Enabling legislation in the U.S. Congress and Vietnam's National Assembly were subsequently passed, formally extending temporary "normal trade relations" (NTR) status to Vietnam as of December 10, 2001. Having secured temporary NTR status, Vietnam's exports to the United States accelerated, rising from just over $1 billion in 2001 to $4.6 billion in 2003 (see Figure 1 ). One of the main beneficiaries of Vietnam's temporary NTR status was its clothing industry, which saw its exports to the United States jump from $48 million in 2001 to $876 million in 2002 and $2.3 billion in 2003. By 2003, clothing was 51.3% of Vietnam's total exports to the United States. Although the temporary NTR status stimulated imports from Vietnam, its impact was mitigated by its impermanent nature. Under U.S. law, the President had to reconfirm the waiver of the Jackson-Vanik amendment every year, and Congress had the authority to override the President's reconfirmation via a joint resolution passed by both the House and the Senate. From 1998 to 2002, such a joint resolution failed in the House. No resolutions were introduced between 2003 and 2005. For the international clothing market, the theoretical risk of Vietnam losing temporary NTR status created two potential barriers to trade. First, major retailers and importers supposedly shied away from purchasing clothing manufactured in Vietnam as the date for the waiver renewal neared or when a joint resolution for disapproval was introduced in Congress. Second, given the long-term uncertainty of Vietnam's NTR status, both domestic and foreign investors in Vietnam's clothing and textiles industry allegedly curtailed or postponed potential investment projects, restricting the nation's clothing and textile production capacity. During the congressional debate over the bilateral trade agreement with Vietnam, many Members of Congress urged President Bush to negotiate a separate bilateral textile agreement with Vietnam. Because Vietnam was not a WTO member at the time, its clothing exports were not covered by the Agreement on Textiles and Clothing (ATC) and therefore there were no quotas on Vietnam's clothing exports to the United States. Several Members of Congress, and in particular Members with significant clothing and textile manufacturing in their districts or states, voiced concern that a "surge" in Vietnamese clothing exports to the United States could cause damage to U.S. clothing and textile companies and workers. In their opinion, it was important that the United States conclude a bilateral textile agreement with Vietnam that ensured fair competition and/or restricted the growth of Vietnamese clothing exports to the United States. Negotiations of a separate bilateral textile agreement began soon after the bilateral trade agreement went into effect. On April 25, 2003, the two nations agreed to the terms of a bilateral textile agreement that placed quantity quotas on 38 categories of clothing imports from Vietnam starting on May 1, 2003, until December 31, 2004. The quotas would automatically roll over in subsequent years—with the inclusion of annual quantity increases of 2% for wool products and 7% for all other products—unless the two nations terminated or renegotiated the agreement by December 1. In addition, both nations pledged to "investigate and punish" circumvention of U.S. import quotas, a provision added to the agreement in part due to a U.S. Custom Service allegation that some Chinese clothing products had illegally entered the United States by being mislabeled as products of Vietnam. The agreement also lowered Vietnam's tariffs on U.S. clothing and textiles exports to 7% for yarn, 12% for fabric, and 20% for clothing. Following the implementation of the bilateral textile agreement, Vietnam's total exports to the United States continued their rapid climb, but the growth in clothing exports slowed dramatically (see Figure 1 ). Total U.S. imports from Vietnam rose from $4.6 billion in 2003 to $5.3 billion in 2004, $6.6 billion in 2005, and $8.6 billion in 2006. Meanwhile, U.S. clothing imports from Vietnam crept up from $2.3 billion in 2003 to $2.5 billion in 2004, $2.7 billion in 2005, and $3.2 billion in 2006. The share of clothing in Vietnam's total exports to the United States declined from 51.3% in 2003 to 36.9% in 2006. The imposition of import quotas on Vietnamese clothing also altered the composition of Vietnam's clothing exports to the United States. In 2003, 78.1% of Vietnam's clothing exports to the United States were in categories subject to quotas. However, over the next three years, the value of Vietnam's clothing exports subject to quotas increased by 17.8% while clothing exports not subject to exports grew by 104.5%. As a result, Vietnamese clothing exports subject to quotas contributed 67.2% of the total bilateral clothing exports to the United States. Only part of the sharp decrease in the growth of Vietnam's clothing exports to the United States can be attributed to the actual cap on imports created by the quantity quotas. Table 2 reveals that the quantity quotas were potentially binding on about a dozen of the 38 categories subject to import restrictions. For another dozen categories, Vietnam used between half and three-quarters of the available quota. For six categories, an average of less than half of the quota was used over the four years the import restrictions were in place. On three occasions, and only in 2003, did U.S. imports fully use the available quota for a category of Vietnamese clothing imports. The less than full utilization of import quotas does not necessarily mean that the import constraints had no impact on trade. According to industry sources, major retailers and importers may shift where they source products in response to the implementation of quotas. According to these market experts, importers do not want to risk exceeding the import cap and be unable to import the products they desire, and therefore turn to an alternative location to obtain the products. As a result, the creation of an import quota on Vietnamese clothing may have diverted trade to other nations even in cases where there was still available import capacity. Congressional interest in U.S. clothing imports from Vietnam reemerged during the negotiations over the terms of Vietnam's WTO accession. U.S. textiles and clothing manufacturers sought to extend the import quotas on Vietnamese clothing products as part of Vietnam's accession agreement, or to include in the agreement safeguard measures similar to those included in China's WTO accession agreement. However, neither provision was included in Vietnam's WTO accession agreement. What was included in the agreement were requirements that Vietnam terminate various non-WTO compliant subsidy programs supporting its domestic clothing and textile industry and allegedly benefitting its exports of clothing. The agreement includes an enforcement mechanism during the first 12 months after Vietnam's accession that would permit the United States—or any other WTO member—to impose import quotas if, after consultation and third-party arbitration, it was determined that Vietnam had not terminated its non-WTO compliant subsidies. Although Congress had no direct role in Vietnam's accession to the WTO, congressional approval was necessary to extend to Vietnam permanent NTR status. As a member of the WTO, the United States was required to extend permanent NTR status to Vietnam once it became a member. Opposition to extending permanent NTR status to Vietnam focused on a number of different issues, including alleged human rights abuses, claims of discrimination against foreign-owned companies operating in Vietnam, and charges of inadequate intellectual property rights protection. In addition, Senator Elizabeth Dole and Senator Lindsey Graham objected to the lack of safeguard measures in the WTO accession agreement to protect the U.S. clothing and textile industry from a potential surge in imports from Vietnam. They reportedly decided to place a "hold" on the bill before the Senate to grant Vietnam permanent NTR status. In a joint letter to U.S. Trade Representative (USTR) Susan Schwab, Senators Dole and Graham explained their "concerns regarding Vietnam's WTO accession terms and the recently concluded U.S.-Vietnam bilateral agreement." The two Senators wrote, "We believe that unless the government takes specific steps to ensure that the U.S. textile industry can be defended against a communist country that heavily subsidizes its textile and apparel sector, this agreement is likely to cause large-scale job losses in both of our states." In the letter, Senators Dole and Graham specifically express concern about Vietnam's ability "to artificially lower prices through its state sponsored system," and state that it would be "unreasonable to ask U.S. workers to compete with products manufactured under a state-run economy without at least providing an adequate mechanism for the industry to defend itself." On September 28, 2006, USTR Schwab and U.S. Commerce Secretary Carlos Gutierrez sent a letter to Senator Dole and Senator Graham pledging to initiate a monitoring program for Vietnamese selected clothing imports immediately upon Vietnam's WTO accession. In addition, USTR Schwab and Secretary Gutierrez stated in the letter, "If this monitoring process indicates that dumping exists and the domestic industry fully cooperates in supplying data available to the domestic industry indicating the existence of material injury caused by such imports, the Department [of Commerce] will self-initiate anti-dumping investigations with respect to the relevant products." Based on this commitment, media sources report, Senator Dole and Senator Graham removed their hold on the permanent NTR for Vietnam legislation. Although the pledged monitoring program removed one barrier to Vietnam's permanent NTR status, other issues delayed final passage of pending legislation. On December 8, 2006, the House of Representatives passed H.R. 6406 , a larger bill containing provisions granting Vietnam permanent NTR status by a vote of 212-184. H.R. 6406 was then coupled with H.R. 6111 (a tax extension bill) and sent to the Senate, where it passed by a vote of 79-9. On December 20, 2006, President Bush signed the bill into law ( P.L. 109-432 ) and, as provided under the law, the United States formally extended permanent NTR status to Vietnam on December 29, 2006—less than two weeks before Vietnam officially became the 150 th member of the WTO. With the passage of P.L. 109-432 and Vietnam's membership in the WTO, U.S. trade relations with Vietnam entered into a new phase of formally agreed free trade. As part of its agreement with Vietnam, the United States discontinued the quantity restrictions on clothing imports from Vietnam that had been in effect since May 2003. Also, clothing imports from Vietnam were now permanently eligible for the lower NTR tariff rates, ending the annual temporary NTR renewal process. For its part, Vietnam had pledged to cease any non-WTO compliant subsidies to its clothing and textile industries or face the possible reimposition of import quotas by the United States or any other WTO member. The only nonmarket action by the United States available to influence the import of clothing from Vietnam was the promised monitoring program mentioned in the letter by USTR Schwab and Secretary Gutierrez. On December 4, 2006, the Import Administration of the U.S. Department of Commerce's International Trade Administration (ITA) published a request for public comment in the Federal Register which laid out the basic outline of the proposed monitoring program. According to the Federal Register announcement, the monitoring program would begin upon Vietnam's accession to the WTO and will expire at the end of the current administration (taken by DOC to be January 19, 2009). The initial of list of products to be monitored—trousers, shirts, underwear, swimwear, and sweaters—had been "identified as being of special sensitivity." The monitoring program would collect data on the quantity, value, and unit price of goods imported from Vietnam in the selected categories. Comments on the monitoring program—including comments on the product coverage, the creation of "production templates," and information on the U.S. textile and apparel industry—were to be submitted to the Import Administration by December 27, 2006. The announcement also indicated that there would be a public hearing on the program, which was subsequently scheduled for April 24, 2007, in Washington, DC. However, in a second request for public comment published in the Federal Register on January 23, 2007, the Import Administration stated that "the Department [of Commerce] recognizes that these five product categories are too broad for effective monitoring." So, it indicated it would "focus on those traditional three-digit textile and apparel categories of greatest significance based on trade trends, composition of the U.S. industry and input from parties, as appropriate." The announcement also stated that the product coverage "is not intended by the Department [of Commerce] necessarily to be static," and that changes in product coverage may occur in response to changes in trade, input from interested parties, or "as the Department [of Commerce] broadens its understanding of the composition and structure of the domestic textile and apparel industry." The Department also indicated that the monitoring program "is not meant to inhibit legitimate trade." The deadline for comments for this second request was January 31, 2007. Both announcements also stated that there would be biannual evaluations of the data collected by the monitoring program "to determine whether sufficient evidence exists to initiate an anti-dumping investigation consistent with U.S. law and our international obligations under the WTO." No set dates were given for the biannual evaluations. From its inception, the monitoring program has been the subject of some controversy within Congress. While Senator Dole and Senator Graham supported the program, other members of Congress questioned its legality and economic merits. In a May 2, 2007 letter to Secretary Gutierrez, six members of the House Ways and Means Committee—Representatives Earl Blumenauer, Jim Ramstad, Mike Thompson, Jim McDermott, Joseph Crowley, and Ron Kind—stated they were "deeply concerned that the disruption in trade caused by the import monitoring program is cutting away at many of the benefits of granting PNTR to Vietnam" and that "these negative impacts come at no benefit to U.S. apparel producers." In addition, the Representatives wrote "the Department of Commerce must demonstrate the specific statutory authority for this unprecedented type of program." They also expressed concern that the program may violate "a number of agreements under the World Trade Organization." Having questioned the legitimacy and economic benefits of the monitoring program, the Representatives suggested that the scope of the monitoring program "should be limited to those apparel products, defined at the ten-digit HTS level, produced in a commercially viable fashion in the United States, for which producers of those products have asked for monitoring, and for which there is evidence of material injury to those producers being caused by imports from Vietnam." Senators Dianne Feinstein and Gordon Smith also expressed their concerns about the monitoring programs in separate letters to Secretary Gutierrez. In her letter of December 26, 2006, Senator Feinstein wrote, "I request that the Department [of Commerce] submit any proposed program to public comment through a Notice of Proposed Rulemaking; [and] demonstrate in such notice how the proposed program is consistent with applicable statutory requirements and international obligations of the United States...." In his letter of January 31, 2007, Senator Smith echoed Senator Feinstein's comments, writing, "it is important for the Department [of Commerce] to outline in detail the statutory authority it believes it has to implement the announced monitoring program and to self-initiate anti-dumping measures under these circumstances." Senator Smith also suggested that the proposed program should undergo the usual "Notice of Proposed Rulemaking" process. Opposition to the monitoring program also came from various segments of the U.S. business community. A coalition of eight trade associations and 29 separate U.S. companies sent a letter to Secretary Gutierrez and USTR Schwab on October 11, 2006 expressing their "extreme disappointment at the agreement the Administration negotiated with Senators Elizabeth Dole and Lindsey Graham." According to the letter, "implementing this ill-considered and damaging agreement places at risk the ability for us and all other U.S. companies to continue current business and generate new business in Vietnam." The letter also voices their displeasure at the lack of consultation with interested U.S. companies, leading Members of Congress, and the Vietnamese government during the time the Bush Administration was discussing the matter with Senators Dole and Graham. Overall, most of the responses to the Import Administration's requests for public comments were generally critical of the monitoring program. In addition to the concerns raised by Members of Congress about the statutory authority for the monitoring program, its consistency with existing international obligations, and the lack of a period of public commentary for a proposed rulemaking, another major criticism of the program was the apparent lack of a U.S. clothing manufacturing industry that might be materially injured by the Vietnamese imports. In its written comments to the Import Administration, the U.S. Association of Importers of Textiles and Apparel (USA-ITA) urged the Department of Commerce drop the monitoring program because no U.S. apparel manufacturers supported it. In his testimony at the public hearing about the monitoring program, Chairman of the International Textile Group, Wilbur L. Ross, Jr. questioned whom the monitoring program was meant to protect: "To the best of my knowledge, there are no American apparel producers whose output is truly characterized as competitive to Vietnam's exports to this country." The lack of competitive U.S. clothing manufacturers was reiterated by Stephanie Lester, Vice President for International Trade at the Retail Industry Leaders Association (RILA). According to Ms. Lester, "most of the products that RILA members purchase from Vietnam could not be supplied by domestic [U.S.] production." The monitoring program was also challenged on its potential negative effects on U.S. companies considering sourcing clothing from Vietnam. In his oral testimony at the public hearing on April 24, 2007, Gary Ross of the USA-ITA said: The monitoring program has very real consequences. By targeting broad categories of products made in Vietnam, it forces USA-ITA member companies to reconsider Vietnam as a sourcing option. At the very least, importers and retailers are looking at the calendar and mapping out worst-case scenarios, deciding what the earliest possible point in time is when Vietnamese products brought into the U.S. market could be subject to an additional bonding requirement or dumping duty. In its written comments on the proposed program, the National Retail Federation (NRF), stated: In response to the greater unpredictability and risk to their sourcing operations created as a result of the commitment [to implement the monitoring program], a number of NRF members have decided to limit their exposure to Vietnam, either by substantially cutting their orders in the second half of 2007, or to terminate them entirely. The NRF goes on to state that its members have indicated that the cancelled orders will "move to other Asian countries, not the United States or other Western Hemisphere countries." Several of the commentators pointed to the biannual review mechanism as heightening the market uncertainty created by the program. In the words of the American Apparel and Footwear Association (AAFA), "A decision every six months about potential anti-dumping cases can be very unsettling and will no doubt have a chilling effect on trade." A third common comment from U.S. businesses critical of the proposed monitoring program was the potential burden it would place on U.S. companies importing clothing from Vietnam. In its written comments, the AAFA stated, "We are concerned that the program could result in significant new paperwork or import entry requirements, which would create an unfair burden on U.S. apparel importers." A fourth general category of criticism focused on the seemingly vague and fluid methodology being used in the monitoring program. Several commentators indicated that it was unclear how the data being collected could be used to evaluate the alleged presence of dumping. Some argued that the three-digit categories of imports being monitored were too broad for use in anti-dumping investigations. Others pointed out that U.S. manufacturing data was apparently not available using the same categories as the import data being monitoring, making impact assessment difficult. Virtually all of these commentators maintained that the Import Administration needed to clarify their methodology prior to implementing the program and to make the methodology more transparent. In addition to critical comments from U.S. businesses, the Import Administration also received joint submissions from two Korean trade associations—the Korea International Trade Association (KITA) and the Korean Apparel Industry Association (KAIA). The criticism contained in the two submissions made by KITA and KAIA were consistent with the categories described above, with one additional concern. KITA and KAIA maintain that the monitoring program would deny benefits to other WTO members by undermining the value of investments made by other WTO members in Vietnam's clothing industry. Although most of the comments received by the Import Administration were critical of the proposed monitoring program, there were some that supported its implementation. The supportive comments generally focused on four issues: (1) The potential threat of a surge in Vietnamese clothing imports causing harm to U.S. clothing and textile manufacturers; (2) the dominance of state-owned manufacturers in Vietnam's clothing industry; (3) the alleged subsidies received by the Vietnamese clothing industry from its government; and (4) the ability to easily shift production from one clothing category to another, which makes it vital to monitor a broad range of clothing products. For most of the supporters of the monitoring program, the perceived risk inherent in these four issues was sufficiently grave that it was vital for the monitoring program to begin as soon as possible. In the words of the National Council of Textile Organizations (NCTO), "The concerns of the U.S. textile industry about surges of imports from Vietnam are based on recent experience, not mere speculations." According to the NCTO, imports from Vietnam rose by 220% between 2002 and 2006. The American Manufacturing Trade Action Coalition (AMTAC) writes in its January 31, 2007 comments, "Since Vietnam was given 'normal trade relations' access to the U.S. textile and apparel market on December 10, 2001, its exports have increased by 6,849% and now total $3.4 billion." The implication is that Vietnam's past rapid increase in clothing exports to the United States indicates an ability to rapidly increase exports in the future. The supporters of the monitoring program maintain that this rapid growth in exports to the United States is in part due to the dominance of state-owned factories in the Vietnamese clothing industry. AMTAC states in its January 31, 2007 comments, "Aside from China, Vietnam is the only other country with a large, state-owned textile and apparel sector. Vinatex, fully owned by the Vietnamese government, is the 10 th largest garment producer in the world." The alleged dominance of state-owned factories in Vietnam's clothing industry becomes important when examining the third issue raised by supporters of the monitoring program. The supporters claim that state-owned factories receive significant indirect and direct subsidies from the Vietnamese government, thereby allowing them to export clothing at prices below "fair market value." In the words of the NCTO, "Vietnam is one of two countries (the other being China) which has a large state-owned, state-subsidized textile and apparel sector. Governments in both countries have poured billions of dollars in subsidies into their respective sectors with the apparent goal being dominance of global apparel supply chains." According to AMTAC, the subsidies—which were revealed by Vietnam during its WTO negotiations—take the form of preferential interest rates, wage controls, rent holidays, export subsidies, preferential tax rates, and direct investments by the Vietnamese government. The fourth issue raised by supporters of the monitoring program has to do with the production conditions of Vietnam's clothing industry. According to some of the commentators, Vietnam's clothing manufacturing is relatively labor-intensive production using semi-skilled workers. As a result, these commentators maintain it is relatively easy for factories to shift production from one clothing product to another, and so it is vital that the monitoring program covers a wide range of apparel. In the words of the NCTO: Apparel manufacturing is, in important ways, a simple process. A sewing machine operator can produce dozens of different types of garments from a single machine. To a significant extent, the operator does not become skilled in producing a specific type of garment.... Thus, a typical sewing plant can, and does, have the ability to assemble a woman's dress, a man's cotton pant, a child's sweatshirt and so on and so forth.... The reality of the production process therefore calls for monitoring on a broader rather than on a more specialized basis. The response of the Vietnamese government and Vietnamese clothing manufacturers to the proposed monitoring program was muted in tone, but critical in content. In its submitted comments and testimony, Vietnam's Ministry of Trade focused on the program's possible violation of U.S. WTO obligations and the negative effect on legitimate trade. The Vietnam Textile and Apparel Association (VITAS) reiterated many of the criticisms raised by U.S. businesses, but also challenged characterizations of Vietnam's clothing industry as being state-owned and heavily subsidized. In its December 22, 2006 letter to the U.S. Department of Commerce, Vietnam's Ministry of Trade focused on the program's possible violation of existing U.S. WTO obligations. After expressing "disappointment" about the Commerce Department's implied intent to initiate anti-dumping investigations against Vietnamese clothing exports, the letter asserted, "This program is a violation of Article 23 of the GATT 1994 as it causes nullification and serious prejudice to the interests of Vietnam as a WTO member." The letter continued by stating, "Furthermore, this Program is also inconsistent with the Bilateral Agreement between Vietnam and the United States on Vietnam's accession to the WTO signed on 31 May 2006." The Trade Ministry's second letter to the Commerce Department shifts its focus to the negative impact it argues the monitoring program has had and will have on legitimate trade between Vietnam and the United States: Although the additional information in the second-round proposal mentions the fact that this Program does not aim at restraining legal trade, in fact it has created negative impacts—causing worries and unstable mentality for U.S. importers placing orders in Vietnam right from the very first month of 2007, and making it impossible for Vietnam textile and apparel manufacturers to pro-actively plan their production, and above all, creating instabilities for workers in Vietnam's textile and apparel industries. Then, during its testimony at the April 24, 2007 hearings on the monitoring program, the spokesperson for the Trade Ministry said, "Vietnam's Ministry of Trade must continue to reaffirm our clear and consistent view to strongly protest the 'Monitoring Program on Textile and Apparel Import from Vietnam.'" The representative continued, "It is clear that this program is discriminatory, contrary to the most important principle and the pillar of the WTO—GATT Article 1." The Trade Ministry's testimony also claimed that monitoring program violates Article 23 of the GATT by nullifying the benefits of WTO membership, and Article 18.1, which governs anti-dumping actions between WTO members. The testimony also reasserted that the monitoring program was reducing legitimate trade between the two nations, and thereby "having a severe [e]ffect on jobs and employment in Vietnam." The response of VITAS to the proposed monitoring program was more detailed, diverse, and disapproving than that of the Trade Ministry. One important aspect of its comments was challenge to the assertions that Vietnam's textile and garment industry was largely state-owned and heavily subsidized by the government. In its December 20, 2006 letter VITAS stated, "The Vietnam textile and garment industry consists of over 2,000 enterprises. Of these, only 50 are state-owned, while 1,400 are private and 450 are foreign direct investment (FDI) enterprises." The letter also contested claims that state-owned enterprises dominate Vietnam's clothing exports to the United States, stating "In 2005, only 25 state-owned textile and garment enterprises exported their products to the United States, making up only 8.1% of total export turnover of textiles and garments to the United States." According to VITAS, all of Vietnam's state-owned clothing and textile enterprises will be privatized ("equitized") by sometime in 2008. On the issue of subsidization, VITAS wrote that it "takes strong exception to the unsupported—and unsupportable—allegation in the comments submitted by AMTAC and [the] NCTO, contending that Vietnam 'heavily subsidizes their industry.'" Calling AMTAC's reference to Vietnam's WTO disclosure "misleading," VITAS maintained in its letters that the Vietnamese government has fulfilled its WTO accession obligations to terminate prohibited subsidies to its textile and apparel industries. In addition, VITAS pointed out that within its WTO accession agreement, there already exists a formal mechanism to resolve claims that Vietnam provides prohibited subsidies to its clothing and textile industry. If the United States has evidence that Vietnam is providing its clothing and textile industry with prohibited subsidies, VITAS argued that the United States should use the existing mechanism, rather than instituting a special monitoring program. The U.S. Department of Commerce decided to implement the program as scheduled on January 19, 2007. The specific product coverage selected for the monitoring program included the following categories, organized by product type and including category number: Trousers—Men and boys cotton trousers (347); women and girls cotton trousers (348); men and boys wool trousers (447); women and girls wool trousers (448); men and boys man-made fiber trousers (647); women and girls man-made fiber trousers (648); and silk or vegetable fiber trousers (847); Shirts—Men and boys cotton knit shirts (338); women and girls cotton knit shirts (339); men and boys cotton non-knit shirts (340); women and girls cotton non-knit shirts (341); wool knit shirts (438); wool non-knit shirts (440); men and boys man-made fiber knit shirts (638); women and girls man-made fiber knit shirts (639); men and boys man-made fiber non-knit shirts (640); women and girls man-made fiber non-knit shirts; silk or vegetable fiber knit shirts (838); and silk or vegetable fiber non-knit shirts (840); Underwear—cotton underwear (352); man-made fiber underwear (652); and silk or vegetable fiber underwear (852); Swimwear—selected items in categories 359 and 659; and Sweaters—cotton sweaters (345); men and boys wool sweaters (445); women and girls wool sweaters (446); men and boys man-made fiber sweaters (645); women and girls man-made fiber sweaters (646); and non-cotton vegetable fiber sweaters (845). The responsibility to administer the monitoring program was assigned to the Import Administration of the U.S. Department of Commerce. However, the gathered data is being released to the public by Department of Commerce's Office of Textiles and Apparel (OTEXA). Each month, OTEXA releases the quantity, unit value and total value of each three-digit category being monitored on its web page— http://www.otexa.ita.doc.gov/ vn.htm . For each three-digit category, the web page also provides the data at the 10-digit HTS code level. In both its initial and subsequent request for comments, the DOC indicated that it intended to conduct biannual reviews of the import data gathered by the monitoring program. These reviews would examine the trade data at the 10-digit HTS level to see if there is sufficient evidence to self-initiate an anti-dumping investigation. The completion of the first six-month review was announced on October 26, 2007; the completion of the second six-month review was announced on May 6, 2008. Both reviews determined that there was insufficient evidence to self-initiate an antidumping investigation of clothing imports from Vietnam. Despite these findings, the DOC also announced that it would continue to review the import monitoring program. The third—and possibly final—six-month review is scheduled to begin in September 2008. Below is a brief summary of findings of each of the six-month reviews, and the response of interested parties in the United States and Vietnam to the DOC's announcements. On October 26, 2007, the DOC announced that a review of the first six months of data for selected categories of clothing imported from Vietnam "found insufficient evidence to warrant self-initiating an antidumping investigation." According to Assistant Secretary Spooner, "After a fair and objective analysis of the data, Commerce found insufficient evidence of dumping from Vietnam." However, Assistant Secretary Spooner went on to say, "The Department will continue to monitor apparel imports from Vietnam until the end of the Administration and work with all stakeholders to ensure an open and transparent monitoring process." In response to requests from CRS, the DOC has declined to release the details of their review, but it did provide some indications of its findings. According to the DOC press release, of the 486 10-digit HTS lines monitored during the first six months of the program, 317 lines had no imports from Vietnam. Of the 169 lines where there were imports from Vietnam, "many" had rising unit values. Falling unit values are often associated with evidence of dumping. The press release also reported that DOC compared the unit values and import levels for Vietnam to other clothing suppliers for the United States, including a number of Asian suppliers (Bangladesh, Cambodia, India, Indonesia, Macau, Malaysia, Pakistan, the Philippines, and Thailand) and the DR-CAFTA nations (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua). Noticeably missing from the list of suppliers used for comparison were Canada, China, Hong Kong, and Mexico—historical major suppliers of U.S. clothing imports. However, the press release did not definitively state that the comparison was limited only to the countries mentioned. The DOC also indicated that it "will continue to monitor trade in these categories [emphasis added] during the next six-month review that will begin in March 2008, after receipt of the January 2008 data." This implies, but does not explicitly state, that the monitoring program will continue to cover the same five major categories of imports from Vietnam—shirts, sweaters, swimwear, trousers, and underwear—and possibly the same 486 10-digit HTS lines. Attempts to clarify this issue with DOC representatives were unsuccessful. The DOC will also continue to post the collected import data on its Vietnam Textile and Apparel Import Monitoring Program web page. The initial response to the DOC's review was comparatively muted. Vietnamese press coverage was limited to the scope of the press release, with no official statement from a representative of the Vietnamese government. VITAS Chairman Le Quoc An was reportedly not surprised by the review's finding, but he indicated that VITAS would continue to press the DOC to either terminate the monitoring program or narrow the number of items being monitored. In the United States, only one of the various trade associations that testified at the December 2006 and April 2007 hearings issued a statement in the week following the DOC press release of October 26, 2007. The National Retail Federation (NRF) "expressed satisfaction" with the DOC's decision, stating that it "confirms American retailers' long-standing contention that there is no basis to launch antidumping investigations against Vietnamese-made apparel." NRF vice president Erik Autor also stated that the decision "vindicates the retail industry's argument that there was no rationale for setting up the textile monitoring program in the first place, and certainly no reason for continuing it." None of the U.S. senators or representatives that commented on the proposed monitoring program issued statements after the announcement of the results of the DOC's first biannual review. On May 6, 2008, the DOC announced the results of its second six-month review of the Vietnamese import monitoring program, which covered the period August 2007 to January 2008. For the second time, the DOC determined that "there is insufficient evidence to warrant self-initiating an antidumping investigation." The DOC also stated that it intended to continue the monitoring program "to ensure that apparel is not dumped into the U.S. market and threatening American manufacturing competitiveness." As was the case with the first six-month review, the DOC did not release the details of its review. However, it did report, "Our investigation reveals that prices of Vietnamese apparel are in line with, and in most cases even exceed, other major suppliers, including Central America." Trends in import prices and quantities for the selected clothing items were reportedly compared to data for Bangladesh, the CAFTA-DR nations, Cambodia, India, Indonesia, Macau, Malaysia, Pakistan, and the Philippines. According to the DOC, there were no imports of Vietnamese clothing for 208 of the "nearly 500" items being monitored. The response in Vietnam to the DOC's announcement was more muted than after the first six-month review. The Embassy of Vietnam in Washington reported the results of the review, but made no comment on the DOC's announcement. Coverage of the DOC announcement in Vietnam's government-run news agency, Thanh Nien News , similarly reported the review's findings without any statement by a Vietnamese official. The story did, however, include analysis by the American Chamber of Commerce, that showed that Vietnam had the most rapid growth rate in 2007 among the top five clothing exporters to the United States. Thanh Nien News also reported that Adam Sitkoff, the executive director of AmCham Vietnam in Hanoi said, "I see nothing in the way of Vietnam continuing to climb up that list.... Vietnam is a very competitive place to manufacture a wide variety of products, so export growth to the U.S. isn't just tied to one sector." VITAS reportedly again asked the United States to terminate the monitoring program. There was virtually no response from the U.S. clothing and textile industry to the DOC's announcement of the findings of its second six-month review. Two of the more prominent supporters of the monitoring program—NCTO and AMTAC—did not issue statements following the DOC's announcement. Despite the relative calm following the release of the results of the second DOC review, the debate over the impact of the monitoring program on Vietnamese clothing exports to the United States remains active. According to Just-Style.com , a major online clothing and textile industry news source which included the monitoring program as one of its top eight clothing trade issues for 2008, "Import monitoring has already been used successfully to control the growth of apparel shipments between the U.S. and Vietnam over the past 12 months, and is likely to do so for at least another year...." The industry source goes on to report that "[f]ears of an anti-dumping investigation ... continue to hold a 'false cloud over sourcing from Vietnam,' and mean 'U.S. importers and retailers are reluctant to place too many orders in Vietnam.'" Other market observers point to the rapid growth of Vietnam's clothing exports to the United States in 2007—up 36%, according to the Vietnam's trade figures—as evidence that the monitoring program has had little effect on trade flows. There are sharp differences of opinion regarding the current structure of Vietnam's clothing industry. As was discussed above, some of the supporters of the monitoring program maintain that Vietnam's clothing industry is dominated by state-owned and -operated enterprises that are heavily subsidized by the Vietnamese government, gaining unfair advantage in the global market. Many opponents to the monitoring program contend that Vietnam's clothing industry consists of hundreds of small, privately-owned and -operated companies that receive little help from the central government when facing a highly competitive global market. The ownership structure of Vietnam's clothing industry is a complex mix of typically larger, state-owned enterprises; smaller collectively-owned or private companies; and newer, foreign-owned manufacturers. Layered over this mix of ownership arrangements is a currently state-owned "holding company" called the Vietnam National Textile and Garment Group, or Vinatex, that oversees the operation and management of a number of state-owned, joint stock and joint venture enterprises in the clothing industry, plus provides an array of technical support services for Vietnam's clothing and textile sectors. Starting in 1986, the Vietnamese government has been gradually restructuring its economy away from a predominantly centrally planned system into a market-oriented one. As part of its "Doi Moi" (renovations) process, the Vietnamese government has allowed the development of privately-owned clothing manufacturers that compete with the existing state-owned clothing companies. Over the last few years, the Vietnamese government has started to partially divest itself of some of the state-owned clothing companies in a process Vietnam calls "equitization." Finally, the Vietnamese government has also allowed direct foreign investment in clothing companies, either wholly-owned or joint venture. As a result, there are several different ownership arrangements in Vietnam's clothing industry. According to a national survey of its industries, Vietnam had a total 68,429 clothing manufacturing establishments as of June 30, 1998 (see Table 3 ). The vast majority of those establishments—99.5%—were "household establishments," families that were independently employed making clothes. Of the remaining 356 nonhousehold clothing establishments, about one in four were state-owned enterprises and about half were "limited companies." Since 1998, Vietnam has implemented a series of policy changes regarding the ownership of manufacturing establishments. In October 2005, Vietnam's National Assembly passed a new Enterprise Law that clarifies the distinction between different types of ownership, as well as specifies which types of enterprises are open to foreign equity participation. In addition, the Vietnamese government has also begun the process of divesting itself of full-ownership of clothing manufacturers. The purported goal is to transform the state-owned enterprises into joint shareholding (or stock) companies in which the state holds a controlling interest. The divesting process, or "equitization," is to be completed in the clothing industry by 2010. However, the "equitization" of Vietnam's state-owned clothing companies does not insure that they will no longer be subject to government intervention in their operations or "free" of state subsidies. Also, unless there is a corresponding change in managerial behavior, the "equitization" of clothing companies does not automatically mean the new joint shareholding companies will be profit-motivated, responsive to market pressures, and free from political influence. Although most of Vietnam's clothing establishments are household operations, the value of the nation's clothing production is more evenly divided between the state-owned enterprises, the domestic private sector, and foreign-invested companies (see Table 4 ). Plus, as the process of "equitization" continues and more overseas investors become partial owners of clothing manufacturing facilities in Vietnam, there has been a notable shift in the structure of production away from locally-owned state enterprises and household producers towards foreign-invested companies. The decline of locally-owned state enterprises is most likely due to their transformation into joint shareholding companies. The decline of household producers is probably attributable to increased competition from the joint shareholding companies and/or foreign-invested enterprises. While the shift in the ownership structure of Vietnam's clothing industry continues, the structure and purpose of Vinatex is undergoing a concurrent transformation. Vinatex is currently a state-owned "general corporation" that oversees the operations of a mixture of 7 state-owned clothing and textile companies, 9 private clothing companies, 41 joint shareholding (stock) companies, 6 joint venture companies, and 7 clothing and textile research and educational institutions. In the past, despite its official relations with the various clothing manufacturers, Vinatex's authority over the manufacturers was limited, especially when it came to the distribution of profits. According to Le Quan An, chairman of Vinatex, "Before our state companies acted independently. If they made a profit, they kept it." In 2006, the Vietnamese government developed a restructuring plan for Vinatex—with the help of PricewaterhouseCoopers—that called for the "equitization" of Vinatex and its transformation into a "profit-oriented holding company." According to Vietnam's Ministry of Industry, Vinatex is to begin its "equitization" in 2007 with the goal of completing its transformation into a joint stock holding company by the end of 2008. As planned, the equitization will not reduce the value of the government's capital holding in Vinatex, but instead will issue new shares for sale to private investors to attract new capital. Also, as a result of its already completed restructuring, Vinatex now collects a portion of the profits of the joint stock companies and joint ventures in which it is a shareholder. In the words of Vinatex chairman An, "Now we act as a real owner." The restructured Vinatex is to focus its efforts in five major areas. First, it will "invest, produce, supply, distribute, import and export in the field of textile and garment." Second, it will set up joint ventures with domestic and foreign investors. Third, Vinatex will "develop and expand" both domestic and overseas markets, "as well as assign member companies to penetrate into potential markets." Fourth, it will conduct research and improve technological applications in Vietnam's clothing and textile industries. Fifth, Vinatex will provide technical training for the workers and management in Vietnam's clothing and textile industry. The equitization and restructuring of Vinatex complicates the emerging structure of Vietnam's clothing industry. From an ownership perspective, a growing portion of clothing production in Vietnam is taking place outside of state-owned enterprises, and in theory, there will be no state-owned clothing factories in Vietnam by 2010. However, the transformation of Vinatex into a holding company holding shares in many of Vietnam's largest clothing companies as well as a major commercial bank raises questions about the real extent to which the Vietnamese government is willing to release the clothing industry from state control. There are a number of direct and indirect ways by which Vietnam (or any nation) could subsidize its clothing industry. Among the direct ways are: 1. financing investments for the clothing industry; 2. offering incentive payments (such as tax rebates) for the achievement of export or production targets; and 3. guaranteeing government procurement contracts to domestic clothing manufacturers. Among the indirect ways are: 1. offering below market loans or credit to Vietnamese clothing companies; 2. lowering or eliminating tariffs on imported materials or equipment used by the clothing industry; 3. providing materials and/or labor at below market prices; and 4. erecting administrative barriers to foreign competition to Vietnam's clothing industry in its domestic consumer market. Vietnam's past practice of providing its clothing industry with a variety of direct and indirect subsidies has been and continues to be of concern. As previously indicated, some U.S. textile manufacturers point to Vietnam's subsidization of its clothing industry as evidence of unfair competitive practices and the need for safeguard measures. Also, during the negotiation of Vietnam's accession to the WTO, the United States insisted on a commitment from Vietnam to cease its WTO-prohibited subsidies for the clothing industry. Vietnam made such a commitment and asserts that it has fully complied with those commitments. People and organizations who think that the Vietnamese government may still be subsidizing its clothing and textile industry often point to the events surrounding "Decision 55." On April 23, 2001, the Vietnamese government released Decision 55/2001/QD-TTg , or "Decision 55," which provided for the investment between 2001 and 2005 of 35 trillion dong—or approximately $2.2 billion—in various projects designed to assist Vietnam's textile and clothing industry. These projects included financial support for the cultivation of cotton, the development of infrastructure for Vietnam's textile industry, and credit preferences for specific projects related to Vietnam's clothing and textile industries. Decision 55 also called for the investment of 30 trillion dong (approximately $1.9 billion) between 2006 and 2010. As part of its WTO accession agreement, Vietnam pledged to end all WTO-prohibited subsidies to its clothing and textile industry, and on May 30, 2006, Decision 55 was revoked by Decision 126/2006/QD-TTg. According to Vietnamese officials, the United States "might have misunderstood the spirit" of Decision 55, and misconstrued it to provide for direct government financing of the projects. Instead, much of the funding for the projects mentioned in Decision 55 were to be financed by the private sector and foreign investors. According to Vinatex chairman Le Quoc An, government assistance to Vietnam's clothing industry between 2002 and 2005 was limited to small loans from Vietnam's Development Assistance Fund (DAF), totaling 1.9 trillion dong, or approximately $118 million. Following the revocation of Decision 55, the Vietnamese government has directed Vinatex to take the lead in raising funds to support the expansion of Vietnam's clothing industry. In response, Vinatex announced that "Vietnamese textile and garment companies are prepared to forgo subsidies" and "stand on [their] own feet." According to Le Quoc An, while the industry would face "serious difficulties" without the subsidies, it would "mobilize money from local and foreign investors" for investments in new facilities and technology. To that end, Vinatex announced on July 19, 2007, that it was talking with a group of investors—including the Vietnam International Bank, Vietnam Steel Corporation, and Hanoi Beer-Alcohol and Beverage Corporation—about opening a commercial joint-stock bank to provide financial services to Vietnam's clothing and textile industries. The proposed bank's initial capital is to total 1 trillion dong, or approximately $63 million. In August 2007, Vinatex applied for a license from the State Bank of Vietnam to establish the Industrial Development Bank (IDB). Vinatex is currently awaiting approval to open the proposed bank. One indirect means of subsidization of Vietnam's clothing industry frequently mentioned is the payment of below market wages to clothing workers. The claim is that by keeping clothing workers' wages down, Vietnam's clothing companies can either earn higher profits or lower their prices below market prices. Higher profits would allow the clothing companies to expand their operations and secure a larger share of the global clothing market, and below market clothing prices would help Vietnamese companies out-compete other clothing manufacturers. There is some circumstantial evidence to support the claim that Vietnam's clothing companies are paying their workers below market wages. Several studies of Vietnam's clothing and textile industry find that the average wage of clothing and textile workers in Vietnam is less than the average wage for other Vietnamese manufacturing workers. However, it is argued that lower wages in the clothing and textile industries are not unusual in other nations (including the United States) because of the high level of global competition and the higher than average employment of women in these industries. Wage data for the global clothing industry in 2008 reportedly indicates a general rise in labor costs, in part due to the weakening of the U.S. dollar. According to the study, Vietnam's hourly wage rates are below those of China and much of Central America, but above those of Bangladesh, Cambodia, and Pakistan. Other sources indicate that Vietnam's high rate of inflation—19.4% year-on-year in March 2008—is driving up the cost of labor and raw materials, and hurting Vietnam's exports. The Vietnam General Labor Union reported over 300 worker strikes during the first four months of 2008, generally over low wages and the effects of inflation. The State Bank of Vietnam (SBV) is apparently unsure how to respond to the combined effects of inflation and the weakening U.S. dollar. Because most export contracts are denominated in U.S. dollars, the dollar's decline in value has cut into Vietnamese manufacturers' profit margins. At the same time, rising labor and raw material costs are undermining profits from the opposite direction. If the SBV devalues the Vietnamese dong, it may help exporters, but exacerbate domestic inflation. If the SBV revalues the dong, it might reduce inflation, but might potentially drive many exporters out of business. For the first six months of 2008, the dong had depreciated in value by over 3% against the U.S. dollar. Another important aspect of Vietnam's clothing industry is the nature of its participation in the competitive global clothing market. According to Professor Gary Gereffi, the global clothing market is a prime example of buyer-driven commodity chain, in which the "large retailers, marketers and branded manufacturers play the pivotal roles in setting up decentralized production networks." In the analysis of Gereffi and others, buyer-driven commodity chains are characterized by highly competitive, decentralized manufacturing, frequently involving multiple countries. In addition, Gereffi and other scholars maintain that the retailers, marketers and branded manufacturers secure control over the actual clothing manufacturers and the suppliers of materials and equipment used in producing clothing by controlling product design and brand names. As a result, most of the profits in the clothing industry flows to the retailers, marketers, and branded manufacturers. This analysis is based on a commodity chain approach that examines the production flow of clothing from raw materials to retail sale (see Table 5 ). In general, the major retailers control both the design and the marketing of the final clothing items. The wholesalers and exporters typically contract with the major retailers to source the clothing items from a network of manufacturers, who in turn subcontract the textile companies to provide the materials needed to produce the clothes. The textile companies similarly purchase the raw materials they need from suppliers of either natural or synthetic fibers. In general, this production chain is initiated by the decision of the retailers to procure clothing. Vietnam's clothing industry is by and large restricted to the center of this commodity chain, competing for contracts to produce some of the more competitive types of clothing such as women's clothing and cotton clothing. This market segment is often characterized by what some analysts call "triangle manufacturing." Triangle manufacturing typically involves three key parties—a retailer, a sourcing company, and a manufacturer. The retailer contracts the sourcing company to procure clothing according to very detailed specifications. The sourcing company usually subcontracts the manufacturing of the clothing items to a network of clothing manufacturers that it knows, trusts, and monitors. The clothing manufacturers produce the clothing items and then ship the products directly to the retailers. Once the clothing shipments are received and pass inspection, the retailer pays the sourcing company, who then pays the manufacturers. Within the confines of triangle manufacturing, there is also a pattern of progression for the clothing manufacturers. At first, the manufacturers tend to operate under a "cut-make-trim" (CMT) arrangement with the sourcing company, where the manufacturer is provided all the materials for the production of the clothing item and only assembles the final product. Later on, the manufacturer may advance into an "original equipment manufacturing" (OEM) arrangement in which the sourcing company or the major retailer provides the manufacturer with the product design and it is up to the manufacturer to purchase the necessary materials to make the clothing items. In some cases, clothing manufacturers have been able to expand their activities further out in the commodity chain and undertake "original brand-name manufacturing" in which they may design the clothes to be sold either under their own brand name or under the brand name of a major retailer. Because the sourcing company usually has a significant number of manufacturers able to supply the clothing items, competition for the subcontracts tends to be keen, and the manufacturers are often pushed to lower their prices and speed up their production in order to win the contract. In Vietnam, the state-owned companies and the foreign-invested companies are generally considered better able to compete for "triangle manufacturing" contracts than the smaller, private Vietnamese enterprises because they are larger in size and have easier access to operating capital. To improve the overall profitability of Vietnam's clothing industry and reduce its dependency on the major retailers and marketers, the Vietnamese government is attempting to follow in the footsteps of Hong Kong, Singapore, South Korea and Taiwan. The "four Asian dragons" were able to transform their manufacturing sectors in response to highly competitive global market conditions in various ways. In the clothing industry, Hong Kong, South Korea, and Taiwan not only diversified their manufacturing throughout Asia (including China), but also have moved up and down the clothing commodity chain into clothing design (up chain) and brand name development (down chain). Under the Decision 55, the Vietnamese government apparently had decided to focus its efforts on up chain development by increasing investments into its domestic textile industry and its production of raw materials used in the clothing industry. However, with the revocation of Decision 55, the focus seems to have shifted to down chain development. Vietnam's exports of clothing have experienced rapid growth over the last 12 years, but this expansion has largely been in line with the overall increase in Vietnam's total exports. What has changed is the mix of Vietnam's major markets for its clothing exports, with the rapid rise in the importance of the U.S. market over the last few years. Over the last decade, Vietnam's textile and clothing exports have increased over five-fold, according to its General Statistics Office (see Table 6 ). In 1997, Vietnam's exports of textiles and clothing were worth $1.5 billion, and contributed 14.1% of the nation's total export earnings. In 2002, textile and clothing exports reached $2.73 billion, and 17.9% of total export value. Since then, while the value of textile and clothing exports have continued to rise, their share of total exports has declined. In 2007, the total value of Vietnam's textile and clothing exports was $7.78 billion, but only 16.1% of total exports. The U.S. decision to grant Vietnam normal trade relations (NTR) status in December 2001 apparently led to a dramatic shift in the structure of Vietnam's clothing exports (see Table 7 ). In 2001, Vietnam's leading export markets for its clothing were Japan and the 27 members of the European Union, or EU-27. Vietnam's combined clothing exports to Japan and the EU-27 amounted to over two-thirds of its clothing exports in 2001. By contrast, Vietnam shipped 2.6% of its clothing exports to the United States in 2001. However, after receiving NTR status, Vietnam's clothing exports to the United States jumped to nearly $1 billion in 2002, readily surpassing exports to both Japan and the EU-27, which declined slightly from the previous year. As a result, the United States became Vietnam's largest clothing export market in 2002. The sharp rise in clothing exports to the United States continued into 2003, when over half of Vietnam's clothing exports were sent to the United States, while exports to Japan and the EU-27 continued to decline. The decline in exports to Japan and the EU-27 ended in 2004, with a slight rebound in clothing sales to Japan and a larger rise in exports to the EU-27. Meanwhile, growth in clothing exports to the United States were possibly curbed in part due to the imposition of quotas by the United States. However, those protective measures were not sufficient to stop the advance in the U.S. share of Vietnam's clothing exports. In 2004, nearly $6 of out of every $10 of clothing exports from Vietnam went to the United States. In 2005, Vietnamese clothing exports to the United States increased by just over $147 million. However, exports to Japan and the EU-27 increased by a combined total of more than $247 million. As a consequence, there was a small decline in the U.S. share of Vietnam's clothing exports in 2005, and a corresponding slight rise for both Japan and EU-27. Although 2006 and 2007 trade figures were not available for this report, there are indications that the modest shift away from the United States and back towards Japan and the EU-27 continued. Because of its concerns about the possible continuation of protective measures by the United States as part of Vietnam's WTO accession agreement, the Vietnamese government has allegedly encouraged its clothing companies to export to Japan and the EU-27. In addition, the continued weakening of the U.S. dollar and the slowdown in the U.S. economy has made Japan and the EU-27 a more attractive market. Over the last five years, there has been a marked increase in U.S. clothing imports from Vietnam. Despite repeated changes in U.S. trade policy towards Vietnam—including the conferral of normal trade relations, the imposition of import quotas for selected clothing items, and compliance with Vietnam's WTO accession—there has been steady growth in Vietnam's clothing exports to the United States, and, with it, a rise in Vietnam's overall market share in the United States. However, Vietnam remains a comparatively modest supplier of U.S. clothing imports. Even in the market segments where Vietnam is among the top three suppliers to the United States, its portion of import supply with few exceptions remains below 10%. The recent rapid growth in U.S. clothing imports from Vietnam should be considered in the context of the overall growth of U.S. clothing imports and in comparison with other major suppliers, such as China and Mexico. As shown in Figure 2 , the increase in U.S. clothing imports from Vietnam since 2001 is relatively small when compared to the overall increase in U.S. clothing imports, as well as to the rise in clothing imports from China. In 2006, the United States imported $73.4 billion of clothing, of which $19.9 billion were from China, $5.4 billion were from Mexico, and $3.2 billion were from Vietnam. However, the rise in Vietnamese clothing imports over the last five years does roughly correspond to the decline in imports from Mexico. Overall, Vietnam's share of the U.S. clothing imports rose from 0.1% in 2001 to 5.7% in 2007. By contrast, China's share increased from 11.0% to 31.7% over the same six-year period. The second largest clothing supplier to the United States, Mexico, saw its share decline from 13.7% to 6.1% between 2001 and 2007. In 2001, Vietnam was not among the top 25 suppliers of clothing imports to the United States. Following the passage of normal trade relations, Vietnam was the 20 th largest source of U.S. clothing imports in 2002. In 2003, Vietnam jumped to 5 th in the list of leading clothing suppliers for the United States. However, following the imposition of import quotas, Vietnam's ranking dropped to 7 th in 2005, only to rebound to 5 th in 2006 and then 3 rd in 2007—behind (in order) China and Mexico. While Vietnam may be only the 5 th largest overall supplier of clothing imports for the United States with a share of 4.3%, it is possible that it may be a dominant supplier of select categories of clothing. However, an examination of U.S. import data at the four-digit level of the HTS code does not find evidence of submarket dominance by Vietnam. Even in the few categories where it is among the top three sources for U.S. imports, Vietnam rarely provides more than 10% of the total imports. For Chapter 61 of the HTS code, which includes "articles of apparel and clothing accessories, knitted or crocheted," there were six subcategories at the four-digit level in which Vietnam was one of the top three suppliers in 2006 (see Table 8 ). For Chapter 62, "articles of apparel and clothing accessories, not knitted or crocheted," there were five such subcategories. It is worth noting that only one of the 11 clothing submarkets in which Vietnam was a major source of U.S. imports in 2006—HS 6106—significantly overlaps with the clothing categories being monitored by the DOC's monitoring program. For most of the categories being monitored, Vietnam was generally not among the top 10 suppliers for the United States and/or Vietnam's market share was below 3%. Two exceptions in Chapter 61 were men's and boys' knitted or crocheted shirts, where Vietnam ranked 5 th and provided 6.2% of the imports; and men's and boys' knitted or crocheted sweaters, where Vietnam ranked 7 th and provided 3.9% of the imports. Also, the main competitors to Vietnam in the U.S. clothing import market are not generally the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) nations, but China and other Asian nations. For the 11 submarkets listed in Table 8 , Guatemala, Honduras, and Mexico are the only American nations that appear among the top five suppliers for the United States, and in only three of those submarkets. This provides some support for the view that limiting clothing imports from Vietnam would probably result in production being shifted to other Asian sources, rather than to manufacturers in the United States or elsewhere in the Americas. Recent trends in the gross output of the U.S. clothing industry provide an ambiguous picture of the possible effect of the recent rise in clothing imports from Vietnam (see Figure 3 ). Between 1997 to 2004, there was a general decline in the value of U.S. clothing production that corresponded with the period of most rapid growth in the clothing imports from Vietnam. In 2005, U.S. clothing production rose slightly, at the same time that the growth in clothing imports from Vietnam slowed down. Both of these trends were generally consistent with the argument that clothing imports from Vietnam were displacing clothing manufactured in the United States. However, there are aspects of the recent trade trends that raise doubts about a causal link between the rise in clothing imports from Vietnam taken alone and the decline in U.S. clothing production. First, the decline in U.S. production predates the end of the U.S. trade embargo on Vietnam, indicating that other factors may be involved. Second, the decline in U.S. production between 2000 and 2004—over $30 billion—is nearly 13 times the size of the increase in clothing imports from Vietnam during the same time period—another possible indication that other factors may be responsible for the decline in U.S. clothing production. Third, both U.S. clothing production and clothing imports from Vietnam rose in 2005, which is contrary to the relationship expected if clothing imports from Vietnam were causing a decline in U.S. production. Finally, because its has been a relatively short period of time since Vietnam has been allowed to export clothing to the United States, it is difficult to demonstrate any reliable trends or conduct time series analysis that will provide statistically significant results. The completion of the two reviews by the Department of Commerce of its monitoring program provided little resolution or clarity to a number of questions raised about the authority and the necessity of establishing such a monitoring program. The DOC press releases appear to have been carefully worded to avoid a flat denial that there was evidence of dumping by Vietnam, while simultaneously providing possible grounds for the continuation of the monitoring of selected Vietnamese clothing imports. In addition, there is sufficient ambiguity in the language of the press releases to allow the DOC to amend or alter the categories of Vietnamese clothing imports it monitors, if it chooses to do so. One possible response for Congress is to take no action. Given that the DOC is monitoring trade flows, and has so far determined that there is insufficient evidence to initiate an anti-dumping investigation, it would appear that clothing imports from Vietnam are generally in compliance with current U.S. laws and regulations. If Congress were to consider taken some action on this issue, there are several aspects of the current status of U.S.-Vietnamese trade relations for clothing that might be examined. First, the Department of Commerce has not publicly responded to requests from some Members of Congress, the Vietnamese government, and some major U.S. clothing importers for the legal basis for establishing the monitoring program. The Federal Register announcement of the creation of the monitoring program did not include the usual federal law citation establishing the authority to create the program. Congress could act to revisit the question of DOC's legal authority for establishing the monitoring program. Second, there was concern by several Members of Congress that the current U.S. trade policy towards Vietnam's clothing imports may violate both the spirit and the letter of the U.S. commitments to other WTO members. As such, Congress might act to review the monitoring program to decide whether or not it violates existing WTO agreements, exposing the United States to the risk of a formal complaint from Vietnam. Third, Congress could investigate Vietnam's compliance with its promise to terminate all WTO-prohibited subsidies to its clothing and textile industry. As indicated by their submitted comments on the monitoring program, some U.S. textile manufacturers are concerned that Vietnam is not living up to its promise, and continues to use direct and indirect subsidies to support its clothing exports. Such an investigation might also include research into Vietnam's labor market to ascertain if the Vietnamese government is suppressing the wages of clothing and textile workers below fair market values. Fourth, possibly based in part of the results the investigation mentioned above, Congress could choose to pass legislation designed to counteract perceived unfair trade practices by Vietnam in its export of clothing to the United States. The proposed legislation might incorporate provisions that would make it easier to initiate anti-dumping or countervailing duty investigations in cases involving nonmarket economies, such as Vietnam. Fifth, Congress may decide to consider the claims of major clothing retailers and importers that the monitoring program has stunted trade with and investments in Vietnam, thereby possibly causing them economic harm. The DOC review was designed to examine trade data to determine whether or not there was sufficient evidence to self-initiate an antidumping investigation against Vietnam. It did not analyze the trade data to determine if the program had distorted trade during its first six months of operation. Sixth, Congress could also investigate the administration and operation of the monitoring program to determine if it is correctly identifying the types of clothing in which there might be possible dumping by Vietnam. Among the criteria typically considered as being necessary conditions for proof of possible dumping are below market prices and significant market share. In its review of clothing imports from Vietnam, the DOC reported rising unit prices and implied that prices were comparable to other clothing suppliers. As for market share, some experts assert that unless a supplier provides more than 4% of the overall supply of a product, it cannot cause sufficient harm to substantiate dumping claims. At present, there are very few categories of clothing for which Vietnam achieves the market threshold level. Finally, Congress might decide to authorize its own study of the monitoring program data to see if there is any evidence of dumping and/or sufficient evidence to warrant the continuation of the program. One criticism previously raised with the DOC's biannual review process was the problem of the seasonal nature of the global clothing market. By assessing the monitoring program for a full year, Congress could take into account the seasonal characteristics of the clothing market in evaluating the trade data. | U.S. clothing imports from Vietnam grew from virtually nothing in 2000 to $4.3 billion in 2007. Vietnam was the third largest source of clothing imports for the United States in 2006, behind (in order) China and Mexico. Much of that growth was the result of the gradual liberalization of U.S. trade policy towards Vietnam. Although the United States terminated its trade embargo on Vietnam in 1994, trade initially remained low because Vietnam did not have "normal trade relations" (NTR) status. The signing of a bilateral trade agreement in July 2000 allowed President Clinton to grant Vietnam temporary NTR status (effective December 2001), leading to a sharp increase in U.S. imports from Vietnam, including clothing. The rise in Vietnamese clothing imports led to the United States to push Vietnam into a bilateral textile agreement in 2003 that set quantity quotas on the import of selected clothing items. The bilateral textile agreement remained in effect until the United States granted Vietnam permanent NTR status on December 20, 2006, as part of its accession into the World Trade Organization (WTO). The liberalization of U.S. trade policy towards Vietnam raised concerns about possible dumping by Vietnamese clothing exporters. Some Members of Congress and U.S. clothing and textile companies argued that a surge in Vietnamese imports may harm the U.S. clothing and textile industry. In part to secure Senate passage of permanent NTR status for Vietnam, the Bush Administration agreed to establish a "monitoring program" for selected clothing imports from Vietnam. From its inception, there have been questions about the legality and effectiveness of the monitoring program. On October 26, 2007, the Department of Commerce (DOC) announced the completion of its first six-month review of the monitoring data, finding that there was insufficient evidence to warrant the self-initiation of an antidumping investigation. On May 6, 2008, the DOC announced its second six-month review of the monitoring data had come to the same conclusion. There are a range of actions that Congress might take with regard to U.S. trade policy towards Vietnam. Congress could take no action. Alternatively, Congress could revisit the question of the DOC's legal authority to establish the monitoring program, as well as examine the issue of the compatibility of the monitoring program with existing WTO agreements and commitments. Congress could investigate Vietnam's compliance with its promise to terminate all WTO-prohibited subsidies. Congress could also enact legislation designed to counteract perceived unfair Vietnamese trade practices. Congress could examine the design and conduct of the monitoring program to ascertain if it provides a reasonable basis for determining the need for an antidumping investigation and/or examine claims that the monitoring program has adversely affected trade with and investments in Vietnam. This report will be updated as circumstances warrant. |
In recent years, state and federal laws have facilitated law enforcement's expanded use of deoxyribonucleic acid (DNA) for investigating and prosecuting crimes. Such 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. Since the turn of the century, 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. A bill passed by the House in May 2010, the Katie Sepich Enhanced DNA Collection Act of 2010 ( H.R. 4614 ), would provide grant funding incentives to states that collected DNA samples from persons who are at least 18 years old who are arrested for specified types of crimes. Litigants have challenged compulsory collection and the subsequent analysis and storage of DNA as unreasonable searches and seizures under the Fourth Amendment to the U.S. Constitution. Although they have reached their conclusions using different analytical approaches, federal and state courts have generally upheld compulsory DNA collection as non-violative of the Fourth Amendment. However, prior cases involved the collection of DNA samples from people who had been convicted of a crime. More recently, a handful of state and federal courts have addressed such collection from arrestees, with differing results. This report examines statutory authorities, constitutional principles, and case law related to compulsory DNA extraction and analyzes potential impacts of recent developments for Fourth Amendment cases. DNA is a complex molecule found in human cells and "composed of two nucleotide strands," which "are arranged differently for every individual except for identical twins." Relatively new technology enables DNA analysts to determine the arrangement of these strands, thereby creating unique DNA profiles. In the law enforcement context, DNA profiles function like "genetic fingerprints" that aid in matching perpetrators to their crimes. 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 "critical 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. Typically, a law enforcement agency's phlebotomist collects a blood sample pursuant to state or federal law. Then, the agency submits the sample to the FBI, which creates a DNA profile and stores the profile in the Combined DNA Index System, a database through which law enforcement officers match suspects to DNA profiles at the local, state, and national levels. FBI analysts create DNA profiles by "decoding sequences of 'junk DNA.'" So-called "junk DNA," the name for "non-genic stretches of DNA not presently recognized as being responsible for trait coding," is "'purposefully selected'" for DNA analysis because it is not "associated with any known physical or medical characteristics," and thus theoretically poses only a minimal invasion of privacy. The categories of individuals from whom law enforcement officials may require DNA samples has 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 discussed infra , the DNA Analysis Backlog Elimination Act 2000, as amended, 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 the Combined DNA Index System; more than 170 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 109 th Congress authorized the Attorney General, in his discretion, to require collection from such individuals. Specifically, 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 implemented the authorization in a final rule that 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. As mentioned, H.R. 4614 , a bill passed by the House, would provide grant funding incentives to encourage states to establish processes for collecting DNA from persons arrested for specified state offenses. Whereas the increase in the range of triggering offenses appears to be a natural outcome of DNA's success as a forensic tool, the expansion to collection from arrestees appears to be a more legally significant step. Overall, it seems Congress's goal for the expansion to arrestees and those facing charges was to facilitate crime prevention through "the creation of a comprehensive, robust database that will make it possible to catch serial rapists and murderers before they commit more crimes." In background material for its implementing rule, the Justice Department explains that collection from arrestees will facilitate more effective law enforcement for at least two reasons: (1) it will aid in crime prevention by ensuring that the government need not wait until a crime has been committed before creating an individual's DNA profile; and (2) it will allow federal authorities to create DNA profiles for aliens detained in the United States, who might not otherwise undergo judicial proceedings in U.S. courts. Although Congress expanded statutory authority for DNA collection, it has also provided some protection for arrestees whose arrests do not result in conviction. In particular, federal law mandates expungement of DNA samples upon an arrestee's showing of discharge or acquittal. The FBI and relevant state agencies "shall promptly expunge" DNA information "from the index" upon receipt of "a final court order establishing that such charge has been dismissed or has resulted in an acquittal or that no charge was filed within the applicable time period." Officials must also expunge DNA data for convicts in cases where a conviction is 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. 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. However, courts apply different standards, in different circumstances, to determine whether searches and seizures are reasonable. The Court's Fourth Amendment analysis falls into three general categories. The first category involves traditional law enforcement activities, such as arrests or searching of homes. To be reasonable, these activities require "probable cause," which must be formalized by a warrant unless a recognized warrant exception applies. Probable cause is "a fluid concept—turning on the assessment of probabilities in particular factual contexts—not readily, or even usefully, reduced to a neat set of legal rules," yet it is considered the most stringent Fourth Amendment standard. In the context of issuing warrants, probable cause requires an issuing magistrate to make a "common sense" determination, based on specific evidence, whether there exists a "fair probability" that, for example, an area contains contraband. The second category, introduced in the Supreme Court case Terry v. Ohio , involves situations in which a limited intrusion satisfies Fourth Amendment strictures with a reasonableness standard that is lower than probable cause. For example, in Terry , a police officer's patting of the outside of a man's clothing to search for weapons required more than "inchoate and unparticularized suspicion" but was justified by "specific reasonable inferences" that the man might have a weapon. In such situations, courts permit searches justified by "reasonable suspicion," which is a particularized suspicion prompted by somewhat less specific evidence than probable cause requires. The third category includes "exempted area," "administrative," "special needs," and other "suspicionless" searches. Examples include routine inventory searches, border searches, roadblocks, and drug testing. In these circumstances, courts apply a "general approach to the Fourth Amendment"—also called the "general balancing," "general reasonableness," or "totality-of-the-circumstances" test—to determine reasonableness "by assessing, on the one hand, the degree to which [a search or seizure] intrudes upon an individual's privacy and, on the other, the degree to which it is needed for the promotion of legitimate governmental interests." Although the Supreme Court has expanded the scope of application for this test, the approach historically applied only when a search or seizure satisfied parameters for one of several narrow categories. In particular, it applied where a routine, administrative purpose justified regular searches; where a long-recognized exception existed, such as for border searches; or where a "special nee[d], beyond the normal need for law enforcement, [made] the warrant and probable cause requirements impracticable." In the context of law enforcement's collection of DNA from prisoners, parolees, and others subject to law enforcement supervision, questions remain regarding when a special need, distinct from law enforcement interests, must exist before a court may apply a general reasonableness standard. Although the special needs test arose in the context of drug testing, the Supreme Court has held that probation and other post-conviction punishment regimes qualified as special needs with purposes distinct from law enforcement. For example, in Griffin v. Wisconsin , the Court held that a "state's operation of a probation system, like its operation of a school, government office or prison, or its supervision of a regulated industry ... presents 'special needs' beyond law enforcement." As discussed below, later Supreme Court cases seem to suggest that a defendant's post-conviction status, alone, might justify a court's direct application of a general reasonableness test to DNA collection, without any finding of a special need. Because its focus is the status of the person searched rather than the nature or justification of government action, such an approach is distinct from existing legal bases for applying a general reasonableness test to evaluate suspicionless searches. Since 2000, the Supreme Court has twice applied a general reasonableness test in Fourth Amendment cases involving people serving post-conviction punishments—specifically, in cases involving a probationer and a parolee—without first finding special needs justifying the government action. In both cases, the Court's legal basis for directly applying the general balancing approach was the reduced expectation of privacy to which each defendant was entitled by virtue of his post-conviction status. In addition to providing a justification for rejection of the special needs test, this same diminishment of defendants' privacy expectations also favored the government in the Court's application of the general balancing test. In United States v. Knights , a 2001 case, a California court had sentenced Mark Knights to probation for a drug offense. One condition of his probation was that his "person, property, place of residence," etc., were subject to search "with or without a search warrant." After finding some evidence that appeared to link him with a fire at a local telecommunications vault, a police detective searched Knights's home without a warrant. Emphasizing the curtailment of privacy rights that correspond with probation and other post-conviction punishment regimes, the Court evaluated the search under the general balancing test, without first identifying an administrative purpose or special needs justification. In addition, Knights's diminished expectation of privacy affected the outcome under the Court's general Fourth Amendment balancing test. Noting that "Knights' status as a probationer subject to a search condition informs both sides of that balance," the Court easily upheld the officer's search based on reasonable suspicion. In Samson v. California , a 2006 case, the Court extended Knight s to uphold a search of a parolee's pockets, for the first time directly applying the general reasonableness test to a search justified only on the basis of the petitioner's status as a parolee, rather than on any particularized suspicion. As in Knights , the Samson Court explicitly rejected arguments that a special needs analysis was required; instead, finding that the petitioner's post-conviction status diminished his privacy rights, the Court again directly applied a "general Fourth Amendment approach." In addition, as in Knights , the Samson court held that a parolee's diminished privacy right affected the outcome of the general balancing test. It is unclear what other categories of people might be subject to a reduced expectation of privacy by virtue of their status. It appears from Supreme Court dicta that at least a lesser reduction in privacy rights would apply to those in pre-trial detention versus people serving sentences after conviction. In Knights and Samson , the Supreme Court referred to parolees and probationers as being along a "'continuum' of state-imposed punishments." Furthermore, in Samson , the Court held that a parolee lacked "an expectation of privacy that society would recognize as legitimate," because searches were a condition of parole, which was a "'an established variation on imprisonment.'" Lower federal courts have interpreted these and other Supreme Court decisions as suggesting that prisoners' privacy expectations are the most diminished; parolees have the next lowest diminishment in privacy expectations, followed by people on supervised release and probationers. The few U.S. district court cases addressing DNA collection from persons awaiting trial, discussed infra , have reached different conclusions regarding the extent to which a person's pre-trial detention diminishes his or her reasonable expectation of privacy. Courts have uniformly held that compulsory DNA collection and analysis constitutes a search, and thus triggers Fourth Amendment rights. Although some courts have signaled that DNA collection or storage might also constitute a seizure, courts have generally not addressed that question. Thus, the question in cases brought is whether the collection of DNA satisfies the Fourth Amendment reasonableness test. Prior to the expansion of DNA collection authority to arrestees, nearly all courts that reviewed laws authorizing compulsory DNA collection upheld the laws against Fourth Amendment challenges. Although the U.S. Supreme Court has never accepted a DNA collection case, U.S. Courts of Appeals for the First, Second, Sixth, Seventh, Eight, Ninth, Tenth, and Eleventh Circuits upheld the 2004 version of the federal DNA collection law, which authorized collection and analysis of DNA from people convicted of any felony, certain sexual crimes, and crimes of violence. Likewise, federal courts of appeals have upheld several state laws authorizing post-conviction DNA collection. Courts have relied on different legal tests in these cases. While most courts have directly applied a general reasonableness approach, some courts have first evaluated government actions under the special needs test. The majority of the federal courts of appeals have interpreted Samson as affirmatively requiring courts to apply the general reasonableness test, without a special needs prerequisite, at least as applied to prisoners or other individuals with post-conviction status. For example, in Wilson v. Collins , the Court of Appeals for the Sixth Circuit interpreted Samson as requiring direct application of the general balancing test in a case involving a prisoner. Likewise, in United States v. Weikert , a case involving compulsory collection of DNA from a man on supervised release, the Court of Appeals for the First Circuit held that, under Samson , a general reasonableness test applied in DNA collections cases. In contrast, some federal courts of appeals have held that Samson did not affect their use of the special needs test in suits challenging DNA collection statutes. For example, the Court of Appeals for the Second Circuit declined to apply Samson in United States v. Amerson , a case upholding compulsory DNA collection from two individuals on probation, one for larceny and one for wire fraud. The court interpreted Samson very narrowly, as applying only in contexts involving a "highly diminished" expectation of privacy. Similarly, although it directly applied the general reasonableness test in Wilson , the Sixth Circuit suggested in that case that Samson might not apply in a case involving a person who was not a prisoner. The reading of Samson as limited to cases involving a significantly diminished expectation of privacy appears to comport with the Supreme Court's emphasis in Knights and Samson on the diminished privacy rights that stem from a petitioner's post-conviction status. In Samson , the Court framed the question in the case as "whether a condition of release can so diminish or eliminate a released prisoner's reasonable expectation of privacy that a suspicionless search by a law enforcement officer would not offend the Fourth Amendment." In evaluating post-conviction DNA collection, whether courts apply the special needs test before applying a general reasonableness test in DNA cases has had little or no practical import, because courts have consistently upheld the collection regardless of the standard they apply. Thus, courts have signaled that a change in analytic tools would not affect the ultimate determination of constitutionality in DNA collection cases involving convicted criminals. However, some courts addressing DNA collection in the post-conviction context have made clear that their holdings do not apply to such collection from arrestees. As mentioned, to date, only a handful of state and federal judicial decisions address compulsory collection of DNA from persons awaiting a criminal trial. Outcomes in the cases are mixed. Two federal district courts have issued rulings in cases challenging the federal authorities for pre-conviction DNA collection. In United States v. Pool , the U.S. District Court for the Eastern District of California upheld such collection. In United States v. Mitchell , the U.S. District Court for the Western District of Pennsylvania reached the opposite result. The U.S. Court of Appeals for the Ninth Circuit will be the first federal court of appeals to address a challenge to federal collection from an arrestee when it rules in the pending appeal in Pool . In both U.S. district court cases, the government requested a DNA sample after the defendant was arrested pursuant to a criminal indictment but before trial. Both courts applied the general balancing test to determine whether such collection was reasonable under the Fourth Amendment. Their divergent conclusions can be explained, in part, by the courts' differing characterizations of DNA collection on both sides of the general balancing test. On the privacy intrusion side, the Pool court viewed a DNA sample as no more intrusive than fingerprinting. In contrast, the Mitchell court noted that DNA has the potential to reveal a host of private genetic information and rejected the analogy to fingerprinting as "pure folly." The courts' different views of DNA's role also impacted their conclusions on the government interest side of the balancing test. The Pool court viewed the government's interest in collecting DNA as equally legitimate as fingerprinting and other identification tools, in which governments have been held to have a sufficient interest. In contrast, because it viewed DNA collection as presenting a far greater privacy intrusion than fingerprinting, the Mitchell court held that although the government has a legitimate interest in identifying suspects, that interest is one "that can be satisfied with a fingerprint and photograph" rather than with the more intrusive DNA sample. Another explanation for the different outcomes is the courts' different views of the implication of an indictment for a defendant's reasonable expectation of privacy. The Pool court viewed a grand jury's finding of probable cause at an indictment as a "watershed event," pursuant to which it is constitutional to detain a defendant or otherwise restrict a defendant's liberty. Thus, the Pool court found that a post-indictment arrestee has a substantially diminished reasonable expectation of privacy. However, it expressly limited its holding to cases in which DNA collection occurs after an indictment. Criticizing the Pool opinion, the Mitchell court stated that it is "loath to elevate a finding of probable cause"—that is, the standard which must be met for an indictment—to match the higher, "reasonable doubt" standard required for a conviction. Therefore, it "strongly disagree[d] with the court's analysis in Pool " regarding the extent to which arrest and indictment diminish a person's reasonable expectation of privacy. The Ninth Circuit heard oral arguments in Pool in December 2009. At oral argument, Pool sought to distinguish his case, in which the DNA was collected prior to conviction, from previous Ninth Circuit decisions, namely United States v. Kincade and United States v. Kriesel , upholding post-conviction DNA collection. Some lines of questioning appeared to indicate that the court might consider a narrow ruling in the case. For example, it is possible that the court would limit its holding to instances in which the DNA collection follows an indictment or other formal probable cause determination. Courts will likely wrestle with the questions raised by the divergent Pool and Marshall decisions in future cases involving pre-conviction DNA collection. Several additional issues are likely to affect courts' analyses in such cases, and might also impact the existing judicial consensus regarding the constitutionality of DNA collection from persons who have been convicted of a crime. In particular, the emerging science regarding biological purposes for junk DNA and the FBI's long-term storage of DNA profiles are likely to play a role in future analyses. 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, thought not 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 suggest that this assumption might change if scientists discover new uses for junk DNA. For example, the U.S. Court of Appeals for the First Circuit has suggested that "discovery of new uses for 'junk DNA' would require a reevaluation of the [Fourth Amendment] reasonableness balance." Scientific research on junk DNA is still emerging, and some research suggests that junk DNA has more biological value 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 argued that there might be "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. A final issue that might arise in future DNA cases is the constitutionality of storing convicts' DNA profiles after their sentences have ended. As mentioned, federal law requires the FBI to expunge DNA profiles for people who receive acquittals or whose convictions are overturned. However, the expungement provisions do not address storage of DNA from people who have been convicted but have successfully completed their sentences. Rather, as the Ninth Circuit Court of Appeals noted in United States v. Kriesel , "once they have [a person's] DNA, 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." Defendants have generally not raised this issue, but it might become a more prevalent argument since laws have expanded collection authority to reach people convicted for relatively minor charges. Some courts have signaled that storage after sentences are completed could alter the Fourth Amendment analysis. For example, in an opinion upholding collection of DNA from a person on supervised release, the U.S. Court of Appeals for the First Circuit warned that its opinion had an "important limitation." Namely, because the petitioner was "on supervised release and will remain so until 2009, [the court did] not resolve the question of whether it is also constitutional to retain the DNA profile in the database after he is no longer on supervised release." Courts might be receptive to arguments regarding the long-term storage of DNA as an unconstitutional search, although some courts have upheld ongoing storage of fingerprints and other evidence. The resolution of that question might depend in part on whether completion of a sentence is viewed as restoring a person's reasonable expectation of privacy. Although nearly all courts that have addressed the issue have upheld the compulsory collection of DNA from persons who have been convicted, no judicial consensus has yet emerged regarding the constitutionality of such collection from persons who have been arrested or are facing charges prior to a criminal trial. The two U.S. district court cases addressing pre-conviction DNA collection pursuant to the federal law illustrate that outcomes in future cases involving arrestees may depend on courts' resolution of at least two key issues, namely: (1) what, if any, distinction exists between the reasonable expectation of privacy of an arrestee and a convict; and (2) the degree of privacy intrusion perceived as a result of a DNA sample. The latter question may turn on courts' framing of the role of DNA collection—that is, whether it is analogous to the long-upheld practice of fingerprinting or whether it represents a greater privacy intrusion. Existing expungement provisions might also become a factor in future challenges to pre-conviction DNA collection. The government might argue that requirements that DNA samples be expunged once an arrestee is discharged or acquitted offset the degree of privacy intrusion caused by such samples. To date, some federal courts have made note of the expungement provisions, but they generally have not addressed the effect of expungement requirements in Fourth Amendment analyses. | Relying on different legal standards, courts have historically upheld laws authorizing law enforcement's compulsory collection of deoxyribonucleic acid (DNA) as reasonable under the Fourth Amendment to the U.S. Constitution. However, prior cases reviewed the extraction of DNA samples from people who had been convicted on criminal charges. New state and federal laws authorize the collection of such samples from people who have been arrested or detained but not convicted. On the federal level, the U.S. Department of Justice implemented this expanded authority with a final rule that took effect January 9, 2009. The Katie Sepich Enhanced DNA Collection Act of 2010 (H.R. 4614), a bill passed by the House, would provide grant funding bonuses to states that authorized the collection of DNA from persons arrested for specified types of crimes. To date, only a few courts have reviewed the constitutionality of pre-conviction DNA collection pursuant to the new federal rule. The two federal district courts to have considered the issue applied the same Fourth Amendment test—the "general balancing" or "general reasonableness" test—but reached opposite conclusions. In United States v. Pool, the U.S. District Court for the Eastern District of California held that the government's interest in collecting a DNA sample from a person facing charges outweighed any intrusion of privacy. In United States v. Mitchell, the U.S. District Court for the Western District of Pennsylvania reached the opposite conclusion. Points of disagreement between the two district court opinions are likely to reemerge as themes in future decisions addressing pre-conviction DNA collection. One difference is whether the defendant's status as a person facing criminal charges was viewed as impacting the scope of Fourth Amendment protection. Another is the extent to which the government was seen as having a legitimate interest in obtaining a DNA sample in particular, rather than a fingerprint or another identifier. Finally, the courts disagreed regarding the degree of the privacy intrusion caused by collecting a DNA sample. The latter questions are framed by a larger debate about the nature and role of DNA in law enforcement. For example, is a DNA sample merely a means by which to identify a person, like a fingerprint? Or does it present a greater privacy intrusion? A few additional factors might complicate courts' analyses of DNA collection in future cases. For example, emerging scientific research suggests that the type of DNA used in forensic analysis might implicate a greater privacy intrusion than courts had previously assumed. In addition, most courts have yet to review the constitutionality of storing convicts' DNA profiles beyond the time of sentence completion. |
In November 2011, President Obama and leaders of the European Union (EU) named a High Level Working Group on Jobs and Growth to recommend steps to broaden transatlantic economic ties. In its final report, issued in February 2013, the working group called for a new bilateral agreement to govern transatlantic trade and investment. Such an agreement, the working group urged, should provide for "the promotion of more compatible approaches to current and future regulation and standard-setting and other means of reducing non-tariff barriers to trade." One month later, President Obama notified Congress that the United States would enter into negotiations with the EU to seek a free trade agreement, referred to as the Transatlantic Trade and Investment Partnership (TTIP). The negotiations, the President wrote, would seek greater compatibility of U.S. and EU regulations and related standards development processes, with the objective of reducing costs associated with unnecessary regulatory differences and facilitating trade, inter alia by promoting transparency in the development and implementation of regulations and good regulatory practices, establishing mechanisms for future progress, and pursuing regulatory cooperation initiatives where appropriate. The formal TTIP negotiations began in July 2013. Motor vehicle safety and emissions standards are areas where the United States and the EU could break new ground. Trade in vehicles and parts between the United States and the EU reached $57 billion in 2012, and numerous companies manufacture on both sides of the Atlantic. The major U.S. and European motor vehicle manufacturer associations have called for TTIP to provide for mutual recognition of existing technical standards and the creation of a U.S.-EU process for harmonization of future vehicle regulations. Such steps, an industry alliance has contended, would "increase trade, lower costs, create jobs and improve the international competitiveness of the industry" in both North America and Europe. The alliance estimates that current non-tariff barriers on vehicles are equivalent to a 26% tariff on vehicle imports. It projects that elimination of tariffs and just 10% of non-tariff barriers could raise U.S. vehicle and parts exports to the EU by over 200% and EU parts and vehicle exports to the United States by 71%. Safety, fuel efficiency, and emissions standards differ between the two regions (see Table 1 ), due to historical differences in producer and consumer preferences as well as the role of government in industry practices. The United States and the EU have different standards even for an item as simple as a seat belt. Some of these differences may reflect past efforts to protect domestic vehicle industries against foreign competition, and others may result from different legal traditions or divergent views as to the best way of achieving goals such as cleaner air and reduced oil consumption. Past auto agreements have been effective in leading to a more globalized auto industry. The 1965 motor vehicle agreement between the United States and Canada and the 1994 North American Free Trade Agreement (NAFTA) removed barriers to trade and cross-border trade in autos and established a more regional motor vehicle industry in the process. The Trans-Pacific Partnership, a separate negotiation involving the United States and 11 other Pacific Rim countries, could have a similar effect. With respect to the auto industry, TTIP represents another effort to extend these regional templates to encompass a greater share of trade and investment. The EU and the United States are the second- and third-largest vehicle producers in the world (see Figure 1 ), together accounting for nearly one-third of global auto production. In 2012, the EU 27 produced more than the United States—16.2 million vehicles compared to 10.3 million. Sales in each region were about the same in 2012: 14.8 million vehicles sold in the United States and 14.3 million in the EU. The remainder of EU production was exported, much of it to the U.S. market. Seventeen of the EU member states manufacture vehicles. Germany is by far the largest auto producer within the EU (see Figure 2 ). The five top countries—Germany, Spain, France, United Kingdom and Czech Republic—manufacture more than 76% of all vehicles produced in the EU. In the United States, vehicles are manufactured in 15 states. Unlike some consumer goods, such as computers and apparel, most vehicles are sold in the region where they are produced because of local consumer preferences and vehicle standards. In 2012, imports constituted about 20% of U.S. sales, and about 17% of sales in the EU. In some cases, a vehicle that is entirely legal in one country may not be sold in another due to differing fuel efficiency, safety, and emissions standards, unless the manufacturer is willing to make major investments to bring the vehicle into compliance. For example, Ford Motor Company's ECOnetic high-efficiency diesel engine, made in Great Britain, gets up to 71 miles per gallon (mpg) of fuel. This engine is not sold in North America because it does not comply with U.S. and Canadian emissions standards. Ford has determined that expanding its Mexican engine plant to make a redesigned version of the ECOnetic for North America would cost $350 million, and it does not believe consumer demand justifies the expenditure. Increasingly, however, auto manufacturers and their parts suppliers have sought to organize their production on a global basis. The German automaker BMW, as an example, produces sport utility vehicles for markets worldwide from a plant in South Carolina. Greater commonality in regulation would make it easier for automakers and parts makers to coordinate production across major markets. This is consistent with individual companies' efforts to reduce costs with new design and production plans, such as the following: Reducing platforms. Automakers are developing global vehicle platforms that will reduce the number of models sold around the world, while consolidating suppliers and cutting costs. For example, the new Jeep Cherokee and Dodge Dart are based on Fiat's Compact Wide platform. The Ford Focus was developed in Europe but is built with similar components in the United States, China, Germany, Russia, and Thailand and sold in 130 countries. Joining forces to meet tightening world emission standards. Many countries, including the United States, have adopted new standards that will be costly for manufacturers to meet. Automakers have responded by creating partnerships to develop more powerful batteries, multispeed transmissions, techniques to improve engine efficiency, and other technological advances. Along these lines, BMW and Toyota have agreed to jointly develop fuel cell technology. Growing U.S. interest in diesel-powered vehicles. About half of all the passenger cars sold in Europe have diesel engines, which are more efficient than gasoline engines and emit a lower level of some greenhouse gases. Many automakers believe that offering diesels (as well as higher-performing gasoline, electric, and hybrid vehicles) will be necessary to meet higher U.S. fuel efficiency and greenhouse gas emissions standards currently projected between now and 2025. Having similar standards for diesel engines in the two regions could reduce design and manufacturing costs. The processes by which the United States and the EU establish vehicle safety, fuel efficiency, and emission standards have evolved in different ways. In the United States, private standards and state regulation prevailed until the 1960s and 1970s, when federal legislation was passed. Since then, Congress has delegated vehicle regulation to federal agencies, occasionally providing specific direction through legislation. In Europe, a system of governmental control over autos was more prevalent, first in each country and later through the EU. EU directives passed by the European Parliament have the force of regulations, thereby vesting the legislators with a more direct role in the regulatory process than is the case in the United States. In the early decades of the automobile, U.S. vehicles were lightly regulated by a combination of state and private sector standards. While one industry magazine called for national motor vehicle standards as early as 1902, it did so mainly to reassure would-be buyers of the structural integrity these new, little-understood machines. Writing about this era, one author noted that Regulating either driver conduct or vehicle design at the national level did not conform to existing political ideas about the appropriate federal division of responsibilities or to contemporary jurisprudential understandings of the federal government's constitutional power to regulate interstate commerce.... The only useful and politically acceptable action Congress might take was to help the states and localities construct more and better roads. The Society of Automotive Engineers (SAE), a professional association founded in 1905, became the primary source of vehicle safety and emission rules for many decades. State governments often used SAE recommendations to enact requirements for vehicle equipment, such as dual brakes, headlamps, and windshield wipers. Other SAE standards were adopted directly by manufacturers. The first step toward a nationwide system of vehicle regulation came in 1926, when a voluntary Uniform Vehicle Code was drafted to replace the many different state rules. Among other things, the code specified the types of lighting, reflectors, brakes, mirrors, and tires that cars should have. These ideas were widely accepted by the states: by 1946, 30 of the then 48 states (plus the District of Columbia) had adopted the Uniform Vehicle Code; 13 had implemented portions and only six had taken no action. With the start of the Interstate Highway system in the 1950s, greater automobile travel, and rising highway deaths, the interest in vehicle safety grew. Between 1962 and 1964, Congress passed three safety bills into law, including a seat belt regulation. These laws set the stage for more ambitious legislation a few years later. For example, the legislation establishing safety requirements for federal fleet vehicles led to the promulgation of 17 standards by 1966, prompting some in Congress to question why similar standards did not apply to vehicles purchased by average consumers. The most significant change in U.S. vehicle safety regulation came with the National Traffic and Motor Vehicle Safety Act of 1966. Senator Abraham Ribicoff, one of the advocates of the new legislation, said during floor debate that "this problem is so vast that the Federal Government must have a role. It is obvious the 50 states cannot individually set standards for the automobiles that come into those 50 States from a mass production industry." Curtailing auto-related highway deaths was a major impetus. As passed unanimously by both houses of Congress and signed by President Johnson, the legislation had two parts: the Highway Safety Act of 1966 mandated that each state put in place a highway safety program in accordance with federal standards that would include improving driver performance, accident records systems and traffic control; and the National Traffic and Motor Vehicle Safety Act of 1966 directed the Secretary of Commerce (later changed to the Secretary of Transportation when that agency was established in 1967) to issue safety standards for all motor vehicles beginning in January 1967. A National Traffic Safety Agency was established to carry out the provisions; it was renamed the National Highway Traffic Safety Administration (NHTSA) in 1970. Senator Warren Magnuson, chairman of the Commerce Committee, argued that Congress was implementing a limited type of regulation, saying in his floor statement, The committee also recognizes that the broad powers conferred upon the Secretary, while essential to achieve improved traffic safety, could be abused in such a manner as to have serious adverse effects on the automotive manufacturing industry. The committee is not empowering the Secretary to take over the design and manufacturing functions of private industry. The committee expects that the Secretary will act responsibly and in such a way as to achieve a substantial improvement in the safety characteristics of vehicles. Since it was established, NHTSA has issued dozens of safety standards, and it maintains an extensive database on vehicle crashes. However, the agency neither approves motor vehicles or parts as complying with its standards nor collects information from manufacturers as to compliance. The law puts the onus for enforcement of federal standards on automakers themselves. It provides that "A manufacturer or distributor of a motor vehicle or motor vehicle equipment shall certify to the distributor or dealer at delivery that the vehicle or equipment complies with applicable motor vehicle safety standards prescribed under this chapter.... Certification of a vehicle must be shown by a label or tag permanently fixed to the vehicle ..." The law also makes manufacturers responsible for testing of vehicles and liable for recalls and penalties if they are later found not to meet NHTSA's standards. After a new model is in the market, NHTSA buys vehicles from dealers and tests them at its own facilities to determine whether they comply with current standards. If NHTSA determines there is noncompliance, it can encourage the manufacturer to recall the model to correct the problem or can order a recall. In contrast to the U.S. system of self-certification, the comparable EU vehicle system is based on government regulatory approval in advance of manufacturing. Until the 1950s, European vehicle safety regulations developed separately in each country. Interest in harmonizing vehicle regulation emerged as part of the process of European economic integration. The European vehicle regulatory regime now includes both EU directives, which must be implemented by all member states, and standards promulgated through a United Nations (UN) organization, which may be implemented at the discretion of a national government. In 1952, the United Nations (U.N.) established the Working Party on the Construction of Vehicles—known as Working Party 29 or WP. 29—a subsidiary body of the Inland Transport Committee of the United Nations Economic Commission for Europe (UNECE). The objective of WP.29 is to "initiate and pursue actions aimed at the worldwide harmonization or development of technical regulations for vehicles." WP.29 administers a 1958 agreement on vehicle construction and two related agreements which were adopted by some European countries to promote EU-wide integration of vehicle design, construction and safety. UNECE standards deal with vehicle safety, environmental protection, fuel efficiency, and anti-theft performance. Signatories to the 1958 U.N. agreement commit to mutual recognition of approvals for vehicle components, so that a component approved for use in one signatory country will be automatically approved in all others. UNECE regulations do not cover the whole vehicle, only its parts. WP.29's voting members are limited to government representatives, but automakers, trade associations, and other nongovernmental organizations also participate in its meetings. The United States did not sign the 1958 UNECE agreement because it would require mutual recognition of standards generated outside the United States. After U.S. self-certification began in 1967, the UNECE approach was seen as incompatible with the U.S. process. Because the United States remained outside of UNECE, many U.S.-made vehicles could not be exported to many countries without modifications. However, the United States did sign a 1998 UNECE agreement which establishes global technical regulations (GTRs), effectively transforming the U.N. body into an organization with a global approach now called the World Forum for Harmonization of Vehicle Regulations. It promulgates regulations affecting vehicle safety, environmental protection, energy efficiency, and anti-theft performance. Unlike the 1958 agreement, there is no requirement for type approval and mutual recognition of approvals. GTRs are issued in a UN Global Registry and contracting parties use their own regulatory process to implement them. Alongside UNECE, the European Economy Community (renamed the European Community in 1993) and its successor, the EU, have sought to promote a single European market in motor vehicles. Tariffs on cars traded between member states were eliminated in 1968. In 1970, the European Community enacted a framework that laid the basis for vehicle approval harmonization across all member states. Initially, European working groups on vehicle safety issues based their work on U.S. standards and practice because the United States had established a federal safety program earlier. It has been suggested that one reason for the slow development of European standards (and hence reliance on the UNECE standards process) was that some European automakers "preferred to limit the extension of standards to those that would create obstacles to the invasion of foreign vehicles into their national markets." Over time, the balance shifted to favor more similarity between U.S. and EU standards. Since 1970, the EU has used the Whole Vehicle Type Approval system, under which production samples of new model cars must be approved by national government authorities prior to the vehicle entering the market. An automaker must submit the "type" of vehicle it intends to manufacture and sell to the proper authority in any country that is a signatory to the 1958 UNECE agreement. All EU member states enforce the EU standards. EU member states may choose which UNECE standards they wish to incorporate into their national regulations. Unlike the UNECE standards, the EU system applies to a complete vehicle, often taking into account the UNECE standards promulgated for specific auto parts. Nearly every EU country has either a government agency or designated privately-owned test houses that conduct testing to ensure new models will meet all standards. Once formal approval is obtained, the automaker then issues a "certificate of conformity" for each vehicle manufactured, attesting that it conforms to the approved type. Once an EU member state approves a new vehicle, it can be marketed throughout the EU. The EU agreed in 2007 that the UNECE regulations would be incorporated into the EU type-approval procedure. Legislative work at the EU level is led by European Commission's Directorate of Enterprise and Industry. Vehicle safety promotion is also pursued by the European Commission through initiatives such as DG Transport's EU road safety action program and DG Information and Society's E-safety and Intelligent Car initiatives. Programs to address air pollution in the United States originated in the first half of the twentieth century and were accelerated after World War II. A critical aspect of the air quality problem in urban areas has been ground-level ozone production, commonly referred to as "smog." Independent analysis in the mid-1950s identified the automobile as a key source of ground-level ozone. Research has since demonstrated that cars and other mobile sources are responsible for a variety of other air pollutants, including carbon monoxide (CO), hydrocarbons (HC), nitrogen oxides (NO x ), particulate matter (PM), air toxics, and greenhouse gases (GHG). Emissions of hydrocarbons and NO x from motor vehicles are responsible for contributing to the formation of ground-level ozone. Further, motor vehicles represent the largest domestic source of air toxics, or pollutants known or suspected to cause cancer or other serious health or environmental effects. Finally, vehicles have been determined to contribute approximately one quarter of domestic GHG emissions, which trap heat in the earth's atmosphere, contributing to global climate change. The federal government first addressed air pollution in 1955 in the Federal Air Pollution Control Act, which provided funding to state and local governments to "protect the primary responsibilities and rights of the state and local governments in controlling air pollution." In 1959, California became the first state to address pollution from cars with legislation directing the state Department of Public Health to establish air quality standards and necessary controls for motor vehicle emissions. Following California's lead, in 1960 Congress directed the Surgeon General to study the "various substances discharged from the exhausts of motor vehicles." This regulatory pattern continued throughout the 1960s, as California authorities established control requirements and the U.S. government followed suit a few years later. For example, California required the control of crankcase emissions in 1961and set the first HC and CO emissions regulations in 1964. The federal Motor Vehicle Air Pollution Control Act of 1965 adopted both the California crankcase and tailpipe emissions standards for 1968 model-year vehicles. This act engaged the federal government for the first time in the actual regulation of vehicle emissions. Congress's provision for national emissions standards was based primarily on testimonies by the Department of Health, Education, and Welfare (HEW) and the automotive industry about the potential problems that would be created for vehicle manufacturers by divergent state standards. Congress strengthened federal authority in 1967 by explicitly preempting states from adopting or enforcing new motor vehicle emission standards in the Air Quality Act of 1967. This preemption provision (with California as the sole exemption) remains in effect today as Section 209(a) of the Clean Air Act (CAA). At present, the federal government manages vehicle emissions controls, although the state of California remains a major force in shaping national legislation and regulations. Emission standards for engines and vehicles, including emission standards for greenhouse gases, are currently established by the U.S. Environmental Protection Agency. EPA authority to regulate vehicle emissions—and air quality in general—is based on the Clean Air Act. As with safety regulations, the development of vehicle emission standards by EPA is in accordance with the federal rulemaking process. New regulations are first published as proposed rules, and following a period of public discussion may be withdrawn, approved, or amended before entering into force. Current EPA emissions standards for vehicles (referred to as "Tier 2" requirements) regulate CO, NO x , PM, and HC emissions. Under the Tier 2 regulation, the same emission standards apply to all vehicle weight categories, (i.e., cars, minivans, light-duty trucks, and SUVs have the same emission limit). Further, the same emission limits apply to all vehicles regardless of the fuel they use. While a number of U.S. states have a significant legal basis in advancing emissions regulations to aid in their attainment of National Ambient Air Quality Standards (NAAQS), California is the only state vested by the CAA with the authority to develop its own emission regulations if EPA grants the state a waiver. California emission standards are administered by the California Air Resources Board, a regulatory body within the California Environmental Protection Agency. The CAA allows other states a choice between implementing federal emission standards or adopting the California requirements. The evolution of U.S. emission standards for light-duty, gasoline-fueled vehicles is traced in Table A-1 of the Appendix . "Tier 2" standards—the current regulatory regime—have been in place since 2004. EPA announced proposed Tier 3 standards on March 29, 2013. In addition to exhaust emission standards, U.S. regulations address many other emission-related issues. Anyone wishing to sell an engine or vehicle within the United States must demonstrate compliance with the CAA and all applicable EPA regulations. This approval process differs from the self-certification used by NHTSA and is closer to the EU type approval system for safety and emissions regulations. Once EPA sets emission standards for a particular engine and/or vehicle category, manufacturers must produce engines that meet those standards by a specified date. Conformity is determined under test procedures specified by EPA. The most common testing procedure used by EPA is the Federal Test Procedure, as mandated by the Energy Tax Act of 1978. Tests are based on the Urban Dynamometer Driving Schedule to reflect typical driving patterns (e.g., city, highway, aggressive, and use of air conditioning). Currently, EPA uses a three-tiered compliance strategy for light-duty vehicles: (1) pre-production evaluation to certify vehicles prior to sale; (2) a production evaluation on the assembly line for early evaluation of production vehicles, and (3) a final clearance applied to verify that properly maintained vehicles continue to meet the standards after several years of use. Environmental matters were not included in the EU's founding Treaty of Rome. Prior to the mid-1980s, UNECE produced regulations relating to safety, environmental protection, and energy efficiency. It was a common practice for EU member countries to adopt standards and regulations similar to those issued by UNECE, but each country retained authority to adjust the UNECE standards as it saw fit. The member states signed the Single European Act (SEA) in 1985 with a goal of unifying the European market by 1992. Under the SEA, auto emissions regulations were harmonized across Europe in 1987. Initially, the harmonized standards were less strict than US standards. Similar to the 1970 U.S. Clean Air Act proviso for California, the SEA allows member states to enact measures more stringent than those enacted by the EU. Vehicle exhaust emissions were regulated in Europe beginning in 1970. Directive 70/220/EEC covered CO, NO x , PM, and HC emissions from gasoline-fueled light-duty vehicles. In June 1991, the Council of Ministers of the European Council adopted the Consolidated Emissions Directive (commonly referred to as "Euro 1") which ushered in the current regulatory regime for vehicle emission standards in Europe. Current standards (referred to as "Euro 5") cover CO, NO x , PM, and HC emissions, and differentiate between gasoline and diesel vehicles. Euro 6 standards are scheduled to be implemented in September 2014 (strengthening NO x standards for diesel vehicles). The evolution of EU exhaust emission standards for light-duty, gasoline- and diesel-fueled vehicles is traced in Table A-2 of the Appendix . Under the type approval process, emissions are currently tested using the New European Driving Cycle (NEDC) (ECE 15 + EUDC) chassis dynamometer procedure. Effective in 2000 with the Euro 3 standard, the test procedure was modified to eliminate the engine warm-up period before the beginning of emission sampling, bringing the test more in line with the U.S. Federal Test Procedure. Further, the Euro 5/6 implementing legislation introduced a new PM mass emission measurement method which is similar to the U.S. procedure introduced in 2007. Vehicle emissions standards established by the EU and the United States are not directly comparable because of the differences in the testing procedures and approval processes. Approval Process . Both the European and the U.S. systems of compliance are based on a version of "type approval." However, in the EU, emission standards only apply when the vehicle is produced (conformity of production). Once the vehicle leaves the factory and enters service, the manufacturer has no liability for its continued compliance with emission limits. Surveillance testing, mandatory emissions system warranties, recall campaigns, and other features of U.S. emissions regulation are not incorporated in the European regulatory structure. Test Procedure . A key difference between the EU and the United States is the test procedure, in particular the drive cycle that a car has to go through on a roller bench while the exhaust gas is being collected and analyzed. The EU uses the New European Drive Cycle (NEDC) and the United States uses the Federal Test Procedure (FTP). Differences between the two include distance, duration, and vehicle speed, as well as factors such as whether the vehicle must begin at a cold start or whether there is a warm-up period. In terms of stringency—that is, the level of emission control technology required for compliance—some observers have noted that the European emission standards have historically lagged behind the U.S. standards. This lag may be attributed to the complex, consensus-based approach to standard setting originally used by UNECE and by the difficulty of obtaining agreement among so many individual countries. With the recent shift to decision procedures requiring less-than-unanimous agreement within the European Commission, it has been possible for the Commission to adopt more stringent emission standards. A comparison of current emissions standards for selected pollutants (including non-methane organic gases [NMOG], nitrogen oxides [NOx], and particulate matter [PM]) is shown in Figure 3 . For a more detailed survey of the standards in each region, see the Appendix . In the United States, establishing fuel economy standards is a function of direct statutory authority from Congress, with NHTSA administering the congressionally established standards. The United States first issued vehicle fuel economy standards in response to the Organization of the Petroleum Exporting Countries (OPEC) oil embargo of 1973, which caused imported crude oil prices to rise by 300% in 1974. In the Energy Policy and Conservation Act of 1975 (EPCA), Congress established Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles starting with model year (MY) 1978. From 1975 to 1988, the average fuel economy of new automobiles increased 81%, from 15.8 to 28.6 mpg. EPCA prohibited states from issuing their own fuel efficiency standards. Prior to 2007, NHTSA had very little authority to modify passenger car standards without congressional direction. However, under the Energy Independence and Security Act of 2007 (EISA) —which raised the fuel economy standards of passenger vehicles, light trucks, and sport utility vehicles to a combined average of at least 35 mpg by 2020—Congress granted NHTSA broader authority to establish and modify CAFE standards. The most significant recent change in fuel economy standards took place outside of the previous channel of congressional action. In 2009, the Obama Administration, some state regulators, and the auto industry crafted a federal program to implement new light duty vehicle fuel efficiency standards linked to greenhouse gas (GHG) emission standards. This agreement grew out of the fuel efficiency standards passed by Congress in 2007, a Supreme Court decision confirming federal authority to regulate greenhouse gas emissions of vehicles under the CAA, and GHG emission standards enacted in California and subsequently adopted by 13 other states and the District of Columbia. The agreement enabled automakers to manufacture vehicles that are in compliance with both federal and state requirements under the Clean Air Act as well as the CAFE standards. The combined CAFE/GHG standards have made standard setting more complex, as NHTSA and EPA issue separate standards but act in concert. The combined standards call for fleet-average passenger car and light truck GHG emissions of no more than 163 grams per mile by 2025. This translates to average fuel economy of 54.5 mpg. The CO 2 emissions target for any given vehicle depends on its track width (the horizontal distance between the tires) and its wheelbase (the distance from the front to the rear axles); no specific vehicle must meet a specific target, but a manufacturer's fleet average must be below the sales-weighted average of the targets. This measurement procedure allows heavier cars to have higher emissions than lighter cars while preserving the overall fleet average. As a result, each manufacturer will have its own fleet-wide standard which reflects the vehicles it chooses to produce. For a summary of the 2012 CAFE and GHG vehicle standards, see Table A-3 of the Appendix . The regulation also includes a system of averaging, banking, and trading (ABT) of credits, based on a manufacturer's fleet average CO 2 performance. Credit trading is allowed among all vehicles a manufacturer produces, both cars and light trucks, as well as between companies. Further program flexibilities include Air Conditioning Improvement Credits, Advanced Technology Credits, Off-Cycle Innovative Technology Credits, Early Credits, and Flex-fuel and Alternative Fuel Vehicle Credits. CAFE and GHG emission certification is typically based on fuel economy and emission data provided by vehicle manufacturers after two laboratory test cycles dictated by EPA. This procedure is sometimes referred to as the EPA 2-cycle test. CAFE values—used to determine manufacturers' compliance with the average fuel economy standards—are generally higher than typical fuel efficiency in real-world operation or as published by the government or posted on new vehicles. This discrepancy reflects the fact that the EPA 2-cycle test is not wholly representative of vehicle operation patterns and technology as well as the fact that CAFE figures can include other credits and flexibilities. The EU does not set fuel economy standards for vehicles directly in terms of fuel consumption for a given distance traveled. Instead, it sets standards for GHG emissions in terms of the mass of CO 2 , measured in grams, emitted from a vehicle's tailpipe per kilometer driven (g/km). These standards can be used to estimate fuel economy for vehicles sold in Europe. The first carbon dioxide emission targets for new passenger cars in Europe were set in 1998-99 through voluntary agreements between the European Commission and the automotive industry. These agreements targeted fleet-average CO 2 emissions of 140 g/km by 2008-09. While significant CO 2 emission reductions were achieved in the initial years, after 2004 the manufacturers failed to meet their targets through voluntary actions. In response, the Commission developed a mandatory CO 2 emission reduction program, and CO 2 emission targets for new passenger cars were adopted in April 2009. The regulation established a fleet-average CO 2 emission target of 130 g/km by 2015 and defined a long-term target of 95 g CO 2 /km by 2020. The standards include incentives for vehicles with CO 2 emissions below 50 g/km and for those running on a mixture of 85% ethanol (E85). Certain flexibilities are available for manufacturers, including credits for technology innovations, pooling between manufacturers, and exemptions for low-volume manufacturers. The regulations cover only CO 2 emissions; other greenhouse gases are not regulated. Emission limits are set according to the mass of vehicle using a fleet-average limit value curve. As with the other EU regulated vehicle emissions, CO 2 emissions are measured over the NEDC test cycle. The United States regulates the fuel efficiency of each manufacturer's new-vehicle fleet through the CAFE standards, and separately imposes standards for GHG emissions from new mobile sources. The EU does not directly regulate vehicle fuel efficiency, although regulation of GHG emissions pushes manufacturers to achieve greater fuel efficiency. Comparing vehicle GHG and/or fuel economy standards between the two regions is challenging because these standards differ greatly in structure, form, and underlying testing methods. For example, the EU and the U.S. test cycles differ in terms of average speed, duration, distance, acceleration and deceleration characteristics, and frequencies of starts and stops—all factors which significantly affect the data returned by the tests. Further, the U.S. standard regulates all the GHG emissions from the vehicle (e.g., CO 2 , NO x , CH 4 ) in terms of CO 2 -equivalents; the EU regulates only carbon dioxide emissions. Additionally, the EU sets fleet-average GHG emissions standards in relationship to the mass of a vehicle, whereas the United States sets fleet-average standards based on the vehicle "footprint." Finally, the EU and United States use varying definitions of vehicle categories and weight classes, with proposed targets based on projected sales of vehicles in different size and/or weight classes within each region. In general the EU GHG standards—and by extension, fuel economy standards—return a greater sales-based and fleet-wide emission reduction than those in the United States. Figure 4 represents an estimate of historical and projected fuel economy targets, adjusted for the factors outlined above. In the United States and the EU, NGOs play a role in the setting of vehicle standards, including these entities: Society of Automotive Engineers ( SAE ) remains involved in developing recommended standards for industry and has issued or updated about 2,000 motor vehicle standards in the past five years. Many address manufacturing processes, not auto safety or emissions. About 10% of NHTSA and EPA standards are based on work SAE has already done and, in those cases, NHTSA and EPA rules are based on the specific SAE standards. International Organization for Standardization (ISO) was founded in 1947 and develops voluntary international standards for many products and services. Standards are typically developed through negotiation in technical committees comprising representatives of many countries. ISO has developed nearly 20,000 standards across a range of industries. For example, a 2010 ISO standard addressed automotive crankshaft bearings. International Electrotechnical Commission (IEC) is a private organization founded in 1906 that develops and publishes international standards for electrical, electronic, and other related technologies. Its standards are voluntary and based on consensus among government, academic, industry, and consumer representatives. IEC standards related to motor vehicles concern charging system architecture, lithium batteries, and other aspects of electric vehicles. Various other private-sector advocacy groups are engaged in identifying and publicizing new vehicle standards. In the United States, these include the Insurance Institute for Highway Safety, American National Standards Institute (ANSI), National Safety Council, the Center for Auto Safety, and Advocates for Highway and Auto Safety. In the EU, nonprofit groups such as the European Transport Safety Council and Transport & Environment participate in the EU standard-setting process. European, U.S. and Japanese auto industry groups sought common regulatory ground in 1996, when they proposed that the United States, the EU, Japan, and UNECE harmonize regulation of five vehicle components, including windshield wipers, defoggers, and seat belt assemblies. They believed that these five components were functionally equivalent, although each was slightly different. The regulatory bodies did not agree to any changes, however, because the data-driven review process made it difficult to prove functional equivalency of even a standard component such as a seat belt. This experience suggested that obtaining functional equivalency determinations from regulatory agencies might be difficult. An alternative approach was developed in the 1998 UN agreement on global technical regulations, which created a global registry of processes and common technical standards. This initiative, resulting in the creation of the World Forum for Harmonization of Vehicle Regulations, has resulted in agreement on only 13 global technical regulations to date. Simultaneously, there has been a transatlantic dialogue on autos since the mid-1990s through the U.S.-EU High-Level Regulatory Cooperation Forum. In 1995, President Clinton signed an action plan which sought to move the United States and Europe toward regulatory conformity and to encourage collaborative testing and certification. The 1996 TransAtlantic Automotive Industry Conference on International Regulatory Harmonization produced a report on the auto sector, including ten principles to guide steps toward convergence. NHTSA sent a report to Congress in April 1997 discussing potential harmonization of U.S. and European side impact standards. A similar bilateral regulatory initiative has been under way since 2011 with Canada. An EU initiative, the Competitive Automotive Regulatory System for the 21s Century, or CARS 21, has also explored harmonization issues. A 2012 CARS 21 report recommended exploration of ways to bring about "stronger internationalisation of the regulatory environment" related to autos. In 2006, CARS 21 called for gradually replacing some EU laws with UN regulations, and more than 40 EU directives have been replaced with corresponding UN regulations since that time. There are different ways in which the United States and the EU could address convergence of automotive regulations under TTIP. These include the following: H armonization of rules . Harmonization need not mean having identical rules in both regions. From the viewpoint of auto manufacturers, it means minimizing unnecessary differences in regulations so that a "single vehicle standard can be built to satisfy all requirements." C omprehensive mutual recognition . This approach would permit automakers to sell vehicles in either market if they meet either a U.S. standard or a standard accepted in the EU. A car certified as compliant with U.S. safety, emission, and fuel efficiency standards would be accepted as compliant in the EU, and vice versa. This approach is how the EU certification process works. S elective mutual recognition . This approach would identify certain major standards for which TTIP could provide mutual recognition, rather than providing mutual recognition of all standards. U.S. and European automakers have identified occupant crash protection, side impact protection, child restraint systems, and some emissions standards as priorities for selective mutual recognition. F orward-looking rules . A fourth option would be to forge an agreement on emerging regulations, such as those dealing with electric and fuel cell vehicles, rather than focusing on existing regulations. Under this approach, the United States and the EU would commit to jointly develop standards covering new issues or technologies. The pending free trade agreement between the EU and Canada may influence the direction of TTIP. The full text of the agreement has not been released, but according to an EU statement, "Canada will recognise a list of EU car standards and will examine the recognition of further standards. This will make it much easier to export cars to Canada." The agreement is also said to allow Canadian vehicles to be certified in Canada for the EU market. Convergence of vehicle standards has potential drawbacks. One aspect pertains to the lack of speed with which governmental agencies—whether in the United States or Europe—can address new technologies and vehicle innovations. The rule-making process is already lengthy, and the need for international coordination could make it even longer. This raises the prospect that technologies that could reduce accidents—such as new types of headlamps that can illuminate the road better without blinding oncoming drivers—may be delayed in reaching the market. Additionally, the EU acknowledges that if vehicle standards become international, there could be less room for legislative scrutiny and for involvement by regional and national interest groups . U.S. consumer advocacy groups have raised similar concerns, writing U.S. and EU leaders in July 2013 that TTIP "must not limit the United States or the EU (or its member states) from adopting and enforcing standards that provide higher levels of consumer, worker, and environmental protection." Congress could play an important role if a TTIP agreement contains significant provisions related to auto safety, emissions, and fuel economy regulations. Congress established the U.S. government agencies whose regulations are the focus of the negotiations on automobile standards, and it has retained a strong oversight interest in vehicle safety and emissions. If the TTIP effort to obtain mutual recognition or harmonization affects agencies' authority or changes the ways in which automotive regulations are developed and implemented, Congress may well be asked to modify the underlying statutes that govern motor vehicle safety, emissions, and fuel efficiency. Emission Standards U.S. Vehicle Emission Standards and Implementation The Clean Air Act Amendments (CAAA) of 1990 ( P.L. 101-549 ) established standards to limit tailpipe emissions from new motor vehicles effective in 1994. These Tier 1 standards applied to all new light-duty vehicles, such as passenger cars, light-duty trucks, sport utility vehicles (SUVs), minivans, and pick-up trucks, and covered the four major pollutants (CO, NO x , PM, and HC [subdivided as Total Hydrocarbons (THC) and Non-Methane Hydrocarbons (NMHC)]). Separate sets of standards were defined for each vehicle category, with more relaxed limits for heavier vehicles. The CAAA also required EPA to study the need for more stringent "Tier 2" emission standards. Subsequently, EPA promulgated "Tier 2" standards on February 10, 2000. The Tier 2 regulations introduced more stringent numerical emission limits and a number of additional changes that tightened the standards for larger vehicles. Under the Tier 2 regulations, the same emission standards apply to all vehicle weight categories. Further, the same emission limits apply to all vehicles regardless of the fuel they use. Since light-duty emission standards are expressed in grams of pollutants per mile, vehicles with large engines (such light trucks or SUVs) were required to use more advanced emission control technologies than vehicles with smaller engines. To provide flexibility to vehicle manufacturers, the Tier 2 emission standards were structured into eight permanent and three temporary certification levels of different stringency, called "certification bins." Manufacturers had a choice to certify particular vehicles to any of the available bins, but were required to meet a fleet-average requirement for NO x emissions in any given model year. U.S. emissions standards are shown in Table A-1 . (Note that Tables A-1 and A-2 are not strictly comparable because U.S. standards are based on grams per mile and EU standards are based on grams per kilometer. EU Vehicle Emission Standards and Implementation In June 1991, the Council of Ministers of the European Council adopted the Consolidated Emissions Directive (commonly referred to as "Euro 1") under which exhaust emission standards for all passenger cars, including diesels, were certified. The Council of Ministers has since adopted several stricter revisions to the Euro 1 standards; and, in September of 2014, Euro 6 standards will be introduced. EU emission limits for each "Euro" stage are summarized in Table A-2 . Fuel Economy and Greenhouse Gas Standards U.S. Fuel Economy and GHG Standards and Implementation The 2012 CAFE and GHG vehicle standards call for combined passenger car and light truck greenhouse gas emissions of no more than 163 grams per mile by 2025. This translates into a 54.5 mile-per-gallon equivalent. The GHG standards are based on CO 2 emissions-footprint curves, where each vehicle has a different CO 2 emissions compliance target depending on its "footprint" value, related to the size of the vehicle—an approach first introduced in the reformed CAFE (2008-2011) standards for light trucks. Table A-3 shows the projected fleet-wide CO 2 emission and fuel economy requirements. The EPA CO 2 -equivalent fuel economy figures are different from the CAFE figures because the EPA allows additional CO 2 credits for air conditioning improvements and other flexibilities. In addition to the fleet-average CO 2 emission targets, the rule also includes emission caps for tailpipe nitrous oxide and methane emissions (N 2 O: 0.010 g/mile and CH 4 : 0.030 g/mile). The regulation also includes a system of averaging, banking, and trading (ABT) of credits, based on a manufacturer's fleet average CO 2 performance. Credit trading is allowed among all vehicles a manufacturer produces, both cars and light trucks, as well as between companies. EU GHG Standards and Implementation The EU does not issue fuel economy standards similar to the U.S. CAFE standards. As shown in Table A-4 , EU fleet-average CO 2 emission targets as required by EU Regulation (EC) No 443/2009 are 130 g/km to be reached by 2015 and a long-term target of 95 g/km to be reached by 2020. | In March 2013, President Obama notified Congress that his Administration would seek a comprehensive Transatlantic Trade and Investment Partnership (TTIP) with the European Union (EU). In addition to addressing tariffs and other trade restrictions, the negotiations seek to reduce regulatory barriers to transatlantic commerce. Among the barriers under discussion are those affecting motor vehicles. Although many automakers build and sell cars in both regions, they must comply with very different safety, fuel economy, and emissions standards, as well as different regulatory processes. TTIP negotiators are seeking to identify ways to narrow the regulatory differences, potentially reducing costs and spurring additional trade in vehicles. U.S. and EU automakers support this initiative, which they see as furthering economic and vehicle design trends already under way. The complexity of complying with different greenhouse gas emissions regulations is also a factor in the industry's support. This report looks at ways in which TTIP might lead to a convergence of motor vehicle regulatory regimes on both sides of the Atlantic. These regimes govern three distinct aspects of vehicle manufacturing and involve a number of U.S. and EU agencies. Safety. U.S. automakers self-certify that they are meeting U.S. vehicle standards. In Europe, vehicles must obtain "type approval" from a government before an automaker can bring out a new model. Emissions. U.S. and EU emissions regulations are administered by the U.S. Environmental Protection Agency (EPA) and the European Commission (EC), respectively. While U.S. and EC rules address a similar range of pollutants, including carbon monoxide, nitrogen oxide, and non-methane organic oxides, allowable emissions levels in the EU are different from those in the United States—and they are stricter in more than a dozen U.S. states than in the other states. The United States and the EU have similar "type approval" systems for new engine models. Fuel Efficiency. Auto manufacturers selling in the United States must meet the Corporate Average Fuel Economy (CAFE) standards enforced by the National Highway Traffic Safety Administration (NHTSA). Under the Obama Administration, greenhouse gases (GHG) in vehicle emissions are being regulated for the first time, making fuel economy standard-setting a joint venture between NHTSA and EPA. The EU does not directly set fuel economy standards, but it effectively does so by regulating greenhouse gas emissions of new vehicles. There are several different ways a TTIP agreement could promote convergence of automobile regulation, from harmonizing existing U.S. and EU rules to providing for mutual recognition of some or all automotive standards. If a TTIP agreement is reached, it will be subject to congressional approval. To the extent that such an agreement would require changes in motor vehicle regulatory processes or standards, it is possible that Congress will be asked to modify statutes that govern motor vehicle safety, emissions, and fuel economy. |
Habeas corpus is the procedure under which an individual held in custody may petition a federal court for his release on the grounds that his detention is contrary to the Constitution or laws of the United States. It has been sought by state and federal prisoners convicted of criminal offenses and by the detainees in Guantanamo. The Supreme Court in Boumediene v. Bush , 553 U.S. 723 (2008), held that limitations on the judicial review of detainee status were contrary to the demands of the privilege of the writ and suspension clause. The Court has thus far declined to hold that a state prisoner sentenced to death, but armed with compelling evidence of his innocence, is entitled to habeas relief. Legislation was introduced in the 111 th Congress to deal with both issues. Moreover, the Constitution Subcommittee of the House Committee on the Judiciary has held hearings on habeas review and received recommendations for legislation on related issues. This report is a brief overview of those recommendations and legislative proposals. Federal law imposes several bars to habeas relief in the interests of finality, federalism, and judicial efficiency. One of these prohibits filing repetitious habeas petitions claiming that the petitioner's state conviction was accomplished in a constitutionally defective manner. This second or successive petition bar does not apply where newly discovered evidence establishes that but for the constitutional defect no reasonable jury would have convicted the petitioner (constitutional defect plus innocence). But suppose the new evidence merely demonstrates the petitioner's innocence, unrelated to the manner in which he was convicted? The Supreme Court has never said that habeas relief may be granted on such a freestanding claim of innocence. It has twice said, however, that assuming relief might be granted in a freestanding innocence case, the evidence on the record before it did not reach the level of persuasion necessary to grant relief. A third such case is now working its way through the federal court system. Two bills offered in the 111 th Congress would have established actual innocence as a ground upon which habeas relief might be granted, the Effective Death Penalty Appeals Act ( H.R. 3986 ) and the Justice for the Wrongfully Accused Act ( H.R. 3320 ). Representative Moore (Kansas) introduced H.R. 3320 on July 23, 2009. Representative Johnson (Georgia) introduced H.R. 3986 on November 3, 2009, for himself and Representatives Nadler, Conyers, Scott (Virginia), Weiner, Lewis (Georgia), and Jackson-Lee. The Johnson bill would have amended the statutory bar on second or successive habeas petitions filed by either state or federal convicts to permit petitions which include: A claim that an applicant was sentenced to death without consideration of newly discovered evidence which, in combination with the evidence presented at trial, could reasonably be expected to demonstrate that the applicant is probably not guilty of the underlying offense. Proposed 28 U.S.C. 2244(b)(5), 2255(h)(3). The proposal's probability standard was one favored by the Supreme Court in second or successive petition cases where the petitioner claimed he was innocent of the underlying offense. The Court favored a clear and convincing evidence standard in cases where the petitioner challenged not his conviction but claimed he was innocent of the aggravating factor that justified imposition of the death penalty. The statutory provisions, established in the Antiterrorism and Effective Death Penalty Act, now favor a clear and convincing evidence standard in the constitutional defect plus innocence exception to the second or successive petition bar. The Johnson bill would also have carried state death row inmates, who claimed innocence, over another statutory habeas bar. Under existing habeas law, federal courts are bound by state court determinations and application of federal law, unless the decisions are contrary to clearly established federal law, constitute an unreasonable application of such law to the facts, or constitute unreasonable finding of facts. Faced with evidence of the petitioner's probable innocence, the Johnson bill would have released federal habeas courts from the binding impact of such state court determinations: They would have no longer been bound by a state court decision that "resulted in, or left in force, a sentence of death that was imposed without consideration of newly discovered evidence which, in combination with the evidence presented at trial, demonstrates that the applicant is probably not guilty of the underlying offense," proposed 28 U.S.C. 2254(d)(3). The 111 th Congress adjourned without further action on the Johnson bill. The Moore bill would have focused its innocence exception to the second or successive petition bar on the evidence tending to establish innocence of state prisoners, death row or otherwise. Moreover, while it would have eased the limitation on filing a second or successive habeas petition, it would have left the standards barring such petitions in place and unchanged. Existing law requires federal courts to dismiss second or successive petitions unless they are based on retroactively applicable new law or are based on newly discovered facts that establish constitutional defect plus innocence. Such a petition, however, may be filed only with the permission of the appropriate court of appeals upon a prima facie showing that the petition meets either the new law or newly discovered evidence exception. The bill would have excused the requirement of appellate court approval "if the second or subsequent application rests solely on a claim of actual innocence arising from – (i) newly discovered evidence from forensic testing; (ii) exculpatory evidence withheld from the defense at trial; or (iii) newly discovered accounts by credible witnesses who recant prior testimony or establish improper action of State or Federal agents," proposed 28 U.S.C. 2244(b)(3)(F). It would have left unchanged the requirement that such petitions be dismissed unless they satisfy the new rule or newly discovered evidence exception. The bill would also have amended existing law to specifically permit a court to receive forensic evidence, exculpatory evidence, and evidence of official misconduct – in support of the petitioner's claim of actual innocence, proposed 18 U.S.C 2243. Testimony of witnesses who testified at trial would be limited to recantations or evidence of impermissible official action, id. Unrelated to any claim of innocence, the Moore bill also would have addressed the bar imposed for failure to exhaust state remedies. Habeas relief may not be granted state prisoners under existing law, when effective corrective state procedures remain untried. The bill would have permitted habeas relief notwithstanding the existence of such unexhausted state procedures, if "the application is based on a claim that the police or prosecution withheld exculpatory, impeachment, or other evidence favorable to the defendant," proposed 28 U.S.C. 2254(b)(4). The 111 th Congress adjourned without further action on the Moore bill. The Supreme Court's decision in Boumediene stimulated several proposals in the 111 th Congress relating to the judicial review for the Guantanamo detainees. The proposals included the: Military Commissions Habeas Corpus Restoration Act of 2009 ( H.R. 64 ), introduced by Representative Jackson-Lee (Texas); Interrogation and Detention Reform Act of 2008 ( H.R. 591 ), introduced by Representative Price (North Carolina) for himself and Representatives Holt, Hinchey, Schakowsky, Blumenauer, Miller (North Carolina), Watt, McGovern, Olver, DeLauro, and Larson (Connecticut); Enemy Combatant Detention Review Act of 2009 ( H.R. 630 ), introduced by Representative Smith (Texas) for himself and Representatives Boehner, Sensenbrenner, Franks (Arizona), Lundgren (California), Gallegly, Jordan (Ohio), Poe (Texas), Harper, Coble, and Rooney; Terrorist Detainees Procedures Act of 2009 ( H.R. 1315 ), introduced by Representative Schiff; Detainment Reform Act of 2009 ( H.R. 3728 ), introduced by Representative Hastings (Florida); and Terrorist Detention Review Reform Act ( S. 3707 ), introduced by Senator Graham. The Court in Boumediene v. Bush held that foreign nationals detained at Guantanamo were entitled to the privilege of the writ of habeas corpus. They could be denied the benefits of access to the writ only under a suspension valid under the suspension clause, U.S. Const. Art. I, §9, cl.2, or under an adequate substitute for habeas review. Section 7 of the Military Commissions Act stripped all federal courts of habeas jurisdiction relating to foreign, enemy combatant detainees; and except as provided in the Detainee Treatment Act, it also stripped them of jurisdiction to review matters relating to such individuals and concerning their detention, treatment, transfer, trial, or conditions of detention. The Court did not feel that the Detainee Treatment Act provided an adequate substitute for detainee habeas review and consequently concluded that section 7 "effect[ed] an unconstitutional suspension of the writ." The Court found it unnecessary to discuss the extent to which habeas review might include an examination of the conditions of detention. It also made it clear that its decision did not go to the merits of the detainees' habeas petitions. Each of the bills, other than the Hastings and Graham bills, would have repealed section 7 of the Military Commissions Act, which unsuccessfully sought to strip the federal courts of jurisdiction to entertain habeas petitions from the Guantanamo detainees. The Smith, Hastings, and Graham bills would have vested the U.S. District Court for the District of Columbia with authority to review the lawfulness of the detention of enemy combatants (Smith), threatening individuals (Hastings), or unprivileged enemy belligerents (Graham). The Smith and Graham bills would have established new habeas provisions applicable to detained enemy combatants, H.R. 630 , proposed 28 U.S.C. 2256; S. 3707 , proposed 2856. The Hastings bill would have established a substitute procedure for judicial review procedure, H.R. 3728 , §§402, 202, 203, 103. The 111 th Congress adjourned without further action on any of these proposals. Witnesses who submitted statements for the House Judiciary Committee's recent habeas hearings criticized other aspects of federal habeas law – issues which do not appear to have been the subject of legislative proposals in this Congress. Each of the witnesses – Justice Gerald Kogan, retired Chief Justice of the Florida Supreme Court; Professor John H. Blume of Cornell University Law School; and Mr. Stephen F. Hanlon, a partner in the law firm of Holland and Knight and appearing on behalf of the American Bar Association – were critical of the impact of the one-year statute of limitations in 28 U.S.C. 2244(d). They expressed concern over the complexity of the provisions under which being tardy can be fatal. They also agree that the binding effect given state court determinations of federal law is unfortunate, generally. Two of the witnesses were critical of the "opt in" provisions under which states gain the advantage of streamlined habeas procedures in capital cases, if they satisfy the provision of counsel standards. Chief Justice Kogan would repeal the provisions, fearing that amendment would only introduce further "confusion, waste, and wheel-spinning." Mr. Hanlon urged alternatively that the role of gatekeeper – the determination of whether a state is qualified to opt in, now vested in the Attorney General – be returned to the federal courts. Professor Blume and Chief Justice Kogan also urged modification of the habeas "procedural default" bar under which a prisoner's federal habeas petition is barred because of his failure to comply with an applicable state procedural requirement for consideration of his claim at the state level. Mr. Hanlon alone recommended federal funding of capital defender organizations and suspension of "all federal executions pending a thorough data collection and analysis of racial and geographical disparities and the adequacy of legal representation in the death penalty system." Chief Justice Kogan also had concerns not mentioned in the statements of the other witnesses, i.e ., the Teague rule, harmless error, and deference to state fact finding. With two exceptions, the Teague rule denies the use of federal habeas to establish, or to retroactively claim the benefits of, a new rule, that is, an interpretation of constitutional law not recognized before the end of the period for the petitioner's direct appellate review of his state conviction and sentence. From Chief Justice Kogan's perspective, "The chief problem is deciding what counts as 'new' in these circumstances." He expressed the view that habeas treatment of harmless constitutional errors committed at the state level "warrants serious attention." Finally, he pointed to the apparent incongruity of section 2254(e)(1), which asserts that a state court's finding of facts is presumed correct, and section 2254(d)(2), which asserts that habeas must be denied with respect to a claim adjudicated in state court unless the state court's decision was based on an unreasonable determination of the facts. If the history of habeas reform debate holds true, each of the points made by the three witnesses is likely to find a counterpoint in any future debate. The 111 th Congress adjourned without further action on these matters. | Federal habeas corpus is the process under which those in official detention may petition a federal court for their release based on an assertion that they are being held in violation of the Constitution or laws of the United States. Major habeas legislative activity in the 111th Congress fell within three areas: proposals to permit state death row inmates to seek habeas relief based on evidence that they are probably innocent (H.R. 3320 and H.R. 3986); proposals to amend federal law in response to the Supreme Court's determination that the level of judicial review afforded Guantanamo detainees failed to meet constitutional expectations (H.R. 64, H.R. 591, H.R. 630, H.R. 1315, H.R. 3728, and S. 3707); and recommendations for revision of several areas of federal habeas law from witnesses appearing before recent House Judiciary Committee hearings. The 111th Congress adjourned without further action on any of these proposals or recommendations. Related CRS Reports include CRS Report R41010, Actual Innocence and Habeas Corpus: In re Troy Davis; CRS Report RL33391, Federal Habeas Corpus: A Brief Legal Overview (also available in abbreviated form as CRS Report RS22432, Federal Habeas Corpus: An Abridged Sketch); CRS Report RL33180, Enemy Combatant Detainees: Habeas Corpus Challenges in Federal Court; and CRS Report R40754, Guantanamo Detention Center: Legislative Activity in the 111th Congress. |
The existence of the dual banking system and the relative insulation of federally chartered national banks from state law form the backdrop of Cuomo v. The Cle aring House Association, L.L.C. ( Clearing House Association ), in which the Supreme Court, in a five-to-four decision announced on June 29, 2009, ruled that the National Bank Act (NBA) does not preempt states from bringing judicial actions against national banks to enforce non-preempted state anti-discrimination laws, and by implication state consumer protection laws, as long as the state authorities do not encroach on the visitorial powers of the national bank regulator, the Office of the Comptroller of the Currency (OCC). The Court ruled that administrative subpoenas or other forms of administrative oversight or examination are included in visitorial powers and, thus, are not available as state enforcement tools. The Court's ruling reverses an appellate court ruling that sheltered national banks and their subsidiaries from the reach of state enforcement of fair lending laws. National banks are chartered and regulated under the terms of the NBA by OCC. They are also subject to other federal laws, including federal tax, consumer protection, securities, fair housing, anti-money laundering, and laws of general applicability. Moreover, much of their daily activity is subject to state law. The starting point for preemption analysis is the language of the federal legislation. If Congress enacts legislation under one of its delegated powers that includes an explicit statement that state law is preempted, the Supreme Court generally will give effect to that legislative intent. Where there is no language of preemption, the Court is likely to find preemption when it identifies a direct conflict between the federal law and the state law or when it concludes that the federal government has so occupied the field as to preclude enforcement of state law with respect to the subject at hand. On questions of whether, in the absence of express language of preemption in a federal statute, state laws apply to national banks, there is considerable Supreme Court precedent. The Court, in cases beginning with McCulloch v. Maryland , has stated the standard for courts to use to determine whether a state law applies to national banks when there is no express federal language of preemption and articulated that standard in various ways. Essentially, however, the Court identifies state laws which are inapplicable to national banks in terms of the degree to which they interfere with federally granted powers. In McCulloch v. Maryland , in which the question was whether a state tax could be applied to the first Bank of the United States, the Court, relying on the Supremacy Clause of the U.S. Constitution, used broad language to voice its conviction that "states have no power by taxation or otherwise to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the general government." The most recent case in which the Supreme Court identified a standard for courts to use in deciding whether a state law may be applied against a national bank, that is, whether the state law has been preempted as being inconsistent with federal law, is Watters v. Wachovia Bank . In that case, the Court ruled that state licensing and regulation could not be applied to a real estate subsidiary of a national bank. The Court relied on the express language of the visitorial powers clause of the NBA, 12 U.S.C. § 484(a), as indicative of congressional intent to protect the national banking system from intrusive or inconsistent state laws. The text of the visitorial powers clause is as follows: (a) No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof or by any committee of Congress or of either House duly authorized. (b) Notwithstanding subsection (a) of this section, lawfully authorized State auditors and examiners may, at reasonable times and upon reasonable notice to a bank, review its records solely to ensure compliance with applicable State unclaimed property or escheat laws upon reasonable cause to believe that the bank has failed to comply with such laws. The Court reviewed a long line of cases, beginning with McCulloc h v. Maryland , that have held the federal bank system generally immune to state laws negatively affecting operations. It spoke of federal law as shielding national banks "from unduly burdensome and duplicative regulation" and national banks as being "subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or the general purposes of the NBA." It emphasized that the standard the Court applied to preempt state law in Barnett Bank of Marion County, N.A. v. Nelson , extends to powers of the national bank regulator, OCC, and to powers exercised under the incidental powers clause: "States are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank's or the national bank regulator's exercise of its powers. But when state prescriptions significantly impair the exercise of authority, enumerated or incidental under the NBA, the State's regulations must give way." It, thus, appears that the standard for determining whether a state law is preempted involves the question of whether the state law "prevents[s] or significantly interfere[s] with the national bank's or the national bank regulator's exercise of its powers." The issue of whether a state agency may enforce against a national bank a state law that has not been preempted, however, has not been the subject of extensive litigation. In Waite v. Dowley , 94 U.S. 527 (1877), the U.S. Supreme Court found that a state statute not in conflict with federal law regarding the place for assessing national bank shares for tax purposes could be enforced. In First National Bank in St. Louis v. Missouri , 263 U.S. 640, 656 (1924), the Court both upheld a state law that prohibited banks, including national banks, from forming branches and permitted the state bank regulator to enforce that law. The principal reason appears to have been the fact that at that time the NBA did not permit national banks to operate branches. The Court said: "national banks are subject to the laws of a State in respect of their affairs unless such laws interfere with the purpose of their creation, tend to impair or destroy their efficiency as federal agencies or conflict with the paramount law of the United States." It examined the language and purpose of the NBA and determined "that the power sought to be exercised by the bank finds no justification in any law or authority of the United States," and found "the way ... open for the enforcement of the state statute." The Court stated: The state statute as applied to national banks is therefore valid, and the corollary that it is obligatory and enforceable necessarily result, unless some controlling reason forbid; and, since the sanction behind it is that of the state, and not that of the national government, the power of enforcement must rest with the former, and not with the latter.... The state is neither seeking to enforce a law of the United States nor endeavoring to call the bank to account for an act in excess of its charter powers. What the state is seeking to do is to vindicate and enforce its own law, and the ultimate inquiry which it propounds is whether the bank is violating that law, not whether it is complying with the charter or law of its creation. The case began when New York's Attorney General (AG), examining publicly available Home Mortgage Disclosure Act (HMDA) data, found disparities between the interest rates charged African American and Hispanic borrowers and those charged white borrowers by certain banks operating in New York State and their subsidiaries. When asked by the AG to provide non-public information on their lending policies and practices, national banks belonging to The Clearing House Association (CHA), including Wells Fargo, HS-BC, J.P. Morgan Chase, and Citigroup, refused to supply the data. They saw the AG's requests as involving "visitation," a concept which the Supreme Court defined in Guthrie v. Harkness , 199 U.S. 148, 158 (1905) as "'the act of a superior or superintending officer, who visits a corporation to examine into its manner of conducting business, and enforce an observance of its laws and regulations.'" They charged that the AG's request was incompatible with OCC's exclusive visitorial powers under the NBA. In their behalf, therefore, the CHA, joined by OCC, challenged the authority of the AG to investigate the operations of national banks and succeeded in securing rulings at the trial and appellate level enjoining the AG from investigating national banks for violations of state anti-discrimination laws. In Office of the Comptroller of the Currency v . Spitzer , the district court granted OCC's request for an injunction against the state AG's enforcement of fair lending laws. OCC's objection to the AG's investigation of national bank mortgage practices was grounded in the visitorial powers clause of the NBA and the OCC regulations interpreting that clause. The New York AG challenged OCC's regulatory interpretation of the visitorial powers clause of the NBA, which states: (a) No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House thereof or by any committee of Congress or of either House duly authorized. (b) Notwithstanding subjection (a) of this section, lawfully authorized State auditors and examiners may, at reasonable times and upon reasonable notice to a bank, review its records solely to ensure compliance with applicable State unclaimed property or escheat laws upon reasonable cause to believe that the bank has failed to comply with such laws. The second clause of that statute is referred to as the courts-of-justice exception. The implementing regulation is 12 C.F.R. § 7.4000. It provides, in pertinent part, "State officials may not exercise visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions, except in limited circumstances authorized by federal law." Included among the list of "visitorial powers" specified in the regulation as exclusive to OCC is "[e]nforcing compliance with any applicable federal or state laws" that concern "activities authorized or permitted pursuant to federal banking law." In The Clearing House Association, L.L.C. v. Cuomo , the U.S. Circuit Court of Appeals for the Second Circuit, with one dissenting opinion, upheld the district court determining that the OCC regulation warranted deference under the standard announced in Chevron U.S.A., Inc. v. Natural Resources Defense Council . Under Chevron , courts must defer to agency interpretations of ambiguities in federal statutes under certain conditions. Deference is to be accorded to an interpretation in a regulation issued by an agency charged by Congress with enforcing a statute if two conditions are satisfied: (1) the statute is ambiguous rather than clear on the issue; and (2) the interpretation of the agency is reasonable in light of the statutory scheme. Citing Supreme Court precedent, it rejected the AG's argument that there was a presumption against preemption because OCC's visitorial powers regulation divested states of enforcing state laws, an aspect of state sovereignty. It cited Barnett Bank of Marion County , N.A. v. Nelson as authority for the contrary standard: explicit statutory grants of authority to national banks generally preempt contrary state law. It also rejected the AG's argument that the language of the visitorial powers clause should be construed as merely limiting states from interfering with OCC's statutory grants of authority. After reviewing the statutory language and judicial constructions of the visitorial powers clause, the appellate court found that although "the precise scope of 'visitorial' powers is not entirely clear," the statute does not preclude OCC's interpretation and that, to some extent, the AG's inquiry involves visitation. The court also found that the AG's investigation did not fall within the courts-of-justice exception by comparing it with the facts of Guthrie v. Harkness, 199 U.S. 148, 158 (1905), in which the Supreme Court ruled that a court could permit a private party, a shareholder, to inspect the books of a national bank without violating the exclusive visitorial power of OCC. In a dissenting opinion, Circuit Judge Cardamone saw the result of the majority rule as an alteration of "the compact between the state and national governments" from a "co-equal relationship between two independent co-existing sovereigns" to "one more akin to parent-child or employer-employee." The Court, in an opinion written by Justice Scalia and joined by Justices Stevens, Souter, Breyer, and Ginsburg, viewed the case as raising the question of whether OCC's regulatory preemption of state enforcement could be upheld as a reasonable interpretation of the visitorial powers provision of the NBA. It concluded that neither the language of the regulation, nor OCC's interpretation of it, comported with the statute. The Court first determined that the term "visitorial powers" carries "some ambiguity and, under Chevron , "[t]he Comptroller can give authoritative meaning to the statute within the bounds of that uncertainty ... [b]ut the presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the National Bank Act." The opinion first explored the history of the concept of visitation, including the use of prerogative writs such as mandamus, by a corporation's superintendent or superior authority, to prevent it from exceeding its powers or harming the public. Next, it distinguished visitation from sovereign authority by noting that Supreme Court "cases have always understood 'visitation' as ... [the] right to oversee corporate affairs, quite separate from the power to enforce law." It cited First National Bank in St. Louis v. Missouri both for its holding—that a state attorney general may enforce a non-preempted state law against a national bank—and for the larger principle that "if a state statute of general applicability is not substantively pre-empted, 'the power of enforcement must rest with the [State] and not with' the National Government." It distinguished Watters , which had upheld the preemptive effect of the OCC regulation with respect to a mortgage subsidiary of a national bank, as involving only "whether operating subsidiaries of national banks enjoyed the same immunity from state visitation" as do national banks. The Court buttressed this conclusion in several ways, including carefully examining and identifying inconsistencies in OCC's published interpretation of its regulation. It characterized the result of applying state laws to national banks without authorizing state enforcement as producing a result akin to permitting the "bark" without the "bite." It contrasted this with the result that distinguishing visitorial powers from state sovereign enforcement powers would produce in terms of the structure of the visitorial statute. It found that by interpreting visitation to be administrative as distinguished from a state's sovereign enforcement powers, the statutory clause preserving the powers "vested in the courts of justice" was not eviscerated since its "only conceivable purpose is to preserve normal civil and criminal lawsuits." Finally, it identified as practical differences between visitorial powers, which include ready access to books and records, and litigation, which involves an adversarial process, judicial oversight, and limitations on access. Although the Court found that "the Comptroller erred by extending the definition of 'visitorial powers' to include 'prosecuting enforcement actions' in state courts," the Court ruled that the AG had no authority to issue a subpoena for the documents he was seeking. It, therefore, affirmed the injunction with respect to the threat of subpoenas and vacated it with respect to prohibiting the AG from initiating a judicial action to enforce state anti-discrimination laws. There is an opinion written by Justice Thomas and joined by Chief Justice Roberts, Justice Kennedy, and Justice Alito, which concurs in the Court's conclusion that the AG was without authority to issue an administrative subpoena for the national bank records, but registers a dissent with respect to the issue of the validity of OCC's preemption of state enforcement power. Although the dissent takes issue with the majority's interpretation of previous cases and its reading of the structure of the visitorial powers clause, its emphasis is on the majority's Chevron analysis. Instead of agreeing with the Court that OCC's interpretation is overbroad, the dissent would rule that OCC's interpretation is reasonable and would find that the visitorial powers clause, as interpreted by OCC, precludes state enforcement of the anti-discrimination laws against national banks. The dissenting opinion stated that "[t]he statutory term 'visitorial powers' is susceptible to more than one meaning, and the agency's construction is reasonable." Unlike the majority opinion, the dissent sees no clear delineation of visitorial powers either in historical practice or in judicial treatment that precludes OCC's interpretation. It takes exception to the majority's view of the history of the concept. The dissent suggests that OCC's broad view of its visitation power is consistent with the extent to which sovereigns held visitation authority over corporations in contrast to the church's authority to visit charitable institutions. According to the dissent: "[a]t common law, all attempts by the sovereign to compel civil corporations to comply with state law—whether through administrative subpoenas or judicial actions—were visitorial in nature." Without finding support for one particular view of the reach of visitorial powers, the dissent, thus, argues that OCC's interpretation is a reasonable one, and in view of the ambiguity of the term "visitorial powers," and, therefore, permissible under Chevron . The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), P.L. 111-203 , in Subtitle D of Title X, the Consumer Financial Protection Act of 2010, contains a provision designed to codify the ruling of the Supreme Court in Cuomo by making it clear in statute that the National Bank Act's visitorial powers clause does not preclude state enforcement actions against national banks for violation of non-preempted state law. A parallel provision applies to federal savings associations and their subsidiaries. There is also a provision authorizing state attorneys general and state regulators to bring actions against individual defendants, state institutions, and national banks and federal savings associations for violations of Title X and regulations promulgated under Title X. The legislation also defines a standard and procedural requirements for OCC to follow in preempting the applicability of state consumer protection laws to national banks or federal savings associations. The provisions in Dodd-Frank follow other efforts in the 111 th Congress to deal with OCC preemption of state efforts to enforce consumer protection laws against national banks, including the following. The Consumer Financial Protection Agency Act of 2009, released on June 30, 2009, by the U.S. Treasury Department, contained provisions applying state consumer protection laws to national banks and a section specifying that no federal law is to be interpreted as precluding state enforcement of state consumer protection laws by bringing a judicial action against national banks involving potential violations of state or federal consumer protection laws. This proposal essentially proclaimed that state consumer protection laws, subject to certain standards, are applicable to national banks and federally chartered savings associations and their subsidiaries, and that state attorneys general may enforce those laws against those institutions. H.R. 4173 , the Wall Street Reform and Consumer Protection Act of 2009, which was passed by the House of Representatives on December 11, 2009, included, as its Title IV, the Consumer Financial Protection Agency Act, which had been separately reported by the House Financial Services Committee. This legislation would have transferred responsibility for administering various federal consumer protection laws addressing financial matters to a newly established Consumer Financial Protection Agency. It would have specified that a state consumer financial law is preempted only if its effect on national banks is discriminatory in comparison with its effect upon state-chartered banks; moreover, under this bill, no OCC regulation or order could have been subject to interpretation or application to preempt a provision of a state consumer protection law without a specific finding based on substantial evidence on the record that the provision "prevents, significantly interferes with, or materially impairs the ability of a national bank to engage in the business of banking." Under this bill, preemption authority would not have covered subsidiaries. The bill also provided a rule of construction applicable to the visitorial powers clause of the NBA to preclude interpreting that clause to prevent a state attorney general from bringing a judicial action to enforce against a national bank any applicable federal or non-preempted state law as authorized by such law. Senator Christopher Dodd, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, presented a draft proposal, the Restoring American Financial Stability Act of 2009. It paralleled H.R. 4173 with respect to transferring consumer protection functions from the banking agencies to a single regulatory agency, also named the Consumer Financial Protection Agency. It contained a provision applying state consumer laws of general applicability to national banks unless such laws discriminate against national banks or unless the CFPA determines that they are inconsistent with federal law. The draft legislation also includes a provision precluding the interpretation of the visitorial powers clause as limiting the authority of a state's attorney general from bringing a judicial action "to require a national bank to produce records relevant to the investigation of violations of State consumer law, or federal consumer laws; ... to enforce any applicable provision of Federal or State law, as authorized by such law." H.R. 3310 , the Consumer Protection and Regulatory Enhancement Act, introduced on July 23, 2009, by Representative Spencer Bachus, would have continued the current practice of having the federal banking regulators monitor consumer protection compliance with respect to banking institutions, although it would consolidate bank regulation. It would have established a Financial Institutions Regulator (FIR) to assume the functions of the various current federal banking regulators. Within the FIR there would be an Office of Consumer Protection to be responsible for administering and enforcing consumer protection laws. It contained no provision altering current law with respect to the visitorial authority over national banks or the preemption of state consumer protection laws for the benefit of national banks. As OCC and the states begin to operate under the new rules covering preemption of state consumer protection laws and state enforcement authority over national banks, some of the matters which may draw attention from Congress include (1) how well OCC and the Consumer Financial Protection Bureau are coordinating efforts with those of the states; and (2) the extent to which the regime established in Dodd-Frank improves consumer protection without unduly burdening the financial services industry. | On June 29, 2009, the U.S. Supreme Court ruled that the National Bank Act (NBA) does not preempt states from bringing judicial actions against national banks to enforce non-preempted state anti-discrimination laws, and by implication state consumer protection laws, as long as the state authorities do not encroach on the visitorial powers of the national bank regulator, the Office of Comptroller of the Currency (OCC). The Court ruled that administrative subpoenas or other forms of administrative oversight or examination are included in visitorial powers and, thus, are not available as state enforcement tools. The case, Cuomo v. The Clearing House Association, L.L.C.,___ U.S. ___, 129 S.Ct. 2710 (2009), involves a challenge by national banks and OCC to an attempt by the New York State Attorney General (AG) to investigate possible discrimination in real estate lending by certain national banks and their subsidiaries. In response to a request that these banks provide non-public information about their real estate policies and loans in New York, a banking association to which these banks belong, The Clearing House Association, L.L.C., and OCC obtained trial and appellate court orders enjoining the state investigation and enforcement efforts. The Supreme Court decision invalidated an OCC regulation, 12 C.F.R. § 7.4000, to the extent that it preempted state officials from "prosecuting enforcement actions" against national banks. That regulation reflected OCC's interpretation of 12 U.S.C. § 484, a provision of the NBA which proclaims that "no national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice, or such as shall be, or have been exercised or directed by Congress." The Court's opinion analyzed the OCC regulation on the basis of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). It recognized that the term "visitorial powers" is ambiguous and that judicial deference should be accorded to a reasonable interpretation of the term by the agency charged with interpreting it, OCC. The Court, however, found that OCC's interpretation did not meet the reasonableness standard. The Court's opinion concluded that OCC had no reasonable basis for equating visitorial power delegated to OCC by the NBA and a state's sovereign power to enforce its own non-preempted state laws with respect to national banks. Dissenting on this point, Justice Thomas, joined by Chief Justice Roberts and Justices Kennedy and Alito, would have upheld the OCC regulation and the breadth of OCC's interpretation of visitorial power as a reasonable interpretation of an ambiguous statute and, therefore, falling within Chevron and worthy of judicial deference. Subtitle D of Title X, the Consumer Financial Protection Act of 2010, of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), P.L. 111-203, contains a provision designed to codify the ruling of the Supreme Court in Cuomo that federal visitorial clause provisions do not prohibit state enforcement actions. There is also a provision authorizing state attorneys general and state regulators to bring actions against national banks and federal savings associations for violations of Title X and any implementing regulations. The legislation also defines a standard and some procedural requirements for OCC to follow in preempting the applicability of state consumer protection laws to national banks or federal savings associations. These provisions in Dodd-Frank follow other efforts in the 111th Congress to deal with the issue of federal preemption of state efforts to enforce financial consumer protection laws. The 112th Congress may be presented with legislation to amend the Dodd-Frank provisions and/or opportunities to evaluate how the interaction between state and federal consumer protection laws and enforcement efforts is protecting consumers without unduly burdening nationwide banking concerns. |
The National Park System is perhaps the federal land best known to the public. The National Park Service (NPS) in the Department of the Interior (DOI) manages 391 units, including units formally entitled national parks and a host of other designations. The system has more than 84 million acres. The NPS had an appropriation of about $2.39 billion for FY2008. For FY2009, the Administration requested $2.40 billion. FY2009 appropriations have not been enacted to date. The NPS estimates its level of employment at 20,739 FTEs for FY2008, and seeks funding for 21,649 FTEs for FY2009. The NPS statutory mission is multifaceted: to conserve, preserve, protect, and interpret the natural, cultural, and historic resources of the nation for the public, and to provide for their use and enjoyment by the public. The use and preservation of resources has appeared to some as contradictory and has resulted in management challenges. Attention centers on how to balance the recreational use of parklands with the preservation of park resources, and determine appropriate levels and sources of funding to maintain NPS facilities and to manage NPS programs. In general, activities that harvest or remove resources from units of the system are not allowed. The NPS also supports the preservation of natural and historic places and promotes recreation outside the system through grant and technical assistance programs. The establishment of several national parks preceded the 1916 creation of the National Park Service (NPS) as the park system management agency. Congress established the nation's first national park—Yellowstone National Park—in 1872. The park was created in the then-territories of Montana and Wyoming "for the benefit and enjoyment of the people," and placed "under the exclusive control of the Secretary of the Interior" (16 U.S.C. §§ 21-22). In the 1890s and early 1900s, Congress created several other national parks mostly from western public domain lands, including Sequoia, Yosemite, Mount Rainier, Crater Lake, and Glacier. In addition to the desire to preserve nature, there was interest in promoting tourism. Western railroads, often recipients of vast public land grants, were advocates of many of the early parks and built grand hotels in them to support their business. There also were efforts to protect the sites and structures of early Native American cultures and other special sites. The Antiquities Act of 1906 authorized the President to proclaim national monuments on federal lands that contain "historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest" (16 U.S.C. § 431). Most national monuments are managed by the NPS. (For more information, see CRS Report RS20902, National Monument Issues , by [author name scrubbed].) There was no system of national parks and monuments until 1916, when President Wilson signed a law creating the NPS to manage and protect the national parks and many of the monuments. That Organic Act provided that the NPS "shall promote and regulate the use of the Federal areas known as national parks, monuments, and reservations ... to conserve the scenery and the natural and historic objects and the wild life therein and to provide for the enjoyment of the same in such manner and by such means as will leave them unimpaired for the enjoyment of future generations" (16 U.S.C. § 1). President Franklin D. Roosevelt greatly expanded the system of parks in 1933 by transferring 63 national monuments and historic military sites from the USDA Forest Service and the War Department to the NPS. The 110 th Congress is considering legislation or conducting oversight on many NPS-related topics. Several major topics are covered in this report: proposals to enhance NPS funding before the agency's 2016 centennial; the NPS maintenance backlog; science-related activities at national park units; security of NPS units and lands; and management of wild and scenic rivers, which are administered by the NPS or another land management agency. While in some cases the topics covered are relevant to other federal lands and agencies, this report does not comprehensively cover topics primarily affecting other lands/agencies. For background on federal land management generally, see CRS Report R40225, Federal Land Management Agencies: Background on Land and Resources Management, coordinated by [author name scrubbed]. Overview information on numerous natural resource issues, focused on resource use and protection, is provided in CRS Report RL33806, Natural Resources Policy: Management, Institutions, and Issues , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. Information on appropriations for the NPS is included in CRS Report RL34461, Interior, Environment, and Related Agencies: FY2009 Appropriations , by [author name scrubbed] et al. Information on BLM and Forest Service lands is contained in CRS Report RL33792, Federal Lands Managed by the Bureau of Land Management (BLM) and the Forest Service (FS): Issues for the 110 th Congress , by [author name scrubbed] et al. Several other NPS-related topics are covered in other CRS reports. For example, how national park units are created and what qualities make an area eligible to be an NPS unit are of continuing interest. (For more information, see CRS Report RS20158, National Park System: Establishing New Units , by [author name scrubbed].) Legislation has been considered in recent Congresses to study, designate, and fund particular National Heritage Areas (NHAs) as well as to establish a process and criteria for designating and managing NHAs. (For more information, see CRS Report RL33462, Heritage Areas: Background, Proposals, and Current Issues , by [author name scrubbed] and [author name scrubbed].) Recent decades have witnessed increased demand for a variety of recreational opportunities on federal lands and waters. New forms of motorized recreation have gained in popularity, and the use of motorized off-highway vehicles (OHVs) has been particularly contentious. (For more information, see CRS Report RL33525, Recreation on Federal Lands , by Kori Calvert et al.) (by [author name scrubbed]) To be ready for the NPS's 100 th anniversary in 2016, the Administration and Congress have proposed multi-year initiatives to strengthen visitor services and other park programs. The National Park Centennial Initiative, first announced by President Bush in August 2006, seeks to add up to $3 billion in new funds for the parks over 10 years through a joint public/private effort. The initiative has three components: (1) a commitment to add $100.0 million annually in discretionary funds; (2) a challenge for the public to donate at least $100.0 million annually; and (3) a commitment to match the public donations with federal funds of up to $100.0 million annually. In furtherance of the first component of the initiative, for FY2009 the Administration requested additional funds within the line item "Operation of the National Park System." Specifically, the Administration is seeking a total of $2.13 billion in park operations for FY2009, an increase of $160.9 million over the FY2008 level of $1.97 billion. FY2009 appropriations for NPS programs have not been enacted to date. The Administration also had sought, and received, an increase in park operations for FY2008, the first year of the centennial initiative. For the third component of the initiative, the President proposed establishing a mandatory program with $100.0 million annually for 10 years to match private donations. Companion legislation ( H.R. 2959 and S. 1253 ) has been introduced to create a mandatory program along the lines of the President's initiative. The bills would establish the National Park Centennial Challenge Fund in the Treasury consisting of cash donations and matching appropriations from the general fund of the Treasury. The match may not exceed $100.0 million for each of 10 years beginning with FY2008. The funds are available, without further appropriation, to finance "signature projects and programs." These projects and programs will be identified by the NPS Director as helping prepare the national parks for another century of conservation, preservation, and enjoyment. Another House bill ( H.R. 3094 ) also would establish a National Park Centennial Fund in the Treasury, but would take a different approach. It would consist of $30.0 million annually over 10 years. The funds would be available beginning with FY2009, and would be available without further appropriation. The Administration is to include a list of proposals for funding in its annual budget submissions to Congress. The proposals must be consistent with certain criteria and initiatives set out in the bill. The bill specifies seven park initiatives, in the areas of education, diversity, support for park professionals, environmental leadership, natural resource protection, cultural resource protection, and health and fitness. No matching funds would be required, but the Secretary of the Interior may accept donations for centennial projects and programs. The bill also provides a $30.0 million "offset for the Centennial Fund by repealing Section 9 of the Land and Water Conservation Fund Act." That provision of law currently provides $30.0 million of annual contract authority for federal land acquisitions. In its cost estimate on the bill, the Congressional Budget Office estimates that "this provision would have no effect on direct spending because that contract authority is not presently used by the NPS, and CBO does not expect that it will be over the 2009-2018 period." A central issue of debate has been how to finance the Centennial Fund. Under H.R. 3094 as introduced, the Centennial Fund was to consist of $100.0 million annually, with the funds derived from fees for commercial activities on DOI lands. The Secretary of the Interior would have been required to promulgate regulations to establish new fees or increase existing fees for commercial activities, including leases. Another approach was proposed during the markup of the bill by the Committee on Natural Resources. An amendment was offered to "open the Arctic National Wildlife Refuge to energy production to pay for the Centennial Fund." That amendment was not agreed to. Still another financing mechanism is contained in S. 2817 , which would establish a Centennial Fund with $100.0 million annually, essentially over 10 years. Section 8 of the bill, entitled "Offsets," provides for financing the fund with certain revenues from offshore oil and gas activities in the Gulf of Mexico and from the establishment and sale of special postage stamps. Like H.R. 3094 , the bill also contains provisions requiring the Administration to submit annually a list of proposals for funding, which must be consistent with certain criteria and seven initiatives, and allows the Secretary of the Interior to accept donations for projects and programs. House and Senate committees have held hearings on these legislative proposals. One issue of discussion has been the role of philanthropic, corporate, foundation, and other private donors in raising money for the parks. Some observers believe that non-federal funding has been successful in expanding and enhancing a variety of important park programs and is necessary to supplement a shortfall in federal appropriations. Other observers are concerned that non-federal funding will lead to commercialization of national parks and excessive private influence over park operations. Related issues of debate at the hearings included whether to first seek private contributions and then provide a federal match, whether to provide federal funding without a private matching requirement, and whether to allow non-cash contributions. Other issues of discussion were how to finance the Centennial Fund; the role of the NPS and Congress in determining projects eligible for funding; and which, if any, categories of funding (e.g., natural resource protection) to specify in legislation. In furtherance of the third component of the Administration's initiative, the FY2008 appropriations law ( P.L. 110-161 ) included $24.6 million to match private donations. On April 24, 2008, the NPS released a list of 110 projects that would be eligible to receive this funding, together with $26.9 million in partnership contributions. The Appropriations Committees and the Administration have expressed that the FY2008 appropriation is interim funding to initiate the program, and an expectation that legislation will be enacted to create a ten year program. The Administration has not requested an annual appropriation for this matching program, but rather seeks $100.0 million per year in mandatory funding. The FY2009 budget resolution ( S.Con.Res. 70 ) contains a deficit-neutral reserve fund for the National Park Centennial Fund. It would allow the Chairman of the House Committee on the Budget to make adjustments to the amounts in the budget resolution to accommodate legislation establishing the Centennial Fund, so long as that legislation were deficit neutral. (by [author name scrubbed]) The NPS has maintenance responsibility for buildings, trails, recreation sites, and other infrastructure. There is debate over the levels of funds to maintain this infrastructure, whether to use funds from other programs, and how to balance the maintenance of the existing infrastructure with the acquisition of new assets. Congress continues to focus on the agency's deferred maintenance , often called the maintenance backlog —essentially maintenance that was not done when scheduled or planned. DOI estimates deferred maintenance for the NPS for FY2007, based on varying assumptions, at between $6.12 billion and $13.11 billion with a mid-range figure of $9.61 billion. Fifty-six percent of the total deferred maintenance was for roads, bridges, and trails, 19% was for buildings, and 25% was for other structures. While the other federal land management agencies—the Forest Service (FS), Bureau of Land Management (BLM), and Fish and Wildlife Service (FWS)—also have maintenance backlogs, congressional and administrative attention has centered on the NPS backlog. For FY2007, the FS estimated its backlog at $5.66 billion, while DOI estimated the FWS backlog at between $2.24 billion and $3.03 billion and the BLM backlog at between $0.38 billion and $0.46 billion. The four agencies together had a combined backlog estimated at between $14.39 billion and $22.26 billion, with a mid-range figure of $18.33 billion, according to the agencies. The NPS and other agency backlogs have been attributed to decades of funding shortfalls. The agencies assert that continuing to defer maintenance of facilities accelerates their rate of deterioration, increases their repair costs, and decreases their value. For FY2009, the Administration proposed $471.5 million for total maintenance , including cyclic (regular) and deferred maintenance. FY2009 appropriations have not been enacted to date. The request would be an increase of 10% from the $430.3 million appropriated for FY2008. The Administration's budget focused on funds for cyclic maintenance, with a request for an additional $22.8 million for this purpose. The Administration is seeking these funds as a way to prevent deterioration of facilities, which increases the maintenance backlog. However, the budget did not specify the total portions of the maintenance request for deferred maintenance and for cyclic maintenance. According to the DOI Budget Office, the Administration is seeking $189.7 million for NPS deferred maintenance for FY2009. The appropriation for FY2008 was $222.1 million, about the same level as ten years ago—$223.0 million for FY1999. Over the ten year period, the appropriation peaked in FY2002 at $364.2 million. Other funding for deferred maintenance is provided through the NPS construction appropriation, fee receipts, and the Highway Trust Fund. It is not possible to determine the total requested or appropriated for deferred maintenance for FY2009 from public documents. DOI estimates of the NPS backlog have increased from an average of $4.25 billion in FY1999 to an average of $9.61 billion in FY2007. It is unclear what portion of the change is due to the addition of maintenance work that was not done on time or the availability of more precise estimates of the backlog. Further, it is unclear how much total funding has been provided for backlogged maintenance over this period. Annual presidential budget requests and appropriations laws typically do not specify funds for backlogged maintenance, but instead combine funding for all NPS construction, facility operation, and regular and deferred maintenance. In FY2002, the Bush Administration had proposed to eliminate the NPS backlog (estimated at $4.9 billion in 2002) over five years. The NPS budget justification for FY2008 stated that there had been an "almost $5 billion federal investment in addressing the facility maintenance backlog." The figure reflected total appropriations for line items of which deferred maintenance is only a part. Specifically, according to the NPS, it consisted of appropriations for all NPS facility maintenance, NPS construction, and the NPS park roads and parkway program funded through the Federal Highway Administration. It also included fee receipts used for maintenance. The NPS has been defining and quantifying its maintenance needs. These efforts, like those of other land management agencies, include developing computerized systems for tracking and prioritizing maintenance projects and collecting comprehensive data on the condition of facilities. The first cycle of comprehensive condition assessments of NPS facilities was completed by the end of FY2006. The NPS uses two industry standard measurements of its facilities. The "Asset Priority Index" (API) is a rating of each asset's importance to the NPS mission. The "Facility Condition Index" (FCI) quantifies the condition of a facility by dividing the deferred maintenance backlog by the current replacement value of the facility. These ratings are used in part to determine the allocation of maintenance funding among NPS facilities. They also are used to determine whether to retain assets given their condition and uses. The NPS, like the other land management agencies, is identifying for disposal assets that are not critical to the agency's mission and that are in relatively poor condition, as one way to reduce the maintenance backlog. Legislation relating to the maintenance backlog of the NPS has been reintroduced in the 110 th Congress. H.R. 1731 seeks to eliminate the annual operating deficit and maintenance backlog in the National Park System by the 2016 centennial anniversary of the NPS. The bill proposes the creation of the National Park Centennial Fund in the Treasury, to be comprised of monies designated by taxpayers on their tax returns. If monies from tax returns are insufficient to meet funding levels established in the bill, they are to be supplemented by contributions to the Centennial Fund from the General Fund of the Treasury. For FY2008, there would be deposited in the Centennial Fund $200.0 million, with an increase of 15% each year though FY2016. The fund is to be available to the Secretary of the Interior, without further appropriation, as follows: 60% to eliminate the NPS maintenance backlog, 20% to protect NPS natural resources, and 20% to protect NPS cultural resources. After October 1, 2016, money in the Centennial Fund is to be used to supplement annual appropriations for park operations. The bill also would require the Government Accountability Office (GAO) to submit to Congress biennial reports on the progress of Congress in eliminating the NPS deficit in operating funds and on the funding needs of national parks compared with park appropriations, among other issues. Three bills that are on the Senate calendar also relate to the NPS maintenance backlog. S. 2807 and S. 2809 provide that the designation of a National Heritage Area shall not take effect until the President certifies that (1) the designation will not cause specific adverse impacts, and (2) the total NPS deferred maintenance backlog in the state in which the NHA is proposed is not greater than $50.0 million. S. 2807 , as well as S. 2810 , also contains provisions regarding the maintenance backlog of federal agencies generally. They seek to require that an annual report regarding the amount and cost of federally owned land be available to the public on the web. The report is to include the "estimated costs to the Federal Government of the maintenance backlog of each Federal agency," including an aggregate cost and the cost of buildings and structures. (by [author name scrubbed]) Various science-related issues pertain to park management. One involves monitoring and protecting air quality—the regional haze issue. In the 1977 amendments to the Clean Air Act, Congress established a national goal of protecting Class I areas—most then-existing national parks and wilderness areas—from future visibility impairment and remedying any existing impairment resulting from manmade air pollution. (Newly designated parks and wilderness areas can be classified as Class I only by state actions; they do not automatically become Class I areas.) One program to control this "regional haze" is the Prevention of Significant Deterioration (PSD) program. It provides that permits may not be issued to major new facilities within 100 kilometers of a Class I area if federal land managers, such as those at the NPS, assert that the emissions "may cause or contribute to a change in the air quality" in a Class I area (42 U.S.C. § 7457). In June 2007, the U.S. Environmental Protection Agency proposed changes in the PSD rules, "to refine several aspects of the method that may be used" to determine whether air quality in Class I areas would be degraded by a proposed activity. Proponents of the change contend that current rules are excessively restrictive; opponents assert that the change would allow increased emissions from coal-fired power plants in Class I areas. The NPS monitors one or more air quality indicators at 60 park units and uses data from numerous state and local air quality monitoring stations located close to park units. From these combined sources, the NPS rated 141 park units in its 2006 performance report, covering the period 1996-2005, and concluded that 86% of the units showed stable or improving air quality trends generally, 82% met national ambient air quality standards, and 97% met visibility goals. In August 2006, the National Parks Conservation Association released a new report asserting that "air pollution is among the most serious and wide-ranging problems facing the parks today.... We've made some important advances ... but much more remains to be done." The report includes 10 recommendations to improve air quality in the National Park System. Another science-related issue is possible commercialization (bio-prospecting) of unique organisms found in some NPS units (notably Yellowstone National Park). The NPS completed a draft Environmental Impact Statement (EIS) on benefits-sharing (agreements for using the results of research on organisms in the parks) in September 2006. The preferred alternative would require researchers to enter into a benefits-sharing agreement before using research results for commercial purposes. The public comment period closed on January 29, 2007. To date, a final EIS and record of decision have not been issued. A third science-related issue is research in the parks. NPS support for natural resources includes research on air quality, cooperative ecosystem studies units, and research learning centers. Additional research is conducted in many parks, although "parks do not have specific funds allocated for research, but may choose to fund individual projects in any given year." Funding for natural resources research support has risen modestly in recent years, from $9.3 million in FY2002 to $10.2 million for FY2008. For FY2009, the Administration requested $10.3 million; FY2009 appropriations for NPS programs have not been enacted to date. The Park Service also conducts cultural resources applied research, including archaeological resource inventories; reports on cultural landscapes and on historic and prehistoric structures; museum collections; and ethnographic and historical research. Funding has risen in recent years, from $18.0 million in FY2002 to $19.9 million for FY2008. The Administration requested $20.3 million for FY2009. The completeness and adequacy of these programs and funds to address Park Service research needs and performance is unclear. Congress funds both these natural and cultural research programs as part of NPS Resource Stewardship (under Operation of the National Park System). For FY2008, a total of $373.0 million was appropriated for NPS Resource Stewardship. The Administration is seeking $410.4 million for FY2009. (by [author name scrubbed]) Since the September 11, 2001, terrorist attacks on the United States, the NPS has sought to enhance its ability to prepare for and respond to threats from terrorists and others. Activities have focused on security enhancements at national icons and along the U.S. borders, where several parks are located. According to the NPS, the United States Park Police (USPP) has sought to expand physical security assessments of monuments, memorials, and other facilities, and increase patrols and security precautions in Washington monument areas, at the Statue of Liberty, and at other potentially vulnerable icons. Other activities have included implementing additional training in terrorism response for agency personnel, and reducing the backlog of needed specialized equipment and vehicles. NPS law enforcement rangers and special agents have expanded patrols, use of electronic monitoring equipment, intelligence monitoring, and training in preemptive and response measures, according to the agency. The NPS has taken measures to increase security and protection along international borders and to curb illegal immigration and drug traffic through park borders. A February 2008 assessment of the USPP by the DOI Inspector General identified weaknesses in the management and operations of park police that adversely affect security at national icons. The report stated that USPP "officials continue to state that icon security is a top priority; however, their actions indicate otherwise." It stated that there is not a comprehensive icon security program, and recommended the hiring of a senior-level security professional to oversee security of all icons as well as other certified security professionals for each icon park. Other recommendations included development of formal asset security plans, establishment of a training program for personnel responsible for protecting icons, and an upgrade of closed circuit television surveillance camera systems as well as an increase in personnel monitoring them. Over the past several years, other entities have evaluated park police and security operations. For instance, a June 2005 GAO report examined the challenges for DOI in protecting national icons and monuments from terrorism, and actions and improvements the department has taken in response. GAO concluded that since 2001, DOI has improved security at key sites, created a central security office to coordinate security efforts, developed physical security plans, and established a uniform risk management and ranking methodology. GAO recommended that DOI link its rankings to security funding priorities at national icons and monuments and establish guiding principles to balance its core mission with security needs. Legislation pertaining to immigration reform and border security contains provisions affecting national park units along U.S. borders. For example, S. 1269 provides for the construction of a fence and other barriers along the southern border. The Secretary of Homeland Security is to create and control a border zone consisting of U.S. land within 100 yards of the border. The heads of the NPS and of other agencies that manage lands along the border are to transfer land to the Secretary of Homeland Security without reimbursement. S. 330 and S. 1348 call for a study of the construction of physical barriers along the southern border of the United States, including their effect on park units along the borders. S. 1348 , S. 1639 , and H.R. 1645 would increase customs and border protection personnel to secure park units (and other federal land) along U.S. borders; provide surveillance camera systems, sensors, and other equipment for lands on the border, with priority for NPS units (under S. 1348 and H.R. 1645 ); and require a recommendation to Congress for the NPS and other agencies to recover costs related to illegal border activity. These three bills, as well as S. 2366 , S. 2368 , and H.R. 4088 , also would require the development of a border protection strategy that protects NPS units (and other federal land areas). S. 2366 , S. 2368 , and H.R. 4088 also authorize the employment of additional law enforcement officers and special agents by DOI. In June 2007, the Senate considered S. 1348 and S. 1639 but did not vote on final passage because cloture was not invoked. The Consolidated Appropriations Act for FY2008 included provisions on fencing along the southwest border ( P.L. 110-161 , Division E, § 564). Specifically, the law required the Secretary of Homeland Security to construct fencing along not less than 700 miles of the southwest border where it "would be most practical and effective." The law further required the Secretary to provide for additional physical barriers, roads, lighting, cameras, and sensors "to gain operational control" to enhance control along the border. Other issues of recent interest have included the damage of illegal border activities to federal lands; how to reduce harm from illegal border activities; efforts of various agencies to secure federal lands along the borders; implementation of a memorandum of understanding among the Departments of Homeland Security, Interior, and Agriculture on initiatives to improve handling of illegal border activities and their impacts on federal lands; and the demands on law enforcement personnel of the federal land management agencies. Illegal activities at issue have included drug trafficking, alien smuggling, money laundering, organized crime, and terrorism. Such activities are reported to have damaged federal lands, including by creating illegal roads, depositing large amounts of trash and human waste, increasing risk of fire from poorly tended camp fires, destroying vegetation and cultural resources, and polluting waterways. The effects on federal lands of border enforcement activities in response to illegal immigration also have been examined. Congress appropriates funds to the NPS for security efforts, and the adequacy and use of funds to protect NPS visitors and units are of continuing interest. Funds for security are appropriated through multiple line items, including those for the USPP and Law Enforcement and Protection. For FY2009, the President requested $94.4 million for the USPP, a 9% increase over FY2008 ($86.7 million). The increase would be used primarily to hire new officers. The President also requested $169.8 million for law enforcement in FY2009, a 10% increase over the $154.7 million appropriated for FY2008. A portion of the increase is to enhance law enforcement at park units along the southwest border that are addressing resource damage and safety issues resulting from illegal immigration. The increase also is intended to enhance protection of 11 historic structures and approximately 100 archaeological sites. FY2009 appropriations have not been enacted to date. (by [author name scrubbed]) The National Wild and Scenic Rivers System was authorized on October 2, 1968, by the Wild and Scenic Rivers Act (16 U.S.C. §§ 1271-1287). The act established a policy of preserving designated free-flowing rivers for the benefit and enjoyment of present and future generations, to complement the then-current national policy of constructing dams and other structures along many rivers. The act requires that river units be classified and administered as wild, scenic, or recreational rivers, based on the condition of the river, the amount of development in the river or on the shorelines, and the degree of accessibility by road or trail at the time of designation. Typically rivers are added to the system by an act of Congress, but they also may be added by state nomination with the approval of the Secretary of the Interior. Congress initially designated 789 miles of eight rivers as part of the system. Today there are 166 river units with 11,434.2 miles in 38 states and Puerto Rico, administered by the NPS, other federal agencies, and several state agencies. The NPS manages 37 of these river units, totaling 3,043.7 miles. Congress also commonly enacts legislation to authorize the study of particular rivers for potential inclusion in the system. The NPS maintains a national registry of rivers that may be eligible for inclusion in the system—the Nationwide Rivers Inventory (NRI). Congress may consider, among other sources, these NRI rivers, which are believed to possess "outstandingly remarkable" values. The Secretaries of the Interior and Agriculture are to report to the President as to the suitability of study areas for wild and scenic designation. The President then submits recommendations regarding designation to Congress. Wild and scenic rivers designated by Congress generally are managed by one of the four federal land management agencies—NPS, FWS, BLM, and FS. Management varies with the class of the designated river and the values for which it was included in the system. Components of the system managed by the NPS become a part of the National Park System. The act requires the managing agency of each component of the system to prepare a comprehensive management plan to protect river values. The managing agency also establishes boundaries for each component of the system, within limitations. Management of lands within river corridors has been controversial in some cases, with debates over the effect of designation on private lands within the river corridors, the impact of activities within a corridor on the flow or character of the designated river segment, and the extent of local input in developing management plans. State-nominated rivers may be added to the National Wild and Scenic Rivers System only if the river is designated for protection under state law, is approved by the Secretary of the Interior, and is permanently administered by a state agency. Management of state-nominated rivers may be complicated because of the diversity of land ownership. The 110 th Congress is considering legislation to designate, study, or extend components of the Wild and Scenic Rivers System. Such measures are shown in Table 1 . The table includes bills that could involve management by the NPS or other agencies. On May 8, 2008, segments of the Eightmile River in Connecticut were designated (§344, P.L. 110-229 ) as part of the National Wild and Scenic Rivers System. The law requires the Secretary of the Interior to administer segments of the main stem and specified tributaries of the Eightmile River, totaling about 25.3 miles, as a scenic river. The 109 th Congress enacted legislation to designate, study, or extend specific components of the Wild and Scenic Rivers System. The Upper White Salmon Wild and Scenic Rivers Act of 2005 ( P.L. 109-44 ) adds a 20-mile portion of the river to the system. The Northern California Coastal Wild Heritage Wilderness Act (CA) ( P.L. 109-362 ) designates 21 miles in three segments of the Black Butte River as wild and scenic river components. The Lower Farmington River and Salmon Brook Wild and Scenic River Study Act ( P.L. 109-370 ) directs the NPS to conduct a feasibility study to evaluate whether the 40-mile stretch of the lower Farmington River and Salmon Brook (CT) would qualify for possible inclusion in the system. Several other 109 th Congress bills passed the House or Senate but were not enacted into law. | The 110th Congress is considering legislation and conducting oversight on National Park Service (NPS) related topics. The Administration is addressing park issues through budgetary, regulatory, and other actions. This report focuses on several key topics. Centennial Initiative. President Bush's National Park Centennial Initiative seeks to add up to $3 billion for national park units over 10 years through: (1) an additional $100.0 million annually in discretionary funds; (2) public donations of least $100.0 million annually; and (3) a federal match of the public donations with up to $100.0 million annually. Legislation to establish a mandatory matching program along the lines of the President's initiative has been introduced (H.R. 2959 and S. 1253), while H.R. 3094 and S. 2817 would take a different approach. Maintenance Backlog. Attention has focused on the NPS's maintenance backlog. Estimates of the backlog have increased from an average of $4.25 billion in FY1999 to $9.61 billion in FY2007; it is unclear what portion may be attributable to better estimates or the addition of maintenance work not done on time. The NPS has been defining and quantifying its maintenance needs through comprehensive condition assessments of facilities. The results are being used in part to determine the allocation of maintenance funding and to identify assets for disposal. H.R. 1731 seeks to eliminate the NPS annual operating deficit and maintenance backlog. Science in the Parks. Various science-related activities pertain to park management. One involves monitoring and protecting air quality—the regional haze issue. Another is possible commercialization (bio-prospecting) of unique organisms found in some park units. The NPS is developing a proposal on benefits sharing—agreements for using the results of research on organisms in parks. A third science-related issue is research in the parks. The NPS receives funds for natural and cultural research programs. Security. The NPS has sought to enhance security of park units, with efforts focused on national icons and park units along international borders. Evaluations of park police and security operations have been mixed. Several bills pertaining to immigration reform and border security contain provisions to enhance security at park units along U.S. borders. The President is seeking additional funding for FY2009 for park police and law enforcement. Wild and Scenic Rivers. The Wild and Scenic Rivers System preserves free-flowing rivers, which are designated by Congress or through state nomination with approval by the Secretary of the Interior. The NPS manages 37 river units, totaling 3,043.7 miles. The NPS, and other federal agencies with management responsibility, prepare management plans to protect river values. Management of lands within river corridors is sometimes controversial, in part because of the possible effects of designation on private lands and of corridor activities on the rivers. P.L. 110-229 established the Eightmile Wild and Scenic River. Legislation has been introduced to designate, study, or extend components of the system. |
The U.S. Department of Commerce's National Institute of Standards and Technology (NIST) is the "lead national laboratory for providing the measurements, calibrations, and quality assurance techniques which underpin United States commerce, technological progress, improved product reliability and manufacturing processes, and public safety." By statute, NIST is "to assist private sector initiatives to capitalize on advanced technology; to advance, through cooperative efforts among industries, universities, and government laboratories, promising research and development projects, which can be optimized by the private sector for commercial and industrial applications; and to promote shared risks, accelerated development, and pooling of skills which will be necessary to strengthen America's manufacturing industries." NIST conducts leading-edge research in its seven research laboratories located in facilities in Gaithersburg, MD, and Boulder, CO. NIST employs approximately 3,000 scientists, engineers, technicians, and support personnel, and hosts about 3,500 guest researchers and associates from academia, industry, and other government agencies, who collaborate with NIST staff and access user facilities. Research is focused on measurement, standards, test methods, and basic "infrastructural technologies" that enable development of advanced technologies. Infrastructural technologies assist industry in characterizing new materials, monitoring production processes, and ensuring the quality of new product lines. Cooperative research with industry to overcome technical barriers to commercialization of emerging technologies is a major component of NIST's work. In addition, NIST manages extramural programs such as the Hollings Manufacturing Extension Partnership (MEP) program and the Network for Manufacturing Innovation (NMI, also referred to as Manufacturing USA). Several other extramural programs previously conducted by NIST have been eliminated or integrated into other NIST activities. These programs are discussed in the next section. Unlike most federal laboratories, NIST has a mission specified by statute (15 U.S.C. 271-282a), has a separate authorization and appropriation, and is headed by a Senate-confirmed presidential appointee (the Under Secretary of Commerce for Technology and Standards). NIST was originally created by the NBS Organic Act of 1901 (P.L. 56-177) as the National Bureau of Standards (NBS), at a time when the first centralized industrial labs were being established. Under the act, NBS was charged with working on "the solution of problems which arise in connection with standards" and to engage in the "determination of physical constants and the properties of materials, when such data are of great importance to scientific or manufacturing interests and are not to be obtained of sufficient accuracy elsewhere." These objectives remain central to NIST's laboratory work today. In 1987, the Malcolm Baldrige National Quality Improvement Act of 1987 ( P.L. 100-107 ) established the Malcolm Baldrige National Quality Award under the management of NBS. The act directs the President or the Secretary of Commerce to "periodically make the award to companies and other organizations which in the judgment of the President or the Secretary have substantially benefited the economic or social well-being of the United States through improvements in the quality of their goods or services resulting from the effective practice of quality management, and which as a consequence are deserving of special recognition." The following year, amid widespread concerns about the state of U.S. industrial competitiveness, the Omnibus Trade and Competitiveness Act of 1988 ( P.L. 100-418 ) significantly expanded the role of NIST as the "lead national laboratory for providing the measurements, calibrations, and quality assurance techniques which underpin United States commerce, technological progress, improved product reliability and manufacturing processes, and public safety" by "moderniz[ing] and restructur[ing] that agency to augment its unique ability to enhance the competitiveness of American industry." The act also changed the name from NBS to the National Institute of Standards and Technology to reflect its expanded mission. In addition to its long-standing work in standards and metrology, NIST was directed to offer support to the private sector for the development of precompetitive generic technologies and the diffusion of government-developed innovation to users in all segments of the U.S. economy. Among its provisions, the act established the Advanced Technology Program (ATP), and a program now known as the Hollings Manufacturing Extension Partnership program. The MEP is a program of regional centers that assist smaller, U.S.-based manufacturing companies in identifying and adopting new technologies. Operating under the auspices of NIST, centers in all 50 states and Puerto Rico provide technical and managerial assistance to firms. Federal funding for the centers is matched by nonfederal sources. The Advanced Technology Program was designed "to serve as a focal point for cooperation between the public and private sectors in the development of industrial technology," according to the report accompanying the bill, and to help solve "problems of concern to large segments of an industry." Placed within the National Institute of Standards and Technology in recognition of the laboratory's ongoing relationship with industry, ATP provided seed funding to single companies or to industry-led consortia of universities, businesses, and/or government laboratories for development of generic (broad-based), precompetitive technologies that have many applications across industries. Awards, based on technical and business merit, were for high-risk work past the basic research stage but not yet ready for commercialization. Market potential was an important consideration in project selection. Scientific and technical review generally was performed by federal and academic experts. Business plan assessments were made by individuals from the private sector. The America COMPETES Act ( P.L. 110-69 ) and the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ) authorized NIST appropriations and several programs and activities. In 2007, the America COMPETES Act replaced ATP with a new program, the Technology Innovation Program (TIP). While similar to ATP in the promotion of R&D expected to be of broad-based economic benefit to the nation, TIP appeared to have been structured to avoid what was seen as government funding of large firms that opponents argued did not necessarily need federal support for research. The committee report to accompany H.R. 1868 , part of which was incorporated into P.L. 110-69 , stated that TIP replaced ATP in consideration of a changing global innovation environment focusing on small and medium-sized companies. The design of the program also "acknowledges the important role universities play in the innovation cycle by allowing universities to fully participate in the program." Appropriations for TIP were provided from FY2008 to FY2011; no appropriations have been provided for TIP since FY2011. The America COMPETES Act authorized appropriations for NIST accounts for FY2008-FY2010, and the America COMPETES Reauthorization Act of 2010 authorized appropriations for NIST accounts for FY2011-FY2013. The authorization levels for NIST were part of a larger effort to double funding for selected accounts—all of the National Science Foundation, the Department of Energy Office of Science, and the NIST laboratory and construction accounts—that support physical sciences and engineering research. Congress's appropriations fell short of the authorizations in these acts, and President Obama's FY2017 request did not refer to the doubling goal. President Trump's FY2018 and FY2019 budgets do not include any reference to the doubling effort. As part of the Public Safety Trust Fund provided for in the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), a share of spectrum auction proceeds are to be made available to NIST as part of a Wireless Innovation (WIN) Fund to help develop cutting-edge wireless technologies for public safety users. WIN funds are to be used for developing leading-edge wireless technologies for public safety users, including helping industry and public safety organizations conduct research and develop new standards, technologies, and applications to advance public safety communications in support of the initiative's efforts to build an interoperable nationwide broadband network for first responders. The spectrum auction provided NIST with approximately $285.0 million for this purpose; efforts began in FY2015 and are continuing in FY2018. In his FY2013 budget, President Obama proposed the creation of a National Network for Manufacturing Innovation (NNMI) to help accelerate innovation by investing in industrially relevant manufacturing technologies with broad applications, and to support manufacturing technology commercialization by bridging the gap between the laboratory and the market. Congress did not act on this request or a subsequent one made in President Obama's FY2014 request. President Obama renewed the request in his FY2015 budget. In December 2014, Congress enacted the Revitalize American Manufacturing and Innovation Act of 2014 (RAMI Act) as Title VII of Division B of the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), establishing a Network for Manufacturing Innovation (NMI), largely similar to President Obama's concept for the NNMI. As specified in the act, the purpose of the NMI is to improve the competitiveness of U.S. manufacturing and to increase the production of goods manufactured predominantly within the United States; to stimulate U.S. leadership in advanced manufacturing research, innovation, and technology; to facilitate the transition of innovative technologies into scalable, cost-effective, and high-performing manufacturing capabilities; to facilitate access by manufacturing enterprises to capital-intensive infrastructure, including high-performance electronics and computing, and the supply chains that enable these technologies; to accelerate the development of an advanced manufacturing workforce; to facilitate peer exchange and the documentation of best practices in addressing advanced manufacturing challenges; to leverage nonfederal sources of support to promote a stable and sustainable business model without the need for long-term federal funding; and to create and preserve jobs. The act did not appropriate funds specifically for the NMI program but instead authorized NIST to spend up to $5.0 million of its appropriated funds each year from FY2015 to FY2024 to carry out the program. In addition, the act authorizes the Department of Energy (DOE) to transfer up to a total of $250.0 million to NIST between FY2015 and FY2024 to carry out the program. The act also allows existing manufacturing centers to be classified as centers for manufacturing innovation, making them eligible to participate in the network. President Obama initiated the establishment of several such centers prior to enactment of the RAMI Act under the general statutory authority of several agencies, including the Department of Defense and Department of Energy. While no funding has been transferred from DOE to NIST as authorized by the RAMI Act, in December 2015, the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) provided specific funding, for the first time, for the establishment and coordination of institutes under the provisions of the RAMI Act. The act provides NIST with $25.0 million for FY2016 for the NNMI, to include funding for establishment of institutes and up to $5.0 million for coordination activities. The explanatory statement accompanying the act directs NIST to "follow the direction of the Revitalize American Manufacturing and Innovation Act of 2014 in requiring open competition to select the technological focus areas of industry-driven manufacturing institutes." In September 2016, Commerce Secretary Penny Pritzker announced that "Manufacturing USA" would be the new brand name for the National Network for Manufacturing Innovation. Congress continues to use the term National Network for Manufacturing Innovation in appropriations reports. On February 19, 2016, NIST launched a competition to establish and operate one or more institutes. According to the announcement, NIST intended to provide up to a total of $70 million per institute over five to seven years, with federal funding matched by private and other nonfederal sources. On December 16, 2016, NIST awarded the National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL), led by the University of Delaware, "to advance U.S. leadership in biopharmaceutical manufacturing." The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) provided $25 million to NIST for the NNMI, to include funding for center establishment and up to $5 million for coordination activities. The Consolidated Appropriations Act, 2018 ( P.L. 115-141 ) provides $15 million to NIST for the NNMI for FY2018, to include funding for center establishment and up to $5 million for coordination activities. President Trump is requesting $15.1 million for FY2019 for Manufacturing USA, including $5.1 million for coordination activities. In July 2013, NIST launched two new programs: the Advanced Manufacturing Technology Consortia (AMTech) program and the Manufacturing Technology Acceleration Centers (M-TAC) program. Originally included in President Obama's FY2013 budget request, AMTech makes planning awards to "establish industry-led consortia to identify and prioritize research projects supporting long-term industrial research needs." AMTech seeks to incentivize manufacturers to share financial and scientific resources with universities, state and local governments, and nonprofit organizations. AMTech does not have a statutory authorization; the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ) provided first-year funding of $14.5 million. In December 2015, the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) directed NIST to merge the Advanced Manufacturing Technology (AMTech) Consortia program with the NNMI. The M-TAC program was a pilot effort under MEP that sought to address "the technical and business challenges encountered by small and mid-sized U.S. manufacturers as they attempt to adopt, integrate, and execute advanced product and process technologies into their operations." The funded project work on all the MTAC projects has been completed and a final presentation was made by each awardee to MEP Center directors and staff in May 2016. Discretionary funding for NIST is generally provided through three appropriations accounts: The Scientific and Technical Research and Services (STRS) account supports NIST in-house laboratory research. The account also provided funding for the Baldrige Performance Excellence Program through FY2011. The Construction of Research Facilities (CRF, also referred to in this report as construction) account supports construction, maintenance, and repair of NIST facilities at its facilities in Gaithersburg, MD, and Boulder, CO. From FY2008 to FY2010, CRF provided funding for a competitive grant program that funded the construction of research facilities at U.S. universities and research institutions. The Industrial Technology Services (ITS) account supports NIST's extramural programs. In FY2018, the ITS account provides funding for the MEP and NNMI programs. In earlier years, ITS provided funding for the Advanced Technology Program, the Technology Innovation Program, and the AMTech program. President Trump requested a total of $629.1 million for NIST in FY2019, $569.4 million (47.5%) below the FY2018 enacted level of $1,198.5 million. The President's FY2019 request included $573.4 million for R&D, standards coordination, and related services in the STRS account, a decrease of $151.1 million (20.9%) from the FY2018 level of $724.5 million. The House Appropriations Committee-reported level for FY2019 is $985 million, $213.5 million (17.8%) below the FY2018 level and $355.9 million (56.6%) above the request. The Senate Appropriations Committee-reported level for FY2019 is $1,037.5 million, $161.0 million (13.4%) below the FY2018 level, $408.4 million (64.9%) above the request, and $52.5 million (5.3%) above the House committee-reported level. The President requested $15.1 million for the ITS account for FY2019, down $139.9 million (90.3%) from the FY2018 enacted level. The President's FY2019 request for ITS would discontinue funding for the Manufacturing Extension Partnership (MEP) program, and provide $15.1 million for the National Network for Manufacturing Innovation (NNMI)/Manufacturing USA, essentially the same as the FY2018 enacted level. The $15.1 million sought for the NNMI includes $10.0 million for continued support of the NIST-sponsored National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL) and $5.1 million to support NIST's role in coordination of the network. The House Appropriations Committee-reported level for the ITS account for FY2019 is $145.0 million, $10.0 million (6.5%) below the FY2018 level and $129.9 million (860.6%) above the request. The Senate Appropriations Committee-reported level for the ITS account for FY2019 is $155.0 million, equal to the FY2018 level, $139.9 million (926.9%) above the request, and $10.0 million (6.9%) above the House committee-reported level. Both the House and Senate committee reports would provide $140.0 million for the MEP program for FY2019; for the NNMI, the House would provide $5.0 million and the Senate would provide $15.0 million. The President requested $40.5 million for FY2019 for the NIST CRF account, down $278.5 million (87.3%) from the FY2018 enacted level. The House Appropriations Committee-reported level for the CRF account for FY2019 is $120.0 million, $199.0 million (62.4%) below the FY2018 level and $79.5 million (195.9%) above the request. The Senate Appropriations Committee-reported level for the CRF account for FY2019 is $158.0 million, $161.0 million (50.5%) below the FY2018 level, $117.5 million (289.7%) above the request, and $38.0 million (31.7%) above the House committee-reported level. In the absence of a year-long appropriation act for FY2019, NIST was funded under two continuing resolutions, first through December 7, 2018 (under P.L. 115-245 ), then through December 21, 2018 (under P.L. 115-298 ). NIST has been without appropriations since December 22, 2018. Following the start of the 116 th Congress, the House passed H.R. 21 , which would provide funding for each of the NIST accounts at the same levels as the Senate committee-passed bill from the 115 th Congress ( S. 3072 ). This section will be updated as Congress completes action on the FY2019 appropriations process. This section provides an overview of appropriations data for NIST in total and for each of its appropriations accounts, as well as for the Manufacturing Extension Partnership and the Advanced Technology Program (eliminated in 2007) and the Technology Innovation Program (last funded in 2011). Appendix A provides requested and enacted funding levels for NIST and its accounts for FY2003-FY2019. Appendix B provides requested and enacted funding levels for selected NIST programs. Figure 1 illustrates total requested and enacted NIST funding levels. Total appropriations for NIST grew from $707.5 million in FY2003 to $1,198.5 million in FY2018, a compound annual growth rate (CAGR) of 3.6%. Appropriations exceeded requests through FY2010; from FY2010 to FY2017, requests exceeded appropriations. In FY2018, appropriations once again exceeded the request. President Trump is requesting $629.1 million for NIST in FY2019, a $569.4 million (47.5%) reduction from the FY2018 appropriation level. Figure 2 illustrates requested and enacted funding levels for the NIST STRS account. This account saw a steady rise in both request and appropriations levels through FY2016. STRS funding requests declined in FY2017, FY2018, and FY2019. Appropriations for FY2017 were $10.0 million below the FY2016 level. In FY2018, Congress appropriated $724.5 million, an increase of $34.5 million (5.0%) above the FY2017 level of $690.0 million. For FY2019, President Trump is requesting $573.4 million for STRS, a $151.1 million (20.9%) reduction from the FY2018 appropriation level. Total appropriations for the STRS account grew from $357.1 million in FY2003 to $724.5 million in FY2018, a compound annual growth rate of 4.8%. Figure 3 illustrates requested and enacted funding levels for the NIST CRF account. The construction account has seen substantial fluctuations from FY2006 through FY2018. CRF funding jumped from $72.5 million in FY2006 to $173.7 million in FY2007, fell to $58.7 million in FY2008, and then rose to $532.0 million in FY2009 (of which $172.0 million was provided for in regular appropriations and $360 million provided under ARRA). In 2010, funding fell to $147.0 million, and fell again in 2011 to $69.9 million. Falling again in FY2012 to $55.4 million, appropriations remained relatively flat through FY2015, ranging from $50 million to $56 million per year. In FY2016, CRF appropriations jumped to $119.0 million; $60.0 million of the increase was designated for beginning "the design and renovation of [NIST's] outdated and unsafe radiation physics infrastructure." In FY2017, CRF appropriations were $109.0 million, of which $60.0 million was designated for design and renovation of NIST's radiation physics infrastructure. In FY2018, CRF appropriations jumped to $319 million, an increase of $210.0 million (192.7%) from the FY2017 level. President Trump is requesting $40.5 million for CRF in FY2019, a $278.5 million (87.3%) reduction from the FY2018 appropriation level. In FY2008, FY2009, and FY2010, the CRF account provided funding for the competitive construction grant program that funded the construction of research facilities at U.S. universities and research institutions. Appropriations for CRF also included funding for congressionally designated projects in some years. Figure 4 illustrates the funding levels for the NIST CRF account excluding congressionally directed projects and the competitive grant program (requested appropriations for FY2003-FY2019 and enacted appropriations for FY2003-FY2018). Figure 5 illustrates requested and enacted funding levels for the NIST ITS account. ITS requests and appropriations during this period have included the MEP, NNMI, AMTech, ATP, TIP, and Baldrige programs in some or all years. Total appropriations for the ITS account fell from $284.8 million in FY2003 to $128.4 million in FY2012, grew to $155.0 million in FY2016 and have since remained flat. President Trump is requesting $15.1 million for ITS in FY2018, a $139.9 million (90.3%) reduction from the FY2018 appropriation level. Substantial fluctuations in the levels of funding requested and provided for the MEP, ATP, and TIP programs are reflected in aggregate in Figure 5 , and illustrated and discussed in more detail on the following pages. Figure 6 illustrates requested and enacted funding levels for the NIST MEP program. FY2003 enacted appropriations of $105.9 million were cut to $38.6 million in FY2004, but returned to near the FY2003 level in FY2005 ($107.5 million) and stayed near that level through FY2007. The MEP funding dipped again in FY2008, to $89.6 million, then rose over the next several years to $140.0 million in FY2018. Requests from FY2003 to FY2009 were substantially lower than appropriations, falling to $2.0 million in FY2009. In FY2010, the Obama Administration requested $124.7 million for MEP. From FY2012 to FY2017, requests were somewhat higher than enacted appropriations. For FY2018, President Trump requested $6.0 million for the MEP program to provide "for the orderly wind down of federal funding for the program"; however, Congress appropriated $140.0 million. In FY2019, President Trump is requesting no funding for MEP, $140.0 million (100.0%) below the FY2018 appropriation level. The Advanced Technology Program saw its requests fall from $107.9 million in FY2003 to zero in FY2005, and its appropriations fall from $178.9 million in FY2003 to zero in FY2008; no funding was requested in FY2005 and subsequent years. The Technology Innovation Program, which succeeded ATP, was first funded at $65.2 million in FY2008 and rose to $69.9 million in FY2010 before falling to $45.0 million in FY2011. The TIP program received no funding in FY2012 or in subsequent years. The $69.9 million requested for TIP in FY2010 was fully funded; in FY2011 the TIP request was $79.9 million, and in FY2012 it was $75.0 million. No funding has been requested for TIP since FY2012. When NBS was renamed NIST under the provisions of the Omnibus Trade and Competitiveness Act of 1988, the laboratory was given additional missions and supporting programs. Two of the new programs—the Advanced Technology Program and the Manufacturing Extension Partnership program—were intended to improve U.S. innovation and industrial competitiveness. These programs generated criticism from some policymakers and analysts who objected to them on a variety of grounds, including whether such activities are appropriate for the federal government to undertake; whether they might result in suboptimal choices of technologies, choices better left to market forces; whether certain technologies, companies, or industries might be chosen for support based on criteria other than technical or business merit; and whether tax dollars should be awarded to already-profitable firms. In contrast, NIST's historical mission of conducting laboratory research in support of standards and metrics continued to enjoy broad support and faced little controversy. Evidence of this support can be seen in the selection of the STRS account—through which NIST laboratory work is funded—as one of the targeted accounts in the doubling efforts of former Presidents George W. Bush and Barack Obama and successive Congresses. However, even with broad support and the absence of controversy, funding for the NIST STRS account did not grow at the pace its advocates supported in presidential budget requests and successive authorizations of appropriations due to tight overall fiscal constraints on the federal budget. These issues are discussed in more detail below. In the early 2000s, many industry, academia, and policy leaders expressed growing concern that federal investments in physical sciences and engineering research were not growing fast enough to keep the United States on the leading edge of technological innovation and commercial competitiveness. In his 2006 State of the Union remarks, President Bush announced the American Competitiveness Initiative (ACI), which, among other things, sought to double funding for targeted appropriations accounts that fund physical sciences and engineering research over a 10-year period. Among the targeted accounts were the NIST STRS and construction accounts. Subsequently, Congress passed the America COMPETES Act ( P.L. 110-69 ), which set appropriations authorizations for the targeted accounts for FY2008-FY2010 that represented a compound annual growth rate (CAGR) of 10.1% that would have, if continued, resulted in a doubling over approximately seven years. In his FY2010 Plan for Science and Innovation , President Obama stated that he (like President Bush) would seek to double funding for basic research over 10 years (FY2006 to FY2016) at the ACI agencies. Actual appropriations, however, did not keep pace with the America COMPETES Act authorization levels. In his FY2011 budget request, President Obama extended the period over which he intended to double these agencies' budgets to 11 years. In 2010, Congress enacted the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ), setting appropriations authorizations for the targeted accounts for FY2011-FY2013 at a level that effectively set an 11-year doubling pace (a 6.3% CAGR). However, as with the original act, appropriations did not keep pace with the authorization act levels. While reiterating President Obama's intention to double funding for the targeted accounts from their FY2006 levels, President Obama's FY2013 budget request did not specify the length of time over which the doubling was to take place. President Obama's FY2014 budget expressed a commitment to increasing funding for the targeted accounts, but did not commit to doubling. President Obama's FY2017 budget did not address the doubling effort. From FY2006, the base year for the doubling effort, through FY2016, funding for the NIST STRS and construction accounts grew by 42.3% in nominal terms, a compound annual growth rate of 3.6%, a rate that would result in doubling in about 20 years. President Obama's FY2017 request sought an increase in aggregate funding for these accounts of 2.0%. President Trump's FY2018 and FY2019 budget requests did/do not mention doubling. The doubling effort appears to no longer be a priority for Congress or the President. It remains to be seen how support for internal R&D at NIST will evolve. Some of NIST's external programs have faced substantial opposition over time. Beginning with the 104 th Congress, many Members expressed skepticism over a "technology policy" based on providing federal funds to industry for development of precompetitive generic technologies. This philosophical shift from previous Congresses, coupled with pressures to balance the federal budget, led to significant reductions in funding for NIST's external programs. The Advanced Technology Program and the Manufacturing Extension Partnership, which accounted for over 50% of the FY1995 NIST budget, were proposed for elimination. Although in the past strong support by the Senate led to their continued financing, funding for ATP remained controversial. Beginning in FY2000, the House-passed appropriations bills did not contain funding for ATP, and many of the budget proposals submitted by former President George W. Bush called for abolishing the program. In the 110 th Congress, the America COMPETES Act eliminated ATP and replaced it with the TIP initiative. While TIP received appropriations from FY2008 to FY2011, it has received no appropriations since. In his FY2003 budget proposal, President Bush also recommended suspension of federal support for those MEP centers in operation for more than six years; the following year, funding for the MEP program was significantly reduced. However, the FY2005 Omnibus Appropriations Act brought support for MEP back up to the level necessary to fully fund the existing centers. Since then, funding has grown from $107.5 million in FY2005 to $130.0 million in FY2016. President Obama requested $142.0 million for MEP for FY2017, an increase of $12.0 million (9.2%); Congress provided $130 million, an amount equal to its FY2016 level. For FY2017, Congress provided $140.0 million for MEP. President Trump's FY2018 budget request sought to end the MEP program, providing $6.0 million in FY2018 to provide "for the orderly wind down of federal funding for the program." President Trump's FY2019 request would provide no funding for MEP. For more information on the MEP program, see CRS Report R44308, The Manufacturing Extension Partnership Program , by John F. Sargent Jr. In his FY2013 budget, President Obama requested $1 billion in mandatory funding for the creation of a National Network for Manufacturing Innovation to help accelerate innovation by investing in industrially relevant manufacturing technologies with broad applications, and to support manufacturing technology commercialization by bridging the gap between the laboratory and the market. Congress did not act on this request or on President Obama's FY2014 request for the same amount. In FY2015, President Obama requested $2.4 billion for the NNMI as part of his Opportunity, Growth, and Security Initiative. President Obama also requested $5.0 million for coordination of manufacturing innovation institutes as part of NIST's budget request. In December 2014, Congress enacted the Revitalize American Manufacturing and Innovation (RAMI) Act of 2014 as Title VII of Division B of the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), establishing a Network for Manufacturing Innovation (NMI). The act does not appropriate funds specifically for the NMI program but instead authorizes NIST to spend up to $5.0 million of funds appropriated to NIST's ITS account each year from FY2015 to FY2024 to carry out the program. In addition, the act authorizes the Department of Energy (DOE) to transfer up to $250.0 million to NIST for the 10-year period FY2015 to FY2024 to carry out the program. As of the date of this report, DOE has not transferred any funding to NIST for this purpose. Through the end of calendar year 2015, seven NNMI institutes sponsored by the Department of Defense (DOD) and Department of Energy had been awarded, and two additional institutes were being competed. In December 2015, Congress appropriated specific funding, for the first time, for the establishment and coordination of institutes under the provisions of the RAMI Act. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) provided NIST with $25.0 million for FY2016 for the NNMI, to include funding for establishment of institutes and up to $5.0 million for coordination activities. The explanatory statement accompanying the act directed NIST to "follow the direction of the Revitalize American Manufacturing and Innovation Act of 2014 in requiring open competition to select the technological focus areas of industry-driven manufacturing institutes." NIST subsequently announced its intention to establish two institutes. On December 16, 2016, NIST awarded the National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL), led by the University of Delaware, "to advance U.S. leadership in biopharmaceutical manufacturing." NIST did not award a second institute due to a lack of funds. P.L. 115-141 provides $15.0 million for NIST NNMI efforts in FY2018, to include funding for its center and $5.0 million for coordination activities. President Obama had requested $25.0 million in discretionary funding and $1.9 billion in mandatory funding for NIST to establish institutes and coordinate the activities of the network. As of the date of this report, 14 NNMI institutes have been established—8 by DOD, 5 by DOE, and 1 by the Department of Commerce. As Congress completes the FY2019 appropriations process, an overarching issue will be how to respond to the Trump Administration's FY2019 NIST budget request and its policy implications, how much funding to provide to NIST in aggregate, and how to allocate NIST appropriations among the core standards and measurement functions performed by its laboratories and NIST external programs, such as MEP, AMTech, and the NMI. For a broader discussion about the Network for Manufacturing Innovation and associated policy issues, see CRS Report R44371, The National Network for Manufacturing Innovation , by John F. Sargent Jr. Appendix A. Requested and Enacted Discretionary Appropriations for NIST Accounts Appendix B. Requested and Enacted Appropriations for Selected NIST Programs | The National Institute of Standards and Technology (NIST), a laboratory of the Department of Commerce, is mandated to provide technical services to facilitate the competitiveness of U.S. industry. NIST is directed to offer support to the private sector for the development of precompetitive generic technologies and the diffusion of government-developed innovation to users in all segments of the American economy. Laboratory research is to provide measurement, calibration, and quality assurance techniques that underpin U.S. commerce, technological progress, improved product reliability, manufacturing processes, and public safety. President Trump requested $725.0 million in discretionary funding for NIST in FY2018. In March 2018, the Consolidated Appropriations Act, 2018 (P.L. 115-141) was enacted, providing $1,198.5 million in funding for NIST for FY2018. President Trump requested $629.1 million in discretionary funding for NIST in FY2019, $569.4 million (47.5%) below the FY2018 enacted level. The House-reported appropriations level for FY2019 is $985.0 million; the Senate-reported level is $1,037.5 million. In the absence of a year-long appropriation act for FY2019, NIST was funded under two continuing resolutions, first through December 7, 2018 (under P.L. 115-245), then through December 21, 2018 (under P.L. 115-298). NIST has been without appropriations since December 22, 2018. Following the start of the 116th Congress, the House passed H.R. 21, which would provide funding for each of the NIST accounts at the same levels as the Senate committee-passed bill from the 115th Congress (S. 3072). Concerns about the adequacy of federal funding for physical science and engineering research led to efforts by successive Presidents and Congresses to double funding for the NIST laboratory and construction accounts, together with the National Science Foundation and the Department of Energy Office of Science. However, appropriations did not keep pace with authorization levels or presidential requests. In addition, the appropriations authorizations for the accounts targeted for doubling lapsed at the end of FY2013. Appropriations for the targeted NIST accounts increased by 42.3% from FY2006 to FY2016. Funding for NIST extramural programs directed toward increased private sector commercialization has been a topic of congressional debate. Some Members of Congress have expressed skepticism over a "technology policy" based on providing federal funds to industry for development of precompetitive generic technologies. This approach, coupled with pressures to balance the federal budget, led to significant reductions in funding for NIST. The Advanced Technology Program (ATP) and the Manufacturing Extension Partnership (MEP), which accounted for over 50% of the FY1995 NIST budget, were subsequently proposed for elimination. In 2007, ATP was terminated and replaced by the Technology Innovation Program (TIP). TIP was subsequently defunded in the FY2012 appropriations legislation. President Trump has proposed the elimination of funding for the MEP program in FY2019. In December 2014, Congress enacted the Revitalize American Manufacturing and Innovation Act of 2014 (Title VII of Division B of P.L. 113-235), establishing a Network for Manufacturing Innovation (also referred to as the National Network for Manufacturing Innovation or NNMI). The explanatory statement accompanying the Consolidated Appropriations Act, 2016 (P.L. 114-113) directed NIST to use an open competition to select the technological focus areas of industry-driven manufacturing institutes. Upon completion of its first competition, NIST announced its selection of the National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL) in December 2016. Congress appropriated $15 million in FY2018 funding for NIST to continue its support for NIIMBL and to coordinate network activities. In total, 14 NNMI institutes have been established by the Department of Defense (8), Department of Energy (5), and Department of Commerce (1). |
The Bipartisan Campaign Reform Act of 2002 (BCRA) is the most recently enacted federal law regulating money in the political sphere. One of the first such federal campaign finance law dates back to the 1907 Tillman Act, which responded to President Roosevelt's request for legislation prohibiting all corporate political contributions. In 1925, with the Federal Corrupt Practices Act, Congress extended the prohibition on corporations making "contributions" to include "anything of value" and criminalized both the acceptance of corporate contributions as well as the making of such contributions. With the Labor Management Relations Act of 1947, Congress prohibited labor union contributions in connection with federal elections. In 1972, Congress enacted the Federal Election Campaign Act (FECA). As first enacted, FECA required disclosure of contributions and expenditures over a certain amount; prohibited contributions made in the name of another person and by government contractors; and ratified the earlier prohibition on the use of corporate and union general treasury funds for contributions and expenditures, but permitted corporations and unions to establish and administer separate segregated funds (also known as political action committees or PACs) for election related contributions and expenditures. Citing deficiencies in the 1972 law and responding to Watergate, Congress amended FECA in 1974, to include limits on individual, PAC, and party contributions; limits on candidate spending; and the establishment of the Federal Election Commission (FEC). Primarily in response to the Supreme Court striking down the appointment process of the FEC in its 1976 seminal decision, Buckley v. Valeo, Congress amended FECA in 1976, and again in 1979, in an effort to make the law less burdensome to participants and to foster greater grassroots activity. In the landmark 1976 decision, Buckley v. Valeo, the Supreme Court considered the constitutionality of FECA, as amended in 1974, and the Presidential Election Campaign Fund Act. The Court upheld the constitutionality of certain provisions, including (1) contribution limits to federal office candidates, (2) disclosure and record-keeping provisions, and (3) public financing of presidential elections. The Court found other provisions unconstitutional, including (1) expenditures limitations on candidates and their political committees, (2) the $1,000 limitation on independent expenditures, (3) expenditure limitations by candidates from their personal funds, and (4) the method of appointing members to the Federal Election Commission. In general, the Court struck down expenditure limitations, but upheld reasonable contribution limitations, disclosure requirements, and public financing provisions, so long as participation is voluntary, not compelled. In considering the constitutionality of these statutes, the Buckley Court applied the standard of review known as "exacting scrutiny," which is a standard applied by a court when presented with regulations that burden core First Amendment activity. "Exacting scrutiny" requires a regulation to be struck down unless it is narrowly tailored to serve a compelling governmental interest. When analyzing First Amendment claims, a court will generally first determine whether the challenged government action implicates "speech" or "associational activity" guaranteed by the First Amendment. Notably, the Buckley Court held that the spending of money, whether in the form of contributions or expenditures, is a form of "speech" protected by the First Amendment. A number of principles contributed to the Court's analogy between money and speech. First, the Court found that candidates need to amass sufficient wealth to amplify and effectively disseminate their message to the electorate. Second, restricting political contributions and expenditures, the Court held, "necessarily reduces the quantity of expression by restricting the number of issues discussed, the depth of the exploration, and the size of the audience reached. This is because virtually every means of communicating ideas in today's mass society requires the expenditure of money." The Court then observed that a major purpose of the First Amendment was to increase the quantity of public expression of political ideas, as free and open debate is "integral to the operation of the system of government established by our Constitution." From these general principles, the Court concluded that contributions and expenditures facilitated this interchange of ideas and could not be regulated as "mere" conduct unrelated to the underlying communicative act of making a contribution or expenditure. However, according to the Court, contributions and expenditures invoke different degrees of First Amendment protection. Recognizing contribution limitations as one of FECA's "primary weapons against the reality or appearance of improper influence" on candidates by contributors, the Court found that these limits "serve the basic governmental interest in safeguarding the integrity of the electoral process." Thus, the Court concluded that "the actuality and appearance of corruption resulting from large financial contributions" was a sufficient compelling interest to warrant infringements on First Amendment liberties "to the extent that large contributions are given to secure a quid pro quo from [a candidate.]" Short of a showing of actual corruption, the Court found that the appearance of corruption from large campaign contributions also justified these limitations. Reasonable contribution limits, the Court remarked, leave "people free to engage in independent political expression, to associate [by] volunteering their services, and to assist [candidates by making] limited, but nonetheless substantial [contributions."] Further, according to the Court, a reasonable contribution limitation does "not undermine to any material degree the potential for robust and effective discussion of candidates and campaign issues by individual citizens, associations, the institutional press, candidates, and political parties." Finally, the Court found that the contribution limits of FECA were narrowly tailored insofar as the Act "focuses precisely on the problem of large campaign contributions." On the other hand, the Court determined that FECA's expenditure limits on individuals, political action committees (PACs), and candidates imposed "direct and substantial restraints on the quantity of political speech" and were not justified by an overriding governmental interest. The Court rejected the government's asserted interest in equalizing the relative resources of candidates and in reducing the overall costs of campaigns. Restrictions on expenditures, the Court held, constitute a substantial restraint on the enjoyment of First Amendment freedoms. As opposed to reasonable limits on contributions, which merely limit the expression of a person's "support" of a candidate, the "primary effect of [limitations on expenditures] is to restrict the quantity of campaign speech by individuals, groups and candidates." "A restriction on the amount of money a person or group can spend on political communication during a campaign necessarily reduces the quantity of expression by restricting the number of issues discussed, the depth of their exploration, and the size of the audience reached," the Court noted. The Court also found that the government's interests in stemming corruption by limiting expenditures were not compelling enough to override the First Amendment's protection of free and open debate because unlike contributions, the risk of quid pro quo corruption was not present, as the flow of money does not directly benefit a candidate's campaign fund. Upon a similar premise, the Court rejected the government's interest in limiting a wealthy candidate's ability to draw upon personal wealth to finance his or her campaign and struck down the personal expenditure limitation In Buckley , the Supreme Court generally upheld FECA's disclosure and reporting requirements, but noted that they might be found unconstitutional as applied to certain groups. While compelled disclosure, in itself, raises substantial freedom of private association and belief issues, the Court held that these interests were adequately balanced by the state's regulatory interests. The state asserted three compelling interests in disclosure: (1) providing the electorate with information regarding the distribution of capital between candidates and issues in a campaign, thereby providing voters with additional evidence upon which to base their vote; (2) deterring actual and perceived corruption by exposing the source of large expenditures; and (3) providing regulatory agencies with information essential to the election law enforcement. However, when disclosure requirements expose members or supporters of historically suspect political organizations to physical or economic reprisal, then disclosure may fail constitutional scrutiny as applied to a particular organization. The Supreme Court's language in Buckley prompted analysts to label election-related communications as either "issue" or "express advocacy" communications. In order to pass constitutional muster and not be struck down as unconstitutionally vague, the Court ruled that FECA could only apply to non-candidate "expenditures for communications that in express terms advocate the election or defeat of a clearly identified candidate for federal office," i.e., expenditures for express advocacy communications. In a footnote to the Buckley opinion, the Court further defined "express words of advocacy of election or defeat" as, "vote for," "elect," "support," "cast your ballot for," "Smith for Congress," "vote against," "defeat," and "reject." Communications not meeting the express advocacy definition in that footnote became commonly referred to as issue advocacy communications. In its rationale for establishing such a bright line distinction between issue and express advocacy, the Court noted that the discussion of issues and candidates as well as the advocacy of election or defeat of candidates "may often dissolve in practical application." That is, according to the Court, candidates (especially incumbents) are intimately tied to public issues involving legislative proposals and governmental actions. In the years following the 1976 landmark decision in Buckley, various developments persuaded Congress that further legislation was necessary to regulate the role of corporations, labor unions, and wealthy contributors in the electoral process. The Supreme Court in McConnell v. FEC outlined changes in three specific areas over the years that led to the enactment of BCRA: the increased use of party soft money, soft money spent on issue advertising, and the 1998 Senate investigation into the 1996 federal elections. In general, the term "hard money" or "federal money" refers to funds that are raised and spent according to the contribution limits, source prohibitions, and disclosure requirements of FECA, while the term "soft money" or "non-federal money" is used to describe funds raised and spent outside the federal election regulatory framework, but which may have at least an indirect impact on federal elections. Since FECA narrowly defines the term "contribution" to include only a gift of anything of value "for the purpose of influencing any election for Federal office," donations with the purpose of influencing only state and local elections are unregulated by FECA. Therefore, prior to the enactment of BCRA, federal law permitted corporations, unions, and individuals to contribute soft money to political parties for activities with the intent of influencing state or local elections. After the Buckley decision was issued, questions arose regarding contributions that were intended to influence both federal and state elections. As the McConnell Court observed, a literal reading of FECA's definition of "contribution" would have required such mixed-purpose activities to be funded with hard money. However, in 1977, the FEC ruled that political parties could fund mixed-purpose activities–including get-out-the-vote drives and generic party advertising – in part with soft money. Extending its ruling, in 1995, the FEC ruled that parties could also use soft money to defray the costs of "legislative advocacy media advertisements," even if the ads mentioned a federal candidate, so long as they did not expressly advocate election or defeat. As a result of the increase in the permissible uses of soft money, the amount of soft money raised and spent by the national political parties increased dramatically, from 5% ($21.6 million) of total party receipts in 1984 to 42% ($498 million) of total party receipts in 2000. The national parties transferred large amounts of their soft money receipts to the state parties, which were permitted to use a larger percentage of soft money to fund mixed-purpose (federal and state) election activities. As the McConnell Court noted, many soft money contributions were "dramatically" larger than the hard money contributions permissible under FECA; indeed, in the 2000 election cycle, the parties raised almost $300 million from just 800 donors, each of whom contributed a minimum of $120,000. Often such soft money contributions were solicited by the candidates, who directed potential donors to party committees and tax-exempt organizations that could legally accept soft money, after a donor had already contributed the hard money maximum to the candidate's committee. Moreover, the Court recognized that the largest corporate donors often made significant contributions to both parties, thereby bolstering the perception that such contributions were made with the purpose of gaining access to elected officials and avoiding being placed at a disadvantage in the legislative process, rather than being based on ideological support. Such solicitations, transfers, and uses of soft money, according to the Court, enabled the parties and candidates to "circumvent" FECA's source restrictions, disclosure requirements, and contribution limits. In Buckley v. Valeo, the Supreme Court construed FECA's disclosure and reporting requirements and expenditure limits "to reach only funds used for communications that expressly advocate the election or defeat of a clearly identified candidate." A strict reading of FECA subsequently resulted in the origin of issue and express advocacy. The use or omission of express words of advocacy, often referred to as "magic words," such as "vote for" or "vote against," marked a bright statutory line between express advocacy communications and issue advertisements. Express advocacy communications were subject to FECA regulation and could only be financed with hard money. However, if a communication avoided using express terms of advocacy, federally unregulated soft money could be used to finance such advertisements, also known as issue ads. The McConnell Court acknowledges that, at first blush, the distinction between issue and express advocacy appears meaningful. However, the two categories of advertisements have proven "functionally identical in important respects." That is, both types of ads have been used "to advocate the election or defeat" of clearly identified candidates even though issue ads steadfastly avoid using the "magic words" of express advocacy. There is little difference, the Court found, between an ad that urged voters to "vote against Jane Doe" and one that condemned Jane Doe's record on a given issue and urged viewers to "call Jane Doe and tell her what you think." The conclusion that such ads were designed to influence elections, according to the Court, was confirmed by the fact that nearly all of them were broadcast within 60 days of a federal election. Since such ads could be legally financed with federally unregulated soft money, they were attractive to organizations and candidates. Indeed, according to the McConnell Court, when the candidates and parties were running out of money, they would "work closely with friendly interest groups to sponsor so-called issue ads." Moreover, the amount of spending on the ads increased significantly: in the 1996 election cycle, $135 to $150 million was estimated to have been spent on multiple broadcasts of approximately 100 ads, as compared with an estimated $500 million spent on more than 1,100 different ads in the 2000 cycle. As with the case of soft money contributions to the political parties, the Court concluded that candidates and parties used the availability of issue ads to "circumvent FECA's limitations," soliciting donors who had already contributed their federally permissible hard money quota to donate additional soft money funds to non-profit corporations to spend on "so-called issue ads." In 1998, the Senate Committee on Governmental Affairs issued a six-volume Report outlining the results of its comprehensive investigation into the 1996 federal election campaigns, focusing in particular on the impact of soft money and the practice by federal officeholders of granting special access in exchange for political donations. As the Court in McConnell v. FEC noted, the Senate Report concluded that the "soft money loophole" had resulted in a "meltdown" of the federal campaign finance regime that had been designed "to keep corporate, union, and large individual contributions from influencing the electoral process." The Report criticized the methods by which both parties raised and spent soft money and concluded that both parties promise and provide special access to candidates and senior government officials in exchange for large soft money donations. Proposals for reform were included in the Report, including a recommendation for the elimination of political party soft money donations and restrictions on "sham" issue advocacy by non-party groups. The following section of this report provides an overview of the lower court litigation and an analysis of the Supreme Court's major holdings in McConnell v. FEC. On March 27, 2002, the President signed into law BCRA, P.L. 107-155 . Most provisions of the new law became effective on November 6, 2002. Shortly after President Bush signed BCRA into law, Senator Mitch McConnell filed suit in U.S. District Court for the District of Columbia against the Federal Election Commission (FEC) and the Federal Communications Commission (FCC) arguing that portions of BCRA violate the First Amendment and the equal protection component of the Due Process Clause of the Fifth Amendment to the Constitution. Likewise, the National Rifle Association (NRA) filed suit against the FEC and the Attorney General arguing that the new law deprived it of freedom of speech and association, of the right to petition the government for redress of grievances, and of the rights to equal protection and due process, in violation of the First and Fifth Amendments to the Constitution. Ultimately, eleven suits challenging the law were brought by more than 80 plaintiffs and were consolidated into one lead case, McConnell v. FEC. On May 2, 2003, the U.S. District Court for the District of Columbia issued its decision in McConnell v. FEC, striking down many significant provisions of the law. The three-judge panel, which was split 2 to 1 on many issues, ordered that its ruling take effect immediately. After the court issued its opinion, several appeals were filed and on May 19 the U.S. district court issued a stay to its ruling, leaving BCRA, as enacted, in effect until the Supreme Court ruled. Under the BCRA expedited review provision, the court's decision was directly reviewed by the U.S. Supreme Court. On September 8 the Supreme Court returned to the bench a month before its term officially began to hear an unusually long four hours of oral argument in the case. The Supreme Court's decision in McConnell v. FEC, issued on December 10, 2003, is its most comprehensive campaign finance ruling since Buckley v. Valeo in 1976. Most notably, the McConnell Court upheld, by a 5 to 4 vote, against facial constitutional challenges two critical BCRA provisions, titles I and II. In the first 119 pages of the 248 page majority opinion, coauthored by Justices Stevens and O'Connor and joined by Justices Souter, Ginsburg, and Breyer, the Court upheld the limits on raising and spending previously unregulated political party soft money and the prohibition on corporations and labor unions using treasury funds–which is unregulated soft money–to finance directly electioneering communications. Instead, BCRA requires that such ads may only be paid for with corporate and labor union political action committee (PAC) funds, also known as hard or federally regulated money. In upholding BCRA's "two principal, complementary features," the Court readily acknowledged that it is under "no illusion that BCRA will be the last congressional statement on the matter" of money in politics. The Court observed, "money, like water, will always find an outlet." Hence, campaign finance issues that will inevitably arise and the corresponding legislative responses from Congress "are concerns for another day." The following section of this report provides an analysis of the Court's opinion upholding titles I and II and a discussion of the Court's ruling with regard to several other BCRA provisions. Title I of BCRA prohibits national party committees and their agents from soliciting, receiving, directing, or spending any soft money. As the Court notes, title I takes the national parties "out of the soft-money business." In addition, title I prohibits state and local party committees from using soft money for activities that affect federal elections; prohibits parties from soliciting for and donating funds to tax-exempt organizations that spend money in connection with federal elections; prohibits federal candidates and officeholders from receiving, spending, or soliciting soft money in connection with federal elections and restricts their ability to do so in connection with state and local elections; and prevents circumvention of the restrictions on national, state, and local party committees by prohibiting state and local candidates from raising and spending soft money to fund advertisements and other public communications that promote or attack federal candidates. Plaintiffs challenged title I based on the First Amendment as well as Art. I, § 4 of the U.S. Constitution, principles of federalism, and the equal protection component of the Due Process Clause of the 14 th Amendment. The Court upheld the constitutionality of all provisions in title I, finding that its provisions satisfy the First Amendment test applicable to limits on campaign contributions: they are "closely drawn" to effect the "sufficiently important interest" of preventing corruption and the appearance of corruption. Rejecting plaintiff's contention that the BCRA restrictions on campaign contributions must be subject to strict scrutiny in evaluating the constitutionality of title I, the Court applied the less rigorous standard of review–"closely drawn" scrutiny. Citing its landmark 1976 decision, Buckley v. Valeo, and its progeny, the Court noted that it has long subjected restrictions on campaign expenditures to closer scrutiny than limits on contributions in view of the comparatively "marginal restriction upon the contributor's ability to engage in free communication" that contribution limits entail. The Court observed that its treatment of contribution limits is also warranted by the important interests that underlie such restrictions, i.e. preventing both actual corruption threatened by large dollar contributions as well as the erosion of public confidence in the electoral process resulting from the appearance of corruption. The Court determined that the lesser standard shows "proper deference to Congress' ability to weigh competing constitutional interests in an area in which it enjoys particular expertise." Finally, the Court recognized that during its lengthy consideration of BCRA, Congress properly relied on its authority to regulate in this area, and hence, considerations of stare decisis as well as respect for the legislative branch of government provided additional "powerful reasons" for adhering to the treatment of contribution limits that the Court has consistently followed since 1976. Responding to plaintiffs' argument that many of the provisions in title I restrict not only contributions but also the spending and solicitation of funds that were raised outside of FECA's contribution limits, the Court determined that it is "irrelevant" that Congress chose to regulate contributions "on the demand rather than the supply side." Indeed, the relevant inquiry is whether its mechanism to implement a contribution limit or to prevent circumvention of that limit burdens speech in a way that a direct restriction on a contribution would not. The Court concluded that title I only burdens speech to the extent of a contribution limit: it merely limits the source and individual amount of donations. Simply because title I accomplishes its goals by prohibiting the spending of soft money does not render it tantamount to an expenditure limitation. In his dissent, Justice Kennedy criticized the majority opinion for ignoring established constitutional bounds and upholding a campaign finance statute that does not regulate actual or apparent quid pro quo arrangements. According to Justice Kennedy, Buckley clearly established that campaign finance regulation that restricts speech, without requiring proof of specific corrupt activity, can only withstand constitutional challenge if it regulates conduct that presents a "demonstrable quid pro quo danger." The McConnell Court, however, interpreted the anti-corruption rationale to allow regulation of not only "actual or apparent quid pro quo arrangements," but also of "any conduct that wins goodwill from or influences a Member of Congress." Justice Kennedy further maintained that the standard established in Buckley defined undue influence to include the existence of a quid pro quo involving an officeholder, while the McConnell Court, in contrast, extended the Buckley standard of undue influence to encompass mere access to an officeholder. Justice Kennedy maintained that the Court, by legally equating mere access to officeholders to actual or apparent corruption of officeholders, "sweeps away all protections for speech that lie in its path." Unpersuaded by Justice Kennedy's dissenting position, that Congress' regulatory interest is limited to only the prevention of actual or apparent quid pro quo corruption "inherent in" contributions made to a candidate, the Court found that such a "crabbed view of corruption" and specifically the appearance of corruption "ignores precedent, common sense, and the realities of political fundraising exposed by the record in this litigation." According to the Court, equally problematic as classic quid pro quo corruption, is the danger that officeholders running for re-election will make legislative decisions in accordance with the wishes of large financial contributors, instead of deciding issues based on the merits or constituent interests. Since such corruption is neither easily detected nor practical to criminalize, the Court reasoned, title I offers the best means of prevention, i.e., identifying and eliminating the temptation. Title II of BCRA creates a new term in FECA, "electioneering communication," which is defined as any broadcast, cable or satellite communication that "refers" to a clearly identified federal candidate, is made within 60 days of a general election or 30 days of a primary, and if it is a House or Senate election, is targeted to the relevant electorate. Title II prohibits corporations and labor unions from using their general treasury funds (and any persons using funds donated by a corporation or labor union) to finance electioneering communications. Instead, the statute requires that such ads may only be paid for with corporate and labor union political action committee (PAC) regulated hard money. The Court upheld the constitutionality of this provision. In Buckley v. Valeo, the Court construed FECA's disclosure and reporting requirements, as well as its expenditure limitations, to apply only to funds used for communications that contain express advocacy of the election or defeat of a clearly identified candidate. Numerous lower courts have since interpreted Buckley to stand for the proposition that communications must contain express terms of advocacy, such as "vote for" or "vote against," in order for regulation of such communications to pass constitutional muster under the First Amendment. Absent express advocacy, lower courts have held, a communication is considered issue advocacy, which is protected by the First Amendment and therefore may not be regulated. Effectively overturning such lower court rulings, the Supreme Court in McConnell held that neither the First Amendment nor Buckley prohibits BCRA's regulation of "electioneering communications," even though electioneering communications, by definition, do not necessarily contain express advocacy. The Court determined that when the Buckley Court distinguished between express and issue advocacy it did so as a matter of statutory interpretation, not constitutional command. Moreover, the Court announced that, by narrowly reading the FECA provisions in Buckley to avoid problems of vagueness and overbreadth, it "did not suggest that a statute that was neither vague nor overbroad would be required to toe the same express advocacy line." "[T]he presence or absence of magic words cannot meaningfully distinguish electioneering speech from a true issue ad," the Court observed. While title II prohibits corporations and labor unions from using their general treasury funds for electioneering communications, the Court observed that they are still free to use separate segregated funds (PACs) to run such ads. Therefore, the Court concluded that it is erroneous to view this provision of BCRA as a "complete ban" on expression rather than simply a regulation. Further, the Court found that the regulation is not overbroad because the "vast majority" of ads that are broadcast within the electioneering communication time period (60 days before a general election and 30 days before a primary) have an electioneering purpose. The Court also rejected plaintiffs' assertion that the segregated fund requirement for electioneering communications is under-inclusive because it only applies to broadcast advertisements and not print or internet communications. Congress is permitted, the Court determined, to take one step at a time to address the problems it identifies as acute. With title II of BCRA, the Court observed, Congress chose to address the problem of corporations and unions using soft money to finance a "virtual torrent of televised election-related ads" in recent campaigns. In his dissent, Justice Kennedy criticized the majority for permitting "a new and serious intrusion on speech" by upholding the prohibition on corporations and unions using general treasury funds to finance electioneering communications. Finding that this BCRA provision "silences political speech central to the civic discourse that sustains and informs our democratic processes," the dissent further noted that unions and corporations "now face severe criminal penalties for broadcasting advocacy messages that 'refer to a clearly identified candidate' in an election season." In upholding BCRA's extension of the prohibition on using treasury funds for financing electioneering communications to non-profit corporations, the McConnell Court found that even though the statute does not expressly exempt organizations meeting the criteria established in its 1986 decision in FEC v. Massachusetts Citizens for Life (MCFL), it is an insufficient reason to invalidate the entire section. Since MCFL had been established Supreme Court precedent for many years prior to enactment of BCRA, the Court assumed that when Congress drafted this section of BCRA, it was well aware that this provision could not validly apply to MCFL-type entities. By an 8 to 1 vote, the Court upheld section 311 of BCRA, which requires general public political ads that are "authorized" by a candidate clearly indicate that the candidate or the candidate's committee approved the communication. Rejecting plaintiffs' assertion that this provision is unconstitutional, the Court found that this provision "bears a sufficient relationship to the important governmental interest of 'shedding the light of publicity' on campaign financing." By a 5 to 4 vote, the Court invalidated BCRA's requirement that political parties choose between coordinated and independent expenditures after nominating a candidate, finding that it burdens the right of parties to make unlimited independent expenditures. Specifically, section 213 of BCRA provides that, after a party nominates a candidate for federal office, it must choose between two spending options. Under the first option, a party that makes any independent expenditure is prohibited from making any coordinated expenditure under this section of law; under the second option, a party that makes any coordinated expenditure under this section of law—one that exceeds the ordinary $5,000 limit—cannot make any independent expenditure with respect to the candidate. FECA, as amended by BCRA, defines "independent expenditure" to mean an expenditure by a person "expressly advocating the election or defeat of a clearly identified candidate" and that is not made in cooperation with such candidate. According to the McConnell Court, the regulation presented by section 213 of BCRA "is much more limited than it initially appears." A party that wants to spend more than $5,000 in coordination with its nominee is limited to making only independent expenditures that contain the magic words of express advocacy. Although the Court acknowledges that "while the category of burdened speech is relatively small," it is nonetheless entitled to protection under the First Amendment. Furthermore, the Court determined that under section 213, a party's exercise of its constitutionally protected right to engage in free speech results in the loss of a longstanding valuable statutory benefit. Hence, to pass muster under the First Amendment, the provision "must be supported by a meaningful governmental interest" and, the Court announced, the interest in requiring parties to avoid the use of magic words does not suffice. By a unanimous vote, the Court invalidated section 318 of BCRA, which prohibited individuals age 17 or younger from making contributions to candidates and political parties. Determining that minors enjoy First Amendment protection and that contribution limits impinge on such rights, the Court determined that the prohibition is not "closely drawn" to serve a "sufficiently important interest." In response to the government's assertion that the prohibition protects against corruption by conduit–that is, parents donating through their minor children to circumvent contribution limits – the Court found "scant evidence" to support the existence of this type of evasion. Furthermore, the Court postulated that such circumvention of contribution limits may be deterred by the FECA provision prohibiting contributions in the name of another person and the knowing acceptance of contributions made in the name of another person. Even assuming, arguendo, that a sufficiently important interest could be provided in support of the prohibition, the Court determined that it is over-inclusive. According to the Court, various states have found more tailored approaches to address this issue, for example, counting contributions by minors toward the total permitted for a parent or family unit, imposing a lower cap on contributions by minors, and prohibiting contributions by very young children. The Court, however, expressly declined to decide whether any alternatives would pass muster. By a unanimous vote, the Court determined that the challenges to sections 304, 316, and 319 of BCRA, also known as the "millionaire provisions," were properly dismissed by the district court due to lack of standing. The millionaire provisions, which therefore remain in effect, provide for a series of staggered increases in otherwise applicable limits on contributions to candidates if a candidate's opponent spends a certain amount in personal funds on his or her own campaign. McConnell v. FEC is a sweeping decision upholding pivotal aspects of BCRA's comprehensive overhaul of the federal campaign finance law. Most notably, the Supreme Court upheld restrictions on the raising and spending of previously unregulated political party soft money and a prohibition on corporations and labor unions using treasury funds to finance "electioneering communications," requiring that such ads may only be paid for with corporate and labor union political action committee (PAC) funds. As some commentators have observed, the fact that the Court upheld both key provisions of BCRA was unexpected and many experts continue to sort out the implications of this complex decision on the regulated community as well as on the Court's campaign finance jurisprudence. One important question that has been raised in the wake of McConnell v. FEC is whether the line between issue and express advocacy retains any constitutional significance. On the one hand, some have interpreted McConnell to mean that the Court has rejected the constitutional protection of issue advocacy and the attendant requirement that campaign finance laws can only regulate election-related, (and uncoordinated with any candidate), communications that contain terms of express advocacy. However, a recent development appears to revive the issue of whether and under what circumstances issue advocacy can be regulated. On January 16, 2004, in Anderson v. Spear, the U.S. Court of Appeals for the Sixth Circuit found that the Supreme Court in McConnell v. FEC "left intact the ability of courts to make distinctions" between issue and express advocacy "where such distinctions are necessary to cure vagueness and overbreadth in statutes which regulate more speech than that for which the legislature has established a significant governmental interest." Reversing a district court decision, the Sixth Circuit ruled unconstitutional a Kentucky statute prohibiting "electioneering" within 500 feet of a polling place. The statute defines "electioneering" to include "the displaying of signs, the distribution of campaign literature, cards, or handbills, the soliciting of signatures to any petition, or the solicitation of votes for or against any candidate or question on the ballot in any manner, but shall not include exit polling." The plaintiff in this case, Hobart Anderson, who filed to run as a write-in candidate in Kentucky's 1999 gubernatorial election, challenged the definition of "electioneering" on the grounds that it would regulate constitutionally protected issue advocacy, including the distribution of write-in voting instructions. In striking down the statute, the Sixth Circuit found that McConnell v. FEC "in no way alters the basic principle that the government may not regulate a broader class of speech than is necessary to achieve its significant interest." According to the court, unlike the record in McConnell, the record in Anderson lacks evidence that such a broad definition of electioneering is necessary to achieve the state's interest in preventing corruption. Further distinguishing this case from McConnell, the court noted that unlike BCRA, there is no evidence that "an express advocacy line would be 'functionally meaningless' as applied to electioneering proximate to voting places." A notable aspect of the Supreme Court's ruling in McConnell v. FEC is the extent to which the majority of the Court deferred to Congressional findings and used a pragmatic rationale in upholding BCRA. According to the Court, the record before it was replete with perceived problems in the campaign finance system, circumstances creating the appearance of corruption, and Congress' proposal to address these issues. As the Court remarked at one point, its decision showed "proper deference" to Congress' determinations "in an area in which it enjoys particular expertise." Furthermore, "Congress is fully entitled," the Court observed, "to consider the real-world" as it determines how best to regulate in the political sphere. | In its most comprehensive campaign finance ruling since Buckley v. Valeo in 1976, on December 10, 2003, the U.S. Supreme Court upheld against facial constitutional challenges key portions of the Bipartisan Campaign Reform Act of 2002 (BCRA), P.L. 107-155, also known as the McCain-Feingold or Shays-Meehan campaign finance reform law. In McConnell v. FEC, a 5 to 4 majority of the Court upheld restrictions on the raising and spending of previously unregulated political party soft money and a prohibition on corporations and labor unions using treasury funds to finance "electioneering communications," requiring that such ads may only be paid for with corporate and labor union political action committee (PAC) funds. The Court invalidated BCRA's requirement that parties choose between making independent expenditures or coordinated expenditures on behalf of a candidate and its prohibition on minors age 17 and under making campaign contributions. This report provides an analysis of the Supreme Court's major holdings in McConnell v. FEC, including a discussion of the developments leading to the enactment of BCRA, the 1976 seminal campaign finance decision, Buckley v. Valeo, and implications for future cases. |
Congress has granted many federal agencies the authority to issue regulations that carry the force of law. This grant of authority raises the issue of how those agencies should be held accountable for the regulations they implement. One method of maintaining accountability is requiring agencies to analyze the potential effects of new regulations—sometimes called regulatory analysis or regulatory impact analysis —before implementing them and making the analyses public during the rulemaking process. An important and commonly performed type of regulatory analysis is a cost-benefit analysis (CBA)—a systematic examination, estimation, and comparison of the economic costs and benefits resulting from the implementation of a new rule. By performing and making public such analyses, an agency demonstrates that it has given reasoned consideration to the necessity and efficacy of a rule and the effects it will have on society. Most agencies regulating the financial industry are not subject to certain statutes or other requirements that apply to most executive branch agencies, allowing them to operate with a relatively high degree of independence from the President and Congress. These financial regulators—along with other agencies that have similar independence—are often referred to as independent regulatory agencies . Agencies are given this independence in part so that experts writing technical rules have some degree of insulation from political considerations. One aspect of these regulatory agencies' independence is that they are not subject to certain requirements that direct other agencies to perform CBAs with certain parameters and executive review. Some observers argue that this independence is appropriate and that subjecting financial regulators to increased requirements would inhibit implementing necessary, beneficial regulation. However, others argue that financial regulators should be subject to greater requirements to increase accountability. The debate has drawn increased attention in recent years as regulators promulgate and continue to promulgate rules mandated and authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ). In response, a number of bills in recent Congresses have proposed increased requirements. This report examines issues related to financial regulators and CBAs, including potential difficulties facing such regulators and methods available to them when preforming a CBA; the analytical requirements the agencies currently face; and the arguments for and against increasing requirements on financial regulators. This report also briefly describes several examples of proposed legislation that would change the requirements facing financial regulators. CBA can help ensure that regulators demonstrate that their decisions are based on an informed estimation of likely consequences during the development, issuance, and implementation of rules. In the analysis, economists and other experts use theory, modeling, statistical analysis, and other tools to estimate the likely outcomes if a particular regulation were to be implemented. These outcomes are compared with the likely outcomes if no regulation or a different regulation were implemented. Then the good outcomes (benefits) can be weighed against bad outcomes (costs) of a regulatory action to determine whether and to what degree a regulation is on net beneficial to society. Benefits may include such outcomes as deaths and injuries avoided, acres of rare habitat saved, or a decreased probability of financial crisis. Costs may include outcomes such as increased production costs for companies, regulation compliance cost to companies, and increased prices for consumers. Externalities —the effects experienced by parties that are not directly involved in the market transactions covered by the regulation—also should be included in the analysis to the extent possible. If it were the case that regulators were expected to make decisions with complete information, all societal costs and benefits would need to be accurately and precisely estimated. These outcomes would be quantified (assigned accurate numerical values) and monetized (assigned an accurate dollar value). Proposed rules would be finalized and implemented only if benefits were expected to exceed costs, and in a form that maximized net benefits. However, societal costs and benefits may be difficult to accurately estimate, quantify, and monetize. Therefore, performing most CBAs involves some degree of subjective human judgement and uncertainty, and predicted results are often expressed as a range of values. As discussed in more detail in the " Financial Regulator Requirements Debate " section, some argue that performing CBAs for financial regulation is particularly challenging, due largely to the high degree of uncertainty over precise regulatory costs and outcomes. This raises questions about the appropriate scope, level of detail, and degree of quantification that should be required of analysis performed in the rulemaking process. On one hand, overly lenient requirements could allow agencies to implement overly burdensome regulation with limited benefit without due consideration of consequences. In addition, a CBA can be an informational tool that estimates the potential effects of a rule and informs the agency and the public as various groups advocate for certain policies—and potentially exaggerate or minimize risks, costs, or likely outcomes of a certain regulation. In contrast, overly onerous analytic requirements could risk impeding the implementation of necessary, beneficial regulation because performing the analysis would be too time consuming, too costly, or simply not possible. Another concern is that if agencies face highly burdensome requirements, they may have an incentive to achieve policy goals through other methods—such as issuing policy statements, guidance documents, and technical manuals—that create less accountability than the rulemaking process. In addition, a CBA itself can be costly and is performed by departments and agencies funded by general taxes and fees on industry. Finally, requiring uncertain and contestable CBAs may allow self-interested parties to impede socially beneficial regulation by challenging agency analysis in court and offering their own subjective analysis. For these reasons, stringent CBA requirements may themselves generate more costs than benefits. As mentioned above, CBA can be a useful tool for ensuring good regulations are implemented and that regulatory agencies are accountable. However, requirements to perform such analyses may restrict agencies from effectively regulating. This section examines current CBA requirements, including those that apply to nonfinancial regulators and those that direct financial regulators more specifically. It also reviews certain government reports examining the methods and results of recent regulatory CBAs performed by financial regulators under the existing requirements. The primary requirement for most agencies to calculate estimates of costs and benefits when issuing rules is under Executive Order (E.O.) 12866, which was issued in 1993 by President William Clinton. E.O. 12866 requires covered agencies—that is, agencies other than independent regulatory agencies, which includes most of the financial regulators—to submit "significant" rules to the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) for review, along with an initial cost and benefit assessment. For rules that are determined to be significant because their annual economic effect is likely to exceed a $100 million threshold, covered agencies are required to conduct a more in-depth CBA. Specifically, the order requires agencies to provide to OIRA an assessment of anticipated costs and benefits of the rule, and an assessment of the costs and benefits of "reasonably feasible alternatives" to the rule. Other E.O. 12866 provisions encourage agencies to consider costs and benefits during the rulemaking process for all rules, although those other provisions do not require a complete, detailed cost-benefit analysis for non-economically significant rules. E.O. 12866 has remained in effect since 1993, and it was reaffirmed in 2011 in E.O. 13563 by President Barack Obama. E.O. 13563 states that covered agencies should (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs, (2) tailor regulations to impose the least burden on society, and (3) select regulatory approaches that maximize net benefits. It also directs agencies to "use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible." In September 2003, OMB finalized Circular A-4 on regulatory analysis, which refined and replaced an earlier OMB guidance document, providing good-guidance practices to agencies for conducting their CBAs. The circular states that it was "designed to assist analysts in the regulatory agencies by defining good regulatory analysis ... and standardizing the way benefits and costs of Federal regulatory actions are measured and reported." The document provides some specific information that agencies should generally include in their analyses, such as the statutory or judicial directives that authorize the action; the underlying problem or market failure prompting the regulation; consideration of a "reasonable number" of regulatory alternatives; and both a cost-benefit analysis and a cost-effectiveness analysis. Circular A-4 remains the current OMB guidance for agencies preparing CBAs under E.O. 12866 requirements. The exception for independent regulatory agencies in Executive Order 12866 is similar to the exception found in Executive Order 12291, in which President Ronald Reagan first established centralized regulatory review in OIRA and required cost-benefit analysis of certain regulations in 1981. This decision is widely understood to have been based on political considerations regarding the statutorily designed independence of these agencies. In short, President Reagan—and subsequent Presidents—viewed these agencies as having been designed by Congress to be independent of the President, and as such chose not to subject them to presidential (OIRA) review. The statutory categorization of those agencies had been codified in the Paperwork Reduction Act of 1980, which designated a special set of procedures for those agencies' information collection approvals from OMB. E.O. 12291, and later E.O. 12866, referenced the PRA's list of agencies to identify the excepted agencies. Currently, the list of independent regulatory agencies includes the following financial regulators: Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Securities and Exchange Commission, Bureau of Consumer Financial Protection, Office of Financial Research, Office of the Comptroller of the Currency, and National Credit Union Administration. When President Clinton issued Executive Order 12866 in 1993, he, like President Reagan, chose to exempt the independent regulatory agencies from the order's CBA requirements. Similarly, President Obama continued to exempt independent regulatory agencies from CBA requirements with E.O. 13563, although his OIRA Administrator encouraged those agencies to "give consideration to all [E.O. 13563's] provisions" in a memorandum issued soon after the executive order. In July 2011, President Obama issued E.O. 13579, "Regulation and Independent Regulatory Agencies." The executive order encouraged independent regulatory agencies to comply with some of the principles in E.O. 13563 that were directed to Cabinet departments and independent agencies (e.g., public participation, integration and innovation, flexible approaches, and science). In a separate memorandum issued the same day as the executive order, the President said he was taking these actions with "full respect for the independence of your agencies." E.O. 13579 did not, however, directly apply the cost-benefit principles in E.O. 12866 and 13563 to independent regulatory agencies, nor did it require these regulators to conduct CBA before issuing their rules. As previously discussed, the financial regulators are exempt from many of the analytical requirements and guidance documents that are applicable to executive agencies, including E.O. 12866 and OMB Circular A-4. However, financial regulators may be required to conduct CBA or other regulatory analyses under cross-cutting statutes or pursuant to the underlying statutes that provide them with rulemaking authority. Requirements facing financial regulators arguably require a relatively narrow analysis or allow for more agency discretion compared to the requirements discussed above under E.O. 12866. For example, agencies may be required to "consider" or "estimate" costs, benefits, or other economic effects, but the degree to which those considerations must be quantified and monetized estimates is not specified. However, the requirements facing financial regulators are not trivial, and financial regulations have been vacated following judicial review when the court found the CBA performed during rulemaking to be deficient. The following statutes contain analytical requirements that apply to all federal regulatory agencies, including the financial regulators. The Regulatory Flexibility Act (RFA) of 1980 ( P.L. 96-354 ) 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, all regulatory agencies, including the financial regulators, must prepare a "regulatory flexibility analysis" at the time proposed and certain final rules are issued. 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 Paperwork Reduction Act (PRA) of 1980 ( P.L. 96-511 ) pertains to certain aspects of the rulemaking process, albeit not the rules themselves. The PRA's primary purpose is to minimize the paperwork burden for individuals, small businesses, and others resulting from the collection of information by or for the federal government, which often stems from regulatory requirements: 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 sometimes a primary component of requirements stemming from financial regulation. 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. Paperwork burden is most commonly measured in terms of "burden hours." The burden-hour estimate for an information collection is a function of the frequency of the information collection, the estimated number of respondents, and the amount of time that the agency estimates it takes each respondent to complete the collection. 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. OIRA can disapprove any collection of information if it believes the collection is inconsistent with PRA requirements. However, multiheaded independent regulatory agencies can, by majority vote of the leadership, void any OIRA disapproval of a proposed information collection. The Riegle Community Development and Regulatory Improvement Act (Riegle Act) imposes analytical requirements on rulemaking for the federal banking regulators—the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). One of the Riegle Act's primary purposes is to reduce administrative requirements for insured depository institutions, and the scope of the analysis required reflects that specific aim. When determining the effective date and compliance requirements of new rules that impose additional reporting, disclosure, or other requirements on depository institutions, the federal banking regulators must take into consideration: "(1) Any administrative burden that such regulations would place on depository institutions, including small depository institutions and customers of depository institutions; and (2) the benefits of such regulations." Certain individual agencies—the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Commodity Futures Trading Commission (CFTC)—are statutorily required to perform certain analysis in rulemaking specific to the agency. As mentioned previously, the parameters of analysis when "considering" cost and benefits are to a degree left to agency discretion, although analysis could be subject to judicial review if a party were to challenge the regulation in court. The SEC is subject to requirements to analyze the effect of its rules, with an emphasis on market efficiency and competition. The National Securities Market Improvement Act ( P.L. 104-290 ) requires the SEC to "consider or determine whether an action is necessary or appropriate in the public interest ... [and] whether the action will promote efficiency, competition, and capital formation." The Securities Exchange Act (P.L. 73-291) requires the SEC to perform economic analysis on "the impact any such rule or regulation will have on competition." The CFPB must specifically consider the costs and benefits to consumers and the companies to which the new rules apply. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) ( P.L. 111-203 ) requires the CFPB to " consider (1) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule; and (2) the impact of proposed rules on covered persons ... and the impact on consumers in rural areas." The CFTC must evaluate costs and benefits of new rules and the analysis must include several specified considerations. The Commodity Exchange Act (P.L. 74-675) requires the CFTC to "consider the costs and benefits of the action" before promulgating a rule, and "the costs and benefits of the proposed Commission action shall be evaluated in light of: (A) considerations of protection of market participants and the public; (B) considerations of the efficiency, competitiveness, and financial integrity of futures markets; (C) considerations of price discovery; (D) considerations of sound risk management practices; and (E) other public interest considerations." Reports on the characteristics of the agency-performed CBAs—including independent regulatory agencies—can illustrate what analyses are done in practice as part of rulemaking. Section 624 of the Treasury and General Government Appropriations Act of 2001 (31 U.S.C. §1105 note)—sometimes known as the "Regulatory Right-to-Know Act"—requires OMB to issue an annual report to Congress on regulatory costs and benefits. The report generally includes an assessment of the CBAs for major rules done by agencies as a part of rulemaking. The 2016 report indicated that independent financial regulatory agencies issued 8 major final rules during FY2015, and that although benefits and costs were considered during the rulemaking process for all these rules, they were not always monetized. Six of these rules provided monetized costs, but none provided monetized benefits. In comparison, executive departments and agencies subject to E.O. 12866 implemented 30 major rules: 21 analyses monetized both benefits and costs; 6 monetized costs but not benefits; 2 monetized benefits but not costs; and 1 did not monetize costs or benefits. The Government Accountability Office (GAO) releases an annual report on Dodd-Frank regulations that examines analyses done by financial regulators. These reports typically make an assessment of the degree to which the analyses—for rulemaking related to Dodd-Frank provisions—were consistent with the directives of OMB Circular A-4, even though the regulators are not required to follow the directives. In general, GAO has found that financial regulator analysis is consistent with that guidance. For example, in the 2016 report, GAO notes, Independent federal financial regulators are not required to follow OMB's Circular A-4 when developing regulations, but they told us that they try to follow this guidance in principle or spirit. Regulators generally included the key elements of OMB' s guidance in their regulatory analyses for these major rules. To assess the extent to which the regulators follow Circular A-4, we examined 5 major rules ... Specifically, we examined whether the regulators (1) identified the problem to be addressed by the regulation; (2) established the baseline for analysis; (3) considered alternatives reflecting the range of statutory discretion; and (4) assessed the costs and benefits of the regulation. We found that all five rules we reviewed were consistent with OMB Circular A-4. CBA of any type of regulation faces challenges in making an accurate assessment of the regulation's effects. Over recent decades, academics and agency experts have developed sophisticated and useful techniques to do these types of analyses, but they generally contain a degree of uncertainty. Some challenges include behavioral changes of people as they adapt to a new regulation, which are difficult to predict; quantification that must overcome uncertainty over the causal relationship between the regulation and outcomes; and monetization, which is difficult for outcomes that do not have easily discernable monetary values. Variations of CBAs address some of these difficulties, including cost-effectiveness analysis, which compares costs of alternative regulation when benefits cannot be accurately quantified or monetized; breakeven analysis, which can establish the likelihood or under what conditions a regulation would be beneficial; qualitative analysis with expert judgement, in which experienced professionals describe and explain likely effects that cannot be quantified and make a judgement as to how costs compare with benefits; and retrospective analysis, which estimates the realized costs and benefits following some period of time—often years— after implementation of rules. This section examines these challenges and variants as they relate to CBA generally. There is debate over whether the challenges are particularly daunting for financial regulation CBA and to what degree different types of analysis can solve these problems. An examination of the arguments related to financial regulator CBA requirements can be found in the following section, entitled " Financial Regulator Requirements Debate ." One difficulty in performing cost-benefit analysis is trying to accurately determine the human behavioral response to the implementation of a regulation. For example, consider a hypothetical and very simplified CBA that analyzes a new requirement that financial institutions make additional disclosures to customers about a certain type of loan. To estimate the benefit to consumers who avoided entering into a bad financial arrangement, the analysis would have to estimate, among other things, how many potential customers would read the disclosure and would elect not to use the product on the basis of that information. Of these, how many would then seek out a substitute credit source? Predicting human choices such as these involves modeling consumer behavior in this market, statistical interpretations of available data, and some degree of uncertainty. Quantification of outcomes also poses challenges in determining causation and measuring magnitudes of effects. Returning to the hypothetical regulation outlined above, suppose lenders also would be required to report additional performance data, such as default rates, about the loans. The additional cost of reporting could decrease loan profitability. In such a case, lenders will likely reduce the availability of these loans. An important cost of this regulation might be reduced economic growth by the contraction of credit. Making an estimation of this cost would involve macroeconomic modeling, statistical interpretation, and uncertainty. After an estimate has been made of the quantity and magnitude of outcomes, those effects must be monetized because measuring the varied effects of a regulation requires a common unit of measurement. This becomes problematic when attempting to assign a dollar value to outcomes that do not have market prices. For example, imagine a proposed regulation aimed at reducing the number of home foreclosures. An important benefit might be the avoidance of the emotional distress families may experience as a result of being forced to move from their homes and finding alternative housings. Assigning a dollar value to this outcome would require sophisticated techniques and would likewise involve uncertainty. Finally, regulatory benefits may often be more difficult to monetize than major costs. Costs are often economic costs, which may be more easily monetized, such as an industry's reduction in economic activity or the added expense of complying with regulation. Benefits may be harder to quantify because of the difficulty in determining causation and because the outcomes are harder to price. Financial regulation benefits that may be difficult to monetize include the emotional distress of foreclosure cited in the previous example, consumer and investor confidence in knowing they are protected from fraud, and decreased probability of a financial crisis. Quantified and monetized estimates generally provide the clearest measurement and comparison of the costs and benefits of proposed regulation. However, variants of CBA can be performed when full quantification and monetization is not entirely possible due to the challenges described above. Some of these variants include cost-effectiveness analysis , breakeven analysis , and qualitative analysis with expert judgement . Also, agencies sometimes do retrospective analysis . Although not a part of rulemaking and so beyond the scope of this report, it deserves mention because this type of analysis is the subject of proposals to assess the regulatory system and identify regulations that should be amended or repealed. Cost-effectiveness analysis may be useful if benefits of a regulation are hard to monetize. In these analyses, an outcome is identified as necessary or sufficiently important to the advancement of social welfare, such as preventing cancer cases, preserving wetlands, or reducing the likelihood of financial crises. A set of alternative regulations—ranging from stringent to lenient—is then analyzed to determine how well each alternative achieves the objective outcome and at what cost. This comparison is useful for identifying the most effective form of regulation. Breakeven analysis may be useful when estimates of either benefits or costs or both face a relatively large degree of uncertainty, and the estimates fall within a wide range. In these analyses, the magnitudes of the quantified costs and benefits are compared to determine what values of the unquantified variables would have to be for the regulation to break even or impose no net cost on society. The analysis—in the face of a relatively high level of uncertainty—can reveal under what circumstances a regulation would benefit society or at least identify which regulations are most or least likely to do so. For example, consider another highly stylized analysis of a hypothetical regulation aimed at reducing cases of a certain disease. The cost of the regulation is estimated to be $50 million; how many cases would be avoided can only be estimated in the range of 10,000-50,000; and monetizing the benefit of avoiding a case is problematic. Given these hypothetical values, the breakeven value of avoiding one case of the disease is between $1,000 and $5,000. To use extreme examples for the purpose of illustration: if this disease is the common cold, it could be argued that the regulation is overly burdensome; but if the disease is fatal, it could be argued that the regulation should be implemented. Wherever benefits and costs cannot be quantified to a reasonably informative degree of certainty and precision, they could be analyzed qualitatively. This analysis type describes the factors considered, the rationale used in making a policy choice, and the regulators' professional judgement in assessing the regulation's welfare effects. Retrospective analysis estimates the realized costs and benefits following some period of time—often years— after implementation of rules. This analysis eliminates some uncertainties about what outcomes will be observed under the regulation. However, the results of the analysis still involve assumptions and uncertainty in assessing the degree to which the regulation caused the observed outcomes or estimating what outcomes would have been realized if the regulation had never been implemented. Retrospective analysis is different from most of the analysis covered in this report, in that it is an ex post analysis performed after implementation and so cannot be part of the rulemaking process. Most observers agree that performing CBA is often a useful tool for the regulatory rule-writing process. However, whether financial regulators should be required to perform CBAs with specified parameters that would be subject to review is a matter of long-standing debate, probably at least in part due to their exemption from E.O. 12866. In addition, the issue may have attracted increased attention in recent years as many financial regulations have been implemented in response to the financial crisis, particularly after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Some observers argue that financial regulators should maintain a relatively high degree of discretion over the role and form of CBAs in the rule-writing process. They assert certain characteristics of the finance industry—discussed in detail below—necessitate CBAs with more easily contestable assumptions and uncertain results than in other industries; and performing highly contestable and uncertain CBAs does not discipline agencies, but instead may provide an opportunity for interested parties to impede socially beneficial regulation. Others argue that financial regulators should be subject to more stringent requirements than is currently the case. They assert performing CBAs for regulation of the finance industry does not pose greater difficulties than for regulation of other industries, and imposing requirements on financial regulators would spur them to overcome methodological and other challenges; and financial CBAs—despite contestable and uncertain results—would be the best tool for ensuring that regulation is implemented responsibly with due consideration of consequences. This section presents the two sides of this debate. Some observers assert that performing CBAs for financial regulation is different from other types of regulation. They claim financial regulation CBAs are more uncertain and contestable, and this limits the effectiveness of CBA requirements. Therefore, the argument goes, the CBA requirements facing most regulators would not be appropriate for financial regulators. Others advocate more generally for a relatively high degree of agency discretion to use expert judgement. One potential reason for greater uncertainty in financial CBA is that the outcomes are almost wholly dependent on human behavioral responses. Unlike regulation of other sectors, the objects of regulation are not chemicals or pieces of machinery, but the activities of individuals and financial firms and their interactions in interrelated markets for intangible financial goods. The behaviors of a pollutant in an ecosystem, a drug in the human body, or material in a car during a crash are governed by biological, chemical, and physical laws. The implementation of a regulation does not change these reactions. However, the behavior and reactions in the financial system are governed by human behavior within a system of laws and regulations. A new regulation changes the system itself and its effects result entirely from human behavioral changes. This may make the effects—especially the first-order, direct effects—harder to accurately predict than in other industries. For example, if certain factories were required to install a piece of equipment that prevented the release of a pollutant, the cost of the equipment is identifiable and the direct effect of how much of the pollutant would be captured can likely be measured. In contrast, if a requirement is implemented on banks to hold more liquid assets, the cost to banks is uncertain because it depends on what types of assets banks choose to shed from their balance sheets, what they add, and what effect those actions have on the market prices of those assets. It is also unclear how to quantifiably measure the liquidity of the financial system or its resultant benefits. Another reason cited as a potential cause for uncertain estimates is the central role the financial system plays in the entire economy. For most industries, changes in factors such as production cost, price, and quantity demanded and supplied resulting from regulations can be calculated using relatively well-vetted economic models. However, the causal channels through which financial changes affect overall economic activity are complex with no consensus macroeconomic model that can be used to make precise estimates. In addition, innovation in finance—unlike innovation in industries using physical equipment and chemical processes—faces few physical constraints, possibly allowing the financial system to change more quickly than other industries. Therefore, estimating how a regulation implemented today will affect markets years in the future is challenging. For example, in the years leading up to the financial crisis, private label sub-prime mortgage securitizations and collateralized debt obligations grew very rapidly and to a level of importance in the financial system that would have been difficult to have foreseen when many regulations were being developed. Another confounding factor in financial CBA is that for many financial regulation objectives there is not always consensus about whether outcomes are benefits or costs. For example, most agree improved health outcomes are beneficial and increased consumer prices and industry cost should be counted as costs. However, the cost-benefit tally for financial regulation is sometimes not as clear cut. If a consumer protection provision is expected to reduce a certain kind of high-interest-rate lending, experts might reasonably argue over to what degree this is a benefit versus a cost; it is a benefit to the extent it reduces an abusive practice, but a cost to the extent it reduces the availability of a needed credit source. Often such a lack of clarity arises because the effects of financial regulation often consist largely of wealth transfers between various groups—such as transfers between lenders and borrowers or between businesses seeking to raise capital and investors. CBA is a tool most often used to measure the net economic effects, and economic transfers between groups are typically a secondary concern. Proponents of greater agency discretion argue that placing more stringent requirements on financial regulators for conducting CBAs could potentially make issuing regulations more costly and time consuming. Those proponents argue that increasing CBA requirements could lead agencies to block or delay the issuance of individual regulations, and that over time, this could ultimately result in less stringent regulation. Proponents of agency discretion further assert that CBAs involving such a high degree of uncertainty and contestable assumptions would not discipline agencies. Instead of increasing accountability and regulatory efficiency, they argue CBAs could disguise agency judgement as objective, scientific measurement. Instead of providing an authoritative rationale for a regulation, they argue requirements would provide an opportunity for parties aiming to protect their own interests—not social welfare—to challenge certain beneficial regulations by offering competing but similarly subjective CBAs. In contrast, some observers believe that regulatory analysis requirements for financial regulators are not stringent enough. Proponents of increased CBA argue that the challenges facing financial regulators are not substantively more difficult than those facing other regulators when performing CBA. They note that all regulation elicits uncertain human behavioral responses. For example, the direct effects of antitrust regulation—where CBA plays an important role—similarly are almost entirely based on the reaction of firms, consumers, and markets. They also challenge the claim that financial innovation is especially rapid compared with other industries, citing the rapid advances in agriculture and pharmaceuticals. In addition, the largest financial regulation effects may actually be easier to monetize because they largely involve changes in monetary transactions rather than health or environmental outcomes that involve assigning a dollar value to nonmarket outcomes. Proponents of stricter requirements also take issue with the argument that the centrality of finance to the economy represents a reason for exemption from CBA requirements. First, they again disagree that estimating financial effects is uniquely and prohibitively complex, noting the sophistication of CBA performed by other regulators. Next, they argue that the potential to cause very large effects across the entire economy increases the importance of CBA in financial regulation, because implementing harmful financial regulation is more consequential than if the industry were more peripheral to the economy and had small economic effects. Proponents further assert that financial regulation CBA seems to face such difficult challenges because it has been exempt from certain requirements and oversight. Other regulators—once faced with similar problems—have overcome challenges because requirements spurred them to develop agency expertise and methods for performing CBA. They argue that if faced with similar requirements financial regulators, experts, and consultants would similarly devise solutions. Some academics have already started to propose methods to address questions specific to the financial industry. Furthermore, CBA's proponents argue uncertainty and imprecision are not valid reasons for foregoing financial CBA. They note that most CBAs involve some degree of uncertainty and assumptions. Nevertheless, by requiring agencies to perform the analysis, the assumptions used in evaluating the regulation are articulated and transparent, and their merits can be evaluated. Even if estimated outcomes fall over a wide range of values, an analysis can still make an assessment of the likelihood a regulation will be beneficial and how its costs can be minimized. In these ways, they argue uncertain CBAs can play an important role in showing when a proposed regulation is hard to justify or easy to defend. Proponents argue CBAs—despite possible limitations—are the best alternative for identifying good and bad regulations and have rightly become an important and often required part of rulemaking. For these reasons, they assert financial regulators should face requirements similar to those facing regulators of other industries. A number of bills have been introduced and seen action in recent Congresses that would impose additional regulatory impact analysis requirements on financial regulators, including bills that would impose more stringent CBA requirements. Examples include bills that would impose certain requirements on all agencies, including the financial regulators; bills that address independent or financial regulators specifically; and bills affecting only one financial regulator. The Financial CHOICE Act ( H.R. 10 ) was introduced in the House on April 26, 2017. Section 312 of the bill would require financial regulators to perform certain analyses as part of the rulemaking process, including a quantitative and qualitative assessment of all anticipated direct and indirect costs and benefits of the regulation. Proposed rules found to have quantified costs greater than quantified benefits would require a congressional waiver before being implemented. The Regulatory Accountability Act ( H.R. 5 ) passed the House on January 11, 2017, and introduced in the Senate ( S. 951 ) on April 26, 2017. The bill would make several changes to the rulemaking process of all agencies by amending the Administrative Procedure Act. Among the changes, agencies would have to consider alternatives to the new regulation and the potential costs and benefits of the alternatives. The bill would extend requirements for CBA to all agencies, including independent regulatory agencies. The OIRA Insight, Reform, and Accountability Act ( H.R. 1009 ) passed the House on March 1, 2017. The bill, among other measures, would codify into law OIRA authority of reviewing agency CBA in rulemaking. This authority would also be extended to independent regulatory agencies. The SEC Regulatory Accountability Act ( H.R. 78 ) passed the House on January 12, 2017. The bill would impose additional cost-benefit requirements for the SEC, would specify parameters and considerations that must be part of the analysis, and would require the SEC to retrospectively assess the impact of adopted regulation. The CFTC Commodity End-User Relief Act ( H.R. 238 ) passed the House on January 12, 2017. The bill would expand the number of considerations that CFTC is statutorily required to include in its CBAs from 5 to 12. The additional considerations include the cost of compliance with the regulation and alternatives to direct regulation. The Independent Agency Regulatory Analysis Act of 2015 ( S. 1607 ) would have authorized the President to subject independent regulatory agencies to CBA requirements that exist in executive order—such as EO 12866. Notably, this would include the E.O. 12866 requirement that major rules be submitted for OIRA review with an initial cost and benefit assessment. Bills that would have imposed new analysis requirements on individual financial regulators include the Federal Reserve Accountability and Transparency Act of 2015 ( H.R. 113 ), the Fed Oversight Reform and Modernization Act ( H.R. 3189 ), and the CFPB Dual Mandate and Economic Analysis Act ( H.R. 5211 ). Congress likely will continue to face questions over what appropriate CBA requirements for financial regulators should be. A reasoned and systematic examination of likely consequences of a regulation is a useful practice to ensure good and avoid bad regulation. However, calibrating requirements to reach this outcome is difficult. Excessively lenient requirements could allow bad regulation to be implemented, because regulators could promulgate regulations without due consideration of their likely effects. In contrast, excessively stringent requirements could block good regulation from being implemented, because the time and resources required to perform the analysis could make the cost to regulators prohibitively high. The calibration is complicated by the difficulties and uncertainties involved in performing CBA. Additional lack of clarity is involved in financial regulation, because experts disagree over whether CBA is especially difficult and uncertain in that field. These factors suggest that the question of what CBA requirements financial regulators should face may not be easily settled. | Cost-benefit analysis (CBA) in the federal rulemaking process is the systematic examination, estimation, and comparison of the potential economic costs and benefits resulting from the promulgation of a new rule. Agencies with rulemaking authority implement regulations that carry the force of law. While this system allows technical rules to be designed by experts that are to some degree insulated from political considerations, it also results in rules being implemented by executive branch staff that arguably are not directly accountable to the electorate. One method for Congress to increase accountability is to require the regulators to conduct analyses of likely effects of proposed regulations. In this way, an agency demonstrates that it gave reasoned consideration to the effects of the proposed rules. CBA is an important type of such analysis, as comparing costs and benefits can be useful in determining whether or not a regulation is beneficial. However, performing CBA can be a difficult and time-consuming process, and it produces uncertain results because it involves making assumptions about future outcomes. Some observers argue that financial regulation CBA is particularly challenging. This raises questions about what parameters and level of detail agencies should be required to include in their CBA. While most federal regulatory agencies are directed by Executive Order 12866 and Office of Management and Budget Circular A-4 in their performance of CBAs, financial regulators are generally not subject to these directives. Financial regulators are statutorily required to perform certain CBA: requirements such as the Paperwork Reduction Act (P.L. 104-13) and Regulatory Flexibility Act (P.L. 96-354) generally apply to all financial regulators; financial regulators that regulate the banking system are subject to requirements set out in the Riegle Community Development and Regulatory Improvement Act (P.L. 103-325); and agencies such as the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB,) and the Commodities Futures Trading Commission (CFTC) face requirements specific to them. However, the requirements facing individual financial regulators generally allow them to perform analysis under less specific instruction than is contained in the requirements that are cited above and apply to nonindependent regulatory agencies. Whether the requirements facing financial regulators should allow for this discretion is a contentious issue. Some observers assert that financial regulators should maintain a relatively high degree of discretion over when and how to conduct CBA. They argue that characteristics of the financial industry and regulation make CBAs in this area especially uncertain and contestable, and assert that financial regulation effects depend entirely on human and market reactions; finance plays a central role in a huge, complex economic system; and financial regulations' effects are more likely (relative to other types of regulation) to include transfers between groups not well accounted for in net measurements. They further argue that requisite CBAs that are uncertain and contestable are more likely to disguise agency discretion as objective fact and provide the opportunity for interested parties to challenge socially beneficial regulation with their own subjective, self-interested analyses. Other observers assert that financial regulators should face more stringent requirements than they currently do. They refute claims that financial CBAs are necessarily more uncertain or contestable than in other areas. Also, they argue that tools and techniques would be developed to overcome challenges if CBAs were required. They further argue that even uncertain and contestable CBAs are effective in disciplining agencies because they create transparency of the agency's evaluations of proposed regulations and allow for outside assessment of that evaluation. Recent Congresses have been active on this issue, and the House has passed several bills in the 115th Congress that would increase CBA requirements. Recent proposals would affect either all regulators including financial regulators, financial regulators as a group, or individual financial regulators. |
Setting National Ambient Air Quality Standards (NAAQS) is an action that is at the core of the Clean Air Act. NAAQS apply to "criteria" pollutants—pollutants that "endanger public health or welfare," and whose presence in ambient air "results from numerous or diverse mobile or stationary sources." Six pollutants are currently identified as criteria pollutants. The EPA Administrator can add to the list if he determines that additional pollutants meet the act's criteria, or delete them if he concludes that they no longer do so. NAAQS do not directly regulate emissions. Rather, the primary NAAQS identify pollutant concentrations in ambient air that must be attained to protect public health with an adequate margin of safety; secondary NAAQS identify concentrations necessary to protect public welfare, a broad term that includes damage to crops, vegetation, property, building materials, etc. In essence, NAAQS are standards that define what EPA considers to be clean air. Their importance stems from the long and complicated implementation process that is set in motion by their establishment. Once NAAQS have been set, EPA, using monitoring data and other information submitted by the states, identifies a list of areas that exceed the standards and must, therefore, reduce pollutant concentrations to achieve them. State and local governments then have three years to produce State Implementation Plans which outline the measures they will implement to reduce the pollution levels in these "nonattainment" areas. EPA also acts to control many of the NAAQS pollutants wherever they are emitted through national standards for products that emit them (particularly mobile sources, such as automobiles) and emission standards for new stationary sources, such as power plants. Because the understanding of pollution's effects changes with new research, the Clean Air Act requires that EPA review NAAQS at five-year intervals and revise them as may be appropriate. To ensure that these reviews meet the highest scientific standards, the 1977 amendments to the act required the Administrator to appoint an independent Clean Air Scientific Advisory Committee (CASAC). CASAC has seven members, largely from academia and from private research institutions, who generally serve for two consecutive three-year terms. In conducting NAAQS reviews, their expertise is supplemented by panels of the nation's leading experts on the health and environmental effects of the specific pollutants that are under review. These panels can be quite large. The recent particulate matter and ozone review panels, for example, had 22 and 23 members, respectively. CASAC, as well as the public, makes suggestions regarding the membership of these panels, with the final selections made by EPA. The panels review the agency's work during NAAQS-setting and NAAQS-revision, rather than conducting their own independent reviews. CASAC panels had a nearly 30-year history of working quietly in the background, advising the agency's staff on NAAQS reviews, and issuing what were called "closure letters" on the agency documents that summarize the science and the policy options behind the NAAQS. Closure letters have been used by CASAC panels to indicate a consensus that the agency staff's work provides an adequate scientific basis for regulatory decisions. The science and policy documents, written by EPA staff, generally have gone through several iterations before the scientists were satisfied, but, with the issuance of a closure letter, CASAC has in past years removed itself from the process, leaving the formal proposal and final choice of standards to the Administrator. Proposal comes in the form of a Federal Register notice that triggers a formal public comment period, and the final choice is promulgated in the Federal Register , as well, following the review of public comments. In 2006, the usual pattern of NAAQS reviews was upset by three events. First, as EPA promulgated revisions to the particulate matter (PM) NAAQS, CASAC and its PM Review Panel publicly objected both to the Administrator's decision not to strengthen the annual standard for fine particulates (PM 2.5 ) and to various aspects of his decision regarding larger particles (PM 10 ). The committee took the unprecedented steps of writing to the Administrator both after he proposed the standards in January, and after he promulgated them in September. In the latter communication, CASAC stated unanimously that the Administrator's action " does not provide an ' adequate margin of safety ... requisite to protect the public health ' (as required by the Clean Air Act) ...." (Italics in original.) A month after CASAC's challenge to the final particulate decision, CASAC's ozone review panel took an unusually strong stand regarding review of that NAAQS. The panel approved EPA's policy options paper (or "Staff Paper"), the next-to-last formal step before the Administrator proposes revision of the ozone NAAQS, but in doing so it stated, "There is no scientific justification for retaining the current primary 8-hr NAAQS ...," and it recommended a range for the revised standard that would be substantially more stringent than the current standard. The Administrator proposed a revision generally outside CASAC's range on June 20, 2007, and in March 2008 he promulgated new ozone standards that were outside CASAC's range. The 2006 actions by CASAC and its ozone and PM review panels were followed in short order by an EPA announcement, December 7, 2006, that it would modify the process for setting and reviewing NAAQS. Under EPA's new procedures, the agency's political appointees have a role early in the process, helping to choose the scientific studies to be reviewed, and CASAC will no longer have a role in approving the policy Staff Paper with its recommendations to the Administrator. (The Staff Paper will also be renamed, becoming a "Policy Assessment.") CASAC will be relegated to commenting on the paper after it appears in the Federal Register , during a public comment period. The goal, according to agency officials, is to speed up the review process, which has consistently taken longer than the five years allowed by statute. "These improvements will help the agency meet the goal of reviewing each NAAQS on a five-year cycle as required by the Clean Air Act, without compromising the scientific integrity of the process," according to the memorandum that finalized the changes. The changes caused concern among environmental groups and some in the scientific community, however, because, they say, they give a larger role to the agency's political appointees and a smaller role to EPA staff and CASAC. These three events (CASAC's challenge of the PM NAAQS, its panel's unusually forceful stance regarding revision of the ozone NAAQS, and EPA's decision to change the NAAQS review process) have thrust CASAC, heretofore a relatively obscure scientific committee, into the limelight. The developments raise important questions regarding the role of science and scientists in the setting of air quality standards. The Senate Environment and Public Works Committee included CASAC issues among those it considered February 6, 2007, in a hearing on "Oversight of Recent EPA Decisions." The House Oversight and Government Reform Committee plans a hearing on the ozone standard April 24, 2008. To provide a better understanding of the issues, this report provides a history of the NAAQS-setting process and the role of CASAC since its inception in the late 1970s. It also reviews various proposals for change that have been discussed, including EPA's December 2006 modifications. Prior to enactment of the Clean Air Act of 1970, there was no authority for the establishment of national ambient air quality standards. Control of air pollution and standards for air quality were considered primarily a state's right and responsibility. Beginning in 1963, however, Congress began establishing the framework for what became the NAAQS-setting process. The Clean Air Act of 1963 (P.L. 88-206) and the Air Quality Act of 1967 (P.L. 90-148) directed the Secretary of Health, Education, and Welfare to "develop and issue to the States such criteria of air quality as in his judgment may be requisite for the protection of the public health and welfare." These criteria were to be issued "after consultation with appropriate advisory committees and Federal departments and agencies," and were to "accurately reflect the latest scientific knowledge useful in indicating the kind and extent of all identifiable effects on health and welfare...." To provide scientific advice, the Surgeon General established a National Air Quality Criteria Advisory Committee (NAQCAC) in March 1968. Establishment of the NAAQS Process . The air quality criteria were originally intended primarily to assist the states in establishing their own air quality standards; but they survive today as the first step in the establishment of national standards (NAAQS). NAAQS themselves were first required by the Clean Air Act Amendments of 1970 (P.L. 91-604). The 1970 amendments directed the new Environmental Protection Agency (which had taken over the air pollution functions of the Health, Education, and Welfare Department) to promulgate NAAQS for each pollutant for which air quality criteria had already been issued, and to promulgate NAAQS with respect to any additional air pollutant for which criteria would be issued after the date of enactment. Primary NAAQS, as described in Section 109(b)(1), were to be "ambient air quality standards the attainment and maintenance of which in the judgment of the Administrator, based on such criteria and allowing an adequate margin of safety, are requisite to protect the public health." Secondary standards (which, in practice, are often the same as the primary) were also to be based on the criteria and set at a level "requisite to protect the public welfare from any known or anticipated adverse effects" (Section 109(b)(2)). The Administrator was permitted to revise both types of standards. Establishing Formal Review Requirements: SAB and ERDDAA . To assist the Administrator in setting criteria, the Advisory Committee established by the Surgeon General in 1968 (NAQCAC) was transferred to EPA in 1970, as part of the Reorganization Plan that established EPA, but it had no statutory authority. According to Lippmann, a former Chair of CASAC and perhaps the man most familiar with the history, "EPA did not necessarily feel obliged to follow the advice of the Committee." Beginning in 1974, EPA reorganized its science advisory structure several times, ultimately abolishing NAQCAC over the strong objections of its chairman and members, and reassigning the members to the agency's Science Advisory Board (SAB). According to Lippmann, at the time it was abolished, "It had been surveying the contents of all the CDs [Criteria Documents] and was drafting a final report that recommended a complete review and revisions of all the air quality criteria documents." About this time, the House Science and Technology Committee held hearings and produced an investigative report on a series of EPA studies that were intended to provide an improved health basis for the NAAQS. The report led to provisions in the Environmental Research and Development Demonstration Authorization Act of 1978, enacted in November 1977 (ERDDAA, P.L. 95-155 ) that required the SAB to review all scientific information on which air quality standards are based. 1977 Clean Air Act Amendments: Deadlines and CASAC . The process of establishing NAAQS, in Section 109 of the Clean Air Act, was also amended in the Clean Air Act Amendments of 1977 ( P.L. 95-95 ), adding two major dimensions. First, in Section 109(d)(1), the act established a more formal requirement for review and revision of the NAAQS, directing the Administrator to review the criteria and standards by December 31, 1980, and at five-year intervals thereafter. For a variety of reasons (lack of resources, inadequacies in draft documents, competing demands on agency managers, and in some cases, a lack of political will), these reviews have generally not taken place on the schedule mandated, but, by establishing a nondiscretionary duty of the Administrator, the 1977 act has allowed citizen suits to force the Administrator to undertake reviews. Second, in Section 109(d)(2), the amendments required the EPA Administrator to appoint "an independent scientific review committee" (to which EPA gave the name CASAC), requiring that it also complete a review of the criteria and standards by December 31, 1980 and at five-year intervals thereafter, and that it recommend to the Administrator any new NAAQS and revisions of existing criteria and standards as may be appropriate. While CASAC is directed to review the criteria and NAAQS and make recommendations to the Administrator, the Administrator is not under a legal obligation to follow CASAC's advice. As noted below, however, Section 307(d) of the Clean Air Act requires the Administrator to explain the reasons for any differences from CASAC's or the National Academy of Science's recommendations. Thus, in the same year, 1977, Congress gave authority to both CASAC and the SAB to review air quality criteria and NAAQS. EPA resolved this potentially overlapping jurisdiction by making CASAC part of the Science Advisory Board. There have been no changes to these legislative requirements since 1977. In Section 108, the Clean Air Act requires the Administrator to provide specific information regarding criteria pollutants, without specifying the form of any required documents. It describes at some length what the criteria shall "reflect" and "include." In response to this language, EPA has developed what it has called a Criteria Document, whenever it has reviewed or established a new NAAQS. The Criteria Document summarizes the state of scientific knowledge regarding the effects of the pollutant in question. A second document that EPA has prepared as part of the NAAQS-setting or revision process, the Staff Paper, summarizes the information compiled in the Criteria Document and provides the Administrator with options regarding the indicators, averaging times, statistical form, and numerical level (concentration) of the NAAQS. The Staff Paper has no statutory basis, but it is hard to imagine the setting of a standard without some document or documents that would serve its purpose. Section 109 of the Clean Air Act makes clear that NAAQS are to be proposed and promulgated as regulations, thus requiring their publication in the Federal Register . The procedural requirements are addressed in Section 307(d), which exempts NAAQS promulgation or revision from the requirements of the Administrative Procedure Act, but establishes its own (in most cases, similar) requirements. Section 307(d) requires the establishment of a rulemaking docket; it requires notice of proposed rulemaking in the Federal Register , accompanied by a statement of the proposal's basis and purpose, including a summary of the factual data on which the proposed rule is based, the methodology used in obtaining and analyzing the data, and the major legal interpretations and policy considerations underlying the proposed rule. The statement is required to set forth or summarize and provide a reference to any pertinent findings, recommendations, and comments by CASAC and the National Academy of Sciences, and, if the proposal differs in any important respect from any of these recommendations, provide an explanation of the reasons for such differences. Section 307(d) also requires that any drafts of proposed and final rules submitted by the Administrator to the Office of Management and Budget (OMB) prior to proposal or promulgation, all documents accompanying those drafts, and all written comments thereon and EPA responses to such comments, be placed in the docket no later than the date of proposal or promulgation. The promulgated NAAQS, like the proposed rule, must appear in the Federal Register . It must be accompanied by a statement of basis and purpose and an explanation of the reasons for any major changes from the proposed rule, as well as a response to each of the significant comments, criticisms, and new data submitted during the public comment period. In practice, NAAQS standard-setting has not directly followed the path envisioned in the statute. Only one of the six standards (for photochemical oxidants/ozone) was reviewed by December 31, 1980, and none has been reviewed at five-year intervals since that time. Several reviews have been begun, only to languish for years in limbo, with no criteria being issued and no decisions as to standards being made. The agency has rarely had the resources to conduct more than two reviews at a time. Citizen suits have generally been the factor that sets the agency's priorities. Role of CASAC . As discussed further in later sections of this report, the Clean Air Scientific Advisory Committee has been one of the few exceptions to this record. CASAC has provided much of the discipline to keep the NAAQS process moving and has set high standards for agency reviews. As a result, the completed reviews have generally elicited respect from the scientific community, and have generally survived court challenge. At the same time, CASAC's role has been somewhat different than that specified by the letter of the statute. Rather than conduct its own independent reviews of a NAAQS, CASAC in practice has fulfilled its obligations by reviewing and evaluating the adequacy of the key documents (the Criteria Document and Staff Paper) prepared by EPA staff as they develop or review a NAAQS. In conducting these reviews, CASAC has played an important role in the decision-making process: in general, the Administrator has not proposed a revision of a NAAQS until CASAC provides him (or her) what have been called "closure letters," stating its consensus that the Criteria Document and Staff Paper provide an adequate scientific basis for regulatory decisionmaking. The closure letter is not statutorily required; it dates from a June 1979 memorandum presented to CASAC by key officials in EPA's Office of Research and Development, Office of Air Quality Planning and Standards, and the CASAC staff officer. Until the PM review completed in 2006, however, every NAAQS review resulted in closure letters before the Criteria Document and Staff Paper went to the Administrator for decisions on NAAQS revision. As will be discussed further below, this departure from past practice in the 2006 NAAQS for PM was opposed by numerous current and former CASAC members in comments to EPA. Staff Paper Recommendations . The recommendations in Staff Papers have tended to provide a range of options, so that the Administrator's choice often fell somewhere within the range discussed. For example, in 1997, when EPA revised the PM standard, the Staff Paper recommended a 24-hour PM 2.5 standard somewhere in the range of 20 to 65 µg/m 3 . The Administrator chose 65 µg/m 3 as the standard. The Staff Paper also recommended an annual standard of 12.5 to 20 µg/m 3 . The Administrator chose 15 µg/m 3 . On several occasions, the Administrator took no action, despite a Staff Paper recommendation. For example in 1990, a Staff Paper on revision of the lead standard recommended a range of standards from 0.5 to 1.5 µg/m 3 (vs. the existing standard of 1.5 µg/m 3 ), a monthly rather than quarterly averaging period, and more frequent sampling. EPA took no action on the recommendations, however, and never formally published a decision. The sulfur dioxide review completed in 1996 provides a slightly different example in which the agency deviated from Staff Paper recommendations. In this case, the Staff Paper recommended three possible regulatory alternatives: 1) establish a new 5-minute NAAQS; 2) establish a new regulatory program under the general authority of Section 303 of the Clean Air Act; or 3) retain the existing suite of standards, but augment their implementation by focusing on those sources likely to produce high 5-minute peak SO 2 levels. EPA retained the existing standard but has not addressed the augmentation issue. After the last statutory changes to the NAAQS-setting process in 1977, numerous reports and memoranda discussed CASAC's role and the standard-setting process in general. This section briefly reviews these reports and memoranda, before we turn to the 2006 revisions to the process in the next section. In a 1979 memorandum entitled "Recommended Practices for Involving the Clean Air Scientific Advisory Committee (CASAC) in the Review Process for National Ambient Air Quality Standards," key officials in EPA's Office of Research and Development and Office of Air Quality Planning and Standards and the CASAC staff officer laid out procedures "to define what CASAC should review, the type of output to result from such reviews, and how these reviews can be accomplished consistent with Congressionally mandated time schedules." The memo identified six phases of a NAAQS review (planning, preparation of a draft report, internal review, public review, document revision, and CASAC closure); it estimated the time needed for each phase (a total of 285-360 days for all six phases); and it identified where in the process CASAC review and closure would occur. According to CASAC staff, this memorandum was never formally approved, but the procedures, including CASAC "closure" on Criteria Documents and Staff Papers, grew out of its recommendations. In the 1980s, as EPA began conducting the NAAQS reviews mandated by the 1977 amendments, and as CASAC developed its procedures for NAAQS review, a number of reports and memoranda discussed those procedures. In March 1981, the National Commission on Air Quality, a Congressionally-mandated 13-member bipartisan and multi-stakeholder commission, discussed the setting and revision of NAAQS in its final report. In September 1981, CASAC itself completed a report with recommendations concerning the NAAQS standard-setting process. A draft report prepared for EPA's Office of Research and Development in August 1984 focused on the structure of the Criteria Document. And, in July 1985, CASAC issued an update report, noting that many of its 1981 recommendations had been successfully implemented, but identifying additional issues to further improve the NAAQS process. These reports and memos made a number of recommendations that have resurfaced in the December 2006 revisions to the NAAQS review process. These include repeated conclusions that the Criteria Documents are too long or too encyclopedic and need to be focused on key scientific issues. To improve the focus, CASAC, as early as 1981, called for the identification of critical scientific issues and greater public involvement in the early stages of the NAAQS review process. CASAC, both in 1981 and 1985, also called for increased efforts to develop and incorporate risk assessment methodologies in order to better evaluate and communicate the uncertainties inherent in the analyses. After the mid-1980s, there was little further discussion of changes to the NAAQS review process until December 2005, when EPA's Deputy Administrator asked the Assistant Administrator for Research and Development and the Acting Assistant Administrator for Air and Radiation to "conduct a top-to-bottom review of the NAAQS process" to determine whether its discretionary (as opposed to statutory) aspects "reflect the most rigorous, up-to-date, and unbiased scientific standards and methods." The letter set forth a series of specific questions regarding the timeliness of the process, consideration of the most recent available science, the distinction between science and policy judgments, and whether changes were necessary to better identify and communicate uncertainties. The two Assistant Administrators established a Workgroup of EPA staff to conduct the review and make recommendations. The review was essentially completed by April 3, 2006, when the two Assistant Administrators sent the Workgroup's report to the Deputy Administrator. The report led to further discussions with CASAC and a public meeting, before the Deputy Administrator announced a decision, December 7, 2006, that the Agency would revise the NAAQS process, largely along the lines suggested in the report. The Workgroup report reached many of the same conclusions as the 1980s' reviews. As the Executive Summary noted: Past reviews of the process have addressed a number of issues, including the difficulty EPA has had historically in completing NAAQS reviews at five-year intervals as required by the CAA, resulting in litigation-driven review schedules; the statutory role of the Clean Air Scientific Advisory Committee (CASAC) in providing scientific and policy-relevant advice to the Administrator; concerns about the "encyclopedic" nature of EPA's science assessment documents (referred to as "Criteria Documents") and support for a more integrative synthesis of the science; and general support for the introduction and subsequent evolution of a policy-oriented "Staff Paper" to help bridge the gap between the science presented in the Criteria Document and the policy judgments required of the Administrator in reaching decisions on the NAAQS. While many improvements have come about as a result of these past reviews, some of the same issues remain relevant today, and are addressed again in this process review. The report recommended: combining planning activities for the Criteria Document (CD), risk/exposure, and policy assessment into one integrated planning document; restructuring the CD to be a more concise evaluation, integration, and synthesis of the most policy-relevant science, and writing it in language more accessible to policy-makers, "perhaps in the form of a 'plain-English' executive summary"; developing a continuous process to identify, compile, characterize, and prioritize new scientific studies; developing a more concise risk/exposure assessment document (similar to the risk/exposure chapter(s) now included in Staff Papers); to the extent that the recommendations above are implemented, replacing the Staff Paper with a more narrowly focused policy assessment document; and working with SAB staff to consider the formation of a CASAC subcommittee on risk/exposure assessment, examining additional measures that can be taken to orient new CASAC panel members, and giving further consideration to the issue of CASAC closure in its review of key documents. The first five of these recommendations were adopted in the December 7, 2006 decision memorandum with little change. Most were relatively non-controversial, although some, such as the continuous process for review of new scientific studies, could require additional resources. Also non-controversial would be better focus of the Criteria Document (renamed the "Integrated Science Assessment"), a recommendation made by virtually every group that has reviewed the subject over the last 30 years. One of CASAC's major suggestions, stated in letters to the Administrator dated May 12, 2006 and July 18, 2006, was that the initial step in the review process be the convening of a "science workshop," at which an invited group of expert scientists would "identify important new scientific findings regarding the pollutant in question." EPA staff, CASAC members, and the public would be invited to the workshop, and, prior to it, "CASAC would provide input to the Agency to identify subject-matter experts and key new scientific studies and findings to be discussed." The December 7 decision memorandum accepted this CASAC suggestion, and, as a result, press reports indicated that CASAC was generally pleased with the final decisions. One potentially more controversial change was the preparation of a separate risk/exposure assessment, and a related recommendation that CASAC consider formation of a separate subcommittee on risk/exposure assessment. In the Workgroup report released April 3, 2006, these recommendations were presented as measures that "could enhance the efficiency and timeliness of the overall NAAQS review process." In calling for better risk assessment, the 2006 review echoed the recommendations of both the 1981 and 1985 CASAC reviews. Better risk assessment would presumably clarify the policy choices the Administrator faces in making NAAQS decisions. At the same time, it is difficult to see how adding a third significant document to the process would enhance its timeliness, as stated in the report. In its May 12, 2006, letter to the EPA Administrator, CASAC raised this point. Noting that CASAC would now have to "double up" the scientific subject matter to be considered at certain meetings, the CASAC Chair wrote: Therefore, it was not apparent to us how the suggested alterations would make the NAAQS process more efficient or streamlined. On the contrary, EPA's proposed process appears to be no less time-consuming and likely more resource-intensive than the current process. Indeed, rather than helping the Agency more-easily achieve its NAAQS reviews for the six criteria air pollutants within the statutorily-mandated five-year period (i.e., per the Clean Air Act Amendments of 1977 codified at 42 U.S.C. § Sec. 7409), the proposed process would seemingly ensure that court-ordered completion dates—the result of external litigation—would continue to be the principal "driver" for key milestones in these NAAQS reviews. The December 7, 2006 decision memorandum retained the recommendation for a risk/exposure assessment document, but, rather than call for formation of a separate CASAC subcommittee on risk/exposure assessment (which CASAC "emphatically" opposed in its July 18 letter), agreed to CASAC's suggestion that risk assessment experts be added to future CASAC review panels. The Workgroup report's recommendations concerning the Staff Paper (renamed the "policy assessment document" in the report) are difficult to evaluate. Although the language is somewhat vague, the report's cover memo appears to recommend the removal of EPA staff and CASAC from the document's final review, making it a reflection of EPA senior management views instead. The memo says, "We have concluded that it is appropriate for the policy assessment document to reflect the Agency's views, consistent with EPA practice in other rulemakings." This presumably means the views of the agency's senior management rather than its staff. On the other hand, the Workgroup report stated: We recognize that important and complex issues are involved in deciding the scope of such a document, as well as deciding whether such a document would continue to reflect staff views, EPA senior management views, or both, and how that choice may affect the process by which such a document would be reviewed by CASAC and the public. The December 7, 2006 decision memorandum reiterates the language of the April 3 recommendation, in stating: ... the Agency will develop a policy assessment that reflects the Agency's views, consistent with EPA practice in other rulemakings. ... This policy assessment should be published in the Federal Register as an Advance Notice of Proposed Rulemaking (ANPR), with supporting documents placed in the rulemaking record as appropriate. The use of an ANPR will provide an opportunity for both CASAC and the public to evaluate the policy options under consideration and offer detailed comments and recommendations to inform the development of a proposed rule. A number of observers have interpreted this language to mean that CASAC will review the policy options after completion of the document rather than before, diminishing its role in the NAAQS-review process. In its July 18, 2006 letter to the Administrator, CASAC said that it wished to review both a first and second draft version of the policy assessment (PA) document before the issuance of a Notice of Proposed Rulemaking. The December 7 decision memorandum does not address this wish directly, but its choice of language appears to have rejected CASAC's request. One press account quoted the CASAC Chair as saying, "They will come out with their policy before we have a chance to comment on it." But she added, "They weren't taking our advice" even under the old process, at least in the recent PM decision. In another press account, she appeared less concerned about the changes to the NAAQS process, however, reportedly saying: "I see it as the role of the CASAC to advise the administrator on which levels will be health protective with an adequate margin of safety. That we have done and that we will continue to do." A general theme in the April 3 recommendations and the December 7 final decision seems to be that the role of EPA senior management in the NAAQS-setting process should be heightened, and that of CASAC lessened. The recommendation for preparation of a single integrated planning document, for example, "would provide an opportunity for early involvement of EPA senior management and/or outside parties in the framing of policy-relevant issues," according to the Review Workgroup's March 2006 report. The new policy assessment document would be reviewed after the document's publication, despite CASAC's recommendation that it review a first and second draft. The March 2006 report also suggests: 1) a single CASAC review of the policy assessment document, as opposed to the current iterative process; 2) the apparent discontinuation of CASAC closure on the document; and 3) CASAC's comments to be solicited along with those of the public. Three recommendations regarding CASAC in the Workgroup report also suggested a less independent role for the Committee. These were: that EPA prepare more comprehensive guidance on CASAC's statutory role, to enhance the orientation of panel members and "increase awareness of the importance of maintaining the distinction between science and policy judgments" in CASAC's recommendations; that further consideration be given by EPA and "perhaps communication with CASAC" regarding the issue of CASAC "closure" on EPA documents; and that EPA's SAB Staff Office consider issues related to the selection and management of CASAC NAAQS review panels. These recommendations may have arisen simply from concerns for effectiveness—i.e., they may represent only a concern that the agency better orient new members, make the selection process for review panels more transparent, and review the issue of closure, which was raised by several current and former CASAC members in comments they submitted to the workgroup. But coming in the context of the other recommendations, they raised the possibility that EPA intended to weaken the independence and power of CASAC through a variety of means. As part of the 2006 NAAQS process review, EPA solicited comments from current and former CASAC members and from stakeholder groups. The most consistent comments concerned the need to improve the focus of Criteria Documents and the need to reinstate the "closure" procedure. Commenters generally agreed that CDs are too encyclopedic, take too long to compile, are too difficult to read, and are not sufficiently focused on research that would inform the NAAQS review process. Commenters had a number of suggestions for improving the process, which are reflected in the Workgroup's recommendations. EPA's February 2006 CD, on ozone, was mentioned by several commenters as a vast improvement and a model for future efforts. The "closure" issue was raised by 7 of the current or former CASAC members, who generally felt that the lack of closure on the PM Staff Paper (completed in 2005) was a serious and unwarranted break with precedent, and contributed to the controversy over the Administrator's choice of an annual PM 2.5 standard. CRS contacted EPA staff to ask for background concerning the change in policy on closure. In particular, EPA was asked if there were a memorandum or guidance document, either from CASAC or from the agency, that explained the new policy. EPA's response was that there was, in fact, no change in policy. The current CASAC chair, who assumed the Chairmanship in 2005, simply stopped using the term "closure," according to the Director of the Science Advisory Board Staff Office. "She is trying to get away from the implication that CASAC 'approves' of the document. It's a semantic difference." CASAC commenters appeared to strongly disagree with that assessment. Dr. George Wolff, for example, said: The recent decision by the Agency to eliminate the need for CASAC closure will shorten the process, but, in my opinion, was a bad decision, and I fear that quality will suffer. The iterative review process leading to closure gave the Agency incentive to produce a document that CASAC would approve. Removing that incentive could lead to inferior products. Dr. Morton Lippmann stated: ... it is important that any changes made in the process do not weaken the long-established integrity, objectivity, and credibility of the process to the scientific community and interested stakeholders. This needs to be explicitly considered in light of the recent changes in SAB Staff management of CASAC's modus operandi in relation to its demands for discontinuing the issuance of a formal 'CASAC closure letter' on Air Quality Criteria Documents (CDs) and Staff Papers (SPs) from the CASAC review process. This management decision was unwise .... Several of the statements regarding the closure decision show the strong feelings it generated among CASAC members. Dr. Joe Mauderly stated: One of the reasons given for the recent (apparently successful) move by EPA to relegate CASAC to a reviewer, rather than an approver, of documents is that it slows the process. That is pure balderdash. I cannot recall a single instance over my 15 years of experience with the Committee that CASAC was truly the root cause of significant delay. On the other hand, I can recall multiple instances in which, if CASAC had not the prerogative to "close" on documents, EPA was clearly on track to ignore scientific advice and move forward with inadequate documents or incorrect conclusions. Dr. Bernard Goldstein added: "EPA's recent decision tells the scientific community that it is not worth our time to be involved in the EPA advisory process." CASAC's July 18, 2006 letter to the Administrator attempted to resolve the "closure" issue by saying that, in order to avoid any implication that closure meant "approval," the Committee would go back to the original wording of the 1979 memo in which the term closure was first used. "When the CASAC thinks that the science presented in a particular document is adequate for rulemaking, it will affirmatively state so in the closing paragraph of the final letter to the Administrator regarding the review of that document." This issue was not addressed in EPA's December 7, 2006 decision memorandum. A third issue raised by several commenters was a sense that EPA and CASAC do not adequately consider public comments during the preparation of the Criteria Document and Staff Paper, in large part because of the lack of a deadline for submission. For example, Dr. George Wolff stated: Over the years there have been numerous excellent scientific comments produced by various organizations. Unfortunately, they typically arrive a day or two before the CASAC meeting, which gives the members insufficient time to digest them. ... Some Agency response to the public comment documents should be prepared and provided to CASAC. On a related note, Dr. Roger McClellan complained that too many of CASAC's meetings are now being scheduled as teleconferences, of which only a summary (no transcript) is later made available. There was general agreement that the biggest obstacle to more timely completion of NAAQS reviews was the poor quality of initial CD and Staff Paper drafts that EPA presented to CASAC for review. The net result is an iterative ("ping pong") process in which CASAC requests improvements to the documents and EPA revises them, until, after several iterations, CASAC finally closes on the documents' adequacy. Another area in which EPA asked for comments was on the issue of how to distinguish more clearly scientific conclusions and advice from policy judgments and recommendations. This question produced no consensus. On one hand, Dr. Ellis Cowling and others noted that CASAC is required by the statute to "recommend to the Administrator any new ambient air quality standards." As Dr. Hopke noted, in distinguishing between science and policy judgments: I hearken back to the law which asks the Committee to recommend a standard. CASAC has typically left the recommendation to the staff through closure on the SP. Now since closure has been eliminated, it becomes incumbent on the Committee to make a formal recommendation and this will clearly include more than the science. The loss of closure has helped to blur the line between scientific advice and clearly leads to the Committee taking a more active policy role. On the other hand, Dr. Wolff argued that, particularly in its January 17, 2006 letter regarding the proposed PM standards, "CASAC has clearly overstepped their boundaries and ventured into the policy arena." Somewhere between these views are the comments of Dr. Rogene Henderson, the current Chair of CASAC, who states: The Agency should make clear to CASAC what they require in terms of scientific advice and what they consider to be policy issues, on which they do not need advice. The line between science and policy is not always apparent, and this difference should be made clear in the charge questions given to CASAC. A similar point is made by another long-time CASAC member, Dr. Joe Mauderly: Neither scientists nor policy makers want to draw the line, or to define it or admit to it. CASAC meetings are rife with discussions about how its pronouncements will affect policy, and scientist advocates (on CASAC and its panels, as well as others) game the system to achieve their ideological policy goals. When EPA proposes or promulgates standards, it is reluctant to state clearly how science and policy enter into the decision—it wants to portray that all is based on science. These behaviors are absolutely understandable—most scientists are convinced that they know what's best for the country, and EPA Administrators don't want to admit to any motive other than the "best science".... At present, my only suggestion is that the Administrator make explicit (much more so than at present) just how science and policy separately bore on the proposed standard, and how the two were integrated. In reviewing the many comments on the NAAQS process, much was found to criticize or to recommend, but perhaps more striking than the criticism was the degree to which commenters appear to believe that the system has worked. As stated by Dr. Bernard Goldstein, a former Chair of CASAC and a former Assistant Administrator of EPA's Office of Research and Development, "... in my teaching of environmental health policy to both public health students and to law students, I routinely present the NAAQS standard-setting process as one that represents an ideal interface between science and regulation." Dr. Roger McClellan, who, in some respects was critical of the process, stated: Without question, the CASAC has played a critical role in ensuring that the 'final' criteria documents were of high scientific quality. ... The activities of the CASAC, in my opinion, have been in accord with the language and intent of the Clean Air Act (1977) and consistent over time with the evolution of CASAC practices that have received substantial public and legal scrutiny. The modus operandi has proved successful in helping to ensure that the NAAQSs are science-based. Dr. Lippmann asked: Can the Process for Setting NAAQS be Strengthened? The easy answer is of course it can, and I will address how it can in text that follows. However, it is important that any changes made in the process do not weaken the long-established integrity, objectivity, and credibility of the process to the scientific community and interested stakeholders. Sections 108 and 109 of the Clean Air Act establish statutory requirements for the identification of NAAQS (or "criteria") air pollutants and the setting and periodic review of the NAAQS standards. But the process used by EPA is as much the result of 37 years of agency practice as it is of statutory requirements. In Section 109, for example, the statute establishes the Clean Air Scientific Advisory Committee to make recommendations to the Administrator regarding new NAAQS and, at five-year intervals, to make reviews of existing NAAQS with recommendations for revisions. In practice, EPA staff, not CASAC, have prepared these reviews, drafting Criteria Documents, which review the science and health effects of criteria air pollutants, and Staff Papers, which make policy recommendations. CASAC's role has been to review and approve these EPA documents before they went to the agency's political appointees and the Administrator for final decisions. Under EPA's new procedures, EPA's political appointees have a role early in the process, helping to choose the scientific studies to be reviewed, and CASAC will no longer approve the policy Staff Paper with its recommendations to the Administrator. CASAC's iterative role that refined the EPA Staff Paper conclusions could be eliminated, and the Committee relegated to commenting on the policy paper after it appears in the Federal Register , during a public comment period. The goal, according to agency officials, is to speed up the review process, which has consistently taken longer than the five years allowed by statute. "These improvements will help the agency meet the goal of reviewing each NAAQS on a five-year cycle as required by the Clean Air Act, without compromising the scientific integrity of the process," according to the memorandum that finalized the changes. The changes have caused concern among environmental groups and some in the scientific community, however, because, they say, they give a larger role to the agency's political appointees and a smaller role to EPA staff and CASAC. If Congress chooses to review these new procedures, one issue that it may wish to focus on is the statutory role of CASAC: whether it should play some formal role in approving the Administrator's choice of standards. Under current law, CASAC's role is purely advisory. EPA is not required by the Clean Air Act to follow CASAC's recommendations; the act (in Section 307(d)(3)) requires only that, when the Administrator proposes a new or revised NAAQS in the Federal Register , he set forth any pertinent findings, recommendations, and comments by CASAC (and the National Academy of Sciences), and, if his proposal differs in an important respect from any of their recommendations, provide an explanation of the reasons for such differences. CASAC, in practice, has tended to play a larger role, evaluating EPA staff's analysis of the science and its policy recommendations and withholding formal "closure" on the agency documents until it was satisfied that the documents accurately reflected the state of the science. The statute has never required EPA to have CASAC's approval before proposing or promulgating NAAQS revisions, but, in practice, the need to build a record that it could defend against court challenges has generally led EPA to promulgate standards within the range of CASAC's recommendations. In 2006, for the first time, the Administrator promulgated standards outside of that range, and CASAC, in a written response, made clear that it felt the standards did not meet the statutory requirements. That may be the role Congress intended for CASAC, or it may not. On one hand, Congress could conclude that CASAC has overstepped its bounds, in essence judging an Administrator's final decision in contrast to its statutory mandate to make recommendations beforehand. On the other hand, Congress might conclude that the Administrator's judgment should have been constrained to the range of options that CASAC established as being supported by the science. The courts are likely to play a role here, as well. Thirteen states, the District of Columbia, electric utilities and other industry groups, groups representing farmers and ranchers, and several environmental groups have challenged the PM standards in court. Legal challenges to NAAQS are not unusual. In reviewing EPA regulations in the past, courts have often deferred to the Administrator's judgment on scientific matters, focusing more on issues of procedure, jurisdiction, and standing. Nevertheless, CASAC's detailed objections to the Administrator's decisions and its description of the process as having failed to meet statutory and procedural requirements could play a role as these standards are reviewed in court. The subsequent ozone review, which was completed in March 2008, provides a second example of the Administrator not following CASAC's recommendations. As of this writing, the new standard had not been challenged in court, but it is expected that it will be, giving the courts another opportunity to rule on CASAC's role in the setting of NAAQS. Although the new NAAQS review procedures will change the role that CASAC has historically played, CASAC, at first, appeared less concerned with the changes than some who have advocated on its behalf. When the December 7, 2006 decision memorandum was released, the committee's Chair said CASAC did not plan to issue a formal response. As noted above, in its response to the Workgroup report released in April 2006, the committee had made a number of suggestions, some of which, such as the convening of a science workshop at the outset of the process to better focus the review, were incorporated into the decision memorandum. The memorandum also addressed another of CASAC's major concerns, that the old process spent too much time compiling an encyclopedic review of the literature, much of which had little relevance to the policy questions that needed to be addressed. With respect to EPA taking comments from CASAC at the same time that it considers comments from the public, CASAC's Chair was reported to say, "(S)ome of the members were concerned but most are not, because it doesn't change CASAC's ability to comment." In early February 2007, however, reports circulated that CASAC had changed its mind. After its first experience with the new NAAQS review process, it was reported that the committee would compose another letter to the EPA Administrator critical of the new process: Henderson [CASAC Chair Dr. Rogene Henderson] said the staff paper had been based on scientific considerations. With the new process, EPA is "skipping that and going right to options based on management views," she said. EPA should produce options based on science before having EPA management make recommendations about what they want the standard to be, Henderson said. Henderson said that when EPA first proposed the NAAQS process changes in response to a memo by Deputy Administrator Marcus Peacock, CASAC had "misunderstood how it would be implemented." However, "the full consequences became apparent in the lead meeting," she said, with panel members concerned about not being able to review staff recommendations. The new process "does not allow CASAC time for appropriate input to evaluate the science," she said. "And the letter will say how this is not working out," Henderson said. Negotiations between CASAC and EPA management followed the February 6-7, 2007 public meeting, with the result that EPA modified its schedule to allow the CASAC Lead Review Panel to review a second draft of EPA's risk and exposure assessment before the agency's Policy Assessment was published in the Federal Register . This mollified some of CASAC's concerns, but CASAC has continued to express "serious concerns" about other aspects of the Lead NAAQS review. In January 2008, CASAC's concerns (now informed by experience with each step of the new review process) crystallized in a four-page letter to Administrator Johnson. The Committee discussed "significant problems that exist in the latter steps of this new review process," specifically the absence of a Staff Paper ("a document highly-valued by CASAC for its thorough analysis of the new scientific evidence ..., its presentation of the possible alternatives for the standards ... and, most importantly, its provision of the scientific evidence undergirding those alternatives.") The Committee said it had been reassured that the Policy Assessment to be published as an Advance Notice of Proposed Rulemaking (ANPR) would be functionally equivalent to the Staff Paper, but in practice, in the ongoing review of the Lead NAAQS, it found that the ANPR was " both unsuitable and inadequate as a basis for rulemaking ." The letter states that "there is a stark contrast between the empty and regressive nature of the ANPR—which is not a true policy assessment—and the scholarly and complete scientific analyses presented in EPA's Staff Paper." The letter noted that the ANPR asked for comment on options that had already been dismissed on scientific grounds. The result is that, rather than inducing greater efficiency in the review process, it slows down the process "through its illogical contemplation of a greater number of options as time progresses." While agreeing that there may be a role for an ANPR at the beginning of the review process, the letter concludes by reiterating CASAC's view of its statutory mission in reviewing the policy assessment: Furthermore, it is essential that this policy assessment document be furnished to the CASAC for peer-review in public advisory meetings, in the same manner as multiple drafts of the Staff Paper were provided to the Committee for review under the previous process. It cannot be overstated that, in order to fulfill its Congressionally-mandated and thus legal role, the Committee needs to conduct a thorough and open evaluation of this "best available science," i.e., the scientific justification and underlying analyses of the various options for standard-setting that the Agency formerly presented in the Staff Paper—which of course will now include the viewpoints of EPA management. Obscuring or weakening such an independent scientific review would subvert both the vital interests of the CASAC and the public's confidence in this NAAQS review process—a result that the Agency surely neither intends nor desires. Responding to the changes at the time of their announcement in December 2006, the incoming Chair of the Environment and Public Works Committee, Senator Barbara Boxer, called them "unacceptable," and said the committee planned to make them a top priority for oversight in the 110 th Congress. (The committee included them among the topics it considered in a February 6, 2007 hearing on "Oversight of Recent EPA Decisions.") Seven Democratic members of the committee, including Senator Boxer, wrote EPA Administrator Johnson, December 21, 2006, to express their strong opposition to the changes and to ask him to "abandon" them. In the following months, congressional attention has generally been on other issues. As the reviews of the PM, ozone, and lead standards progress, however, and as the courts review EPA's final decisions regarding these standards, there are likely to be continued opportunities for congressional oversight. Thus, the role of CASAC in NAAQS reviews could be the subject of further attention in Congress. | As the Environmental Protection Agency (EPA) completes its reviews of the ozone, particulate matter (PM), and lead air quality standards—the PM review was completed in September 2006, the ozone review in March 2008, and the lead review is due for completion in September 2008—the Clean Air Scientific Advisory Committee (CASAC), an independent committee of scientists that advises the agency's Administrator, has been sharply critical of several of EPA's decisions. CASAC was established by statute in 1977. Its members, largely from academia and from private research institutes, are appointed by the EPA Administrator. They review the agency's work in setting National Ambient Air Quality Standards (NAAQS), relying on panels of the nation's leading experts on the health and environmental effects of the specific pollutants. CASAC panels have a nearly 30-year history of working quietly in the background, issuing what were called "closure letters" on agency documents that summarize the science and the policy options behind the NAAQS. The science and policy documents, written by EPA staff, generally have gone through several iterations before the scientists were satisfied, but, with the issuance of a closure letter, CASAC has in past years removed itself from the process, leaving the final choice of standards to the Administrator. In 2006, however, CASAC and its 22-member PM Review Panel forcefully objected to the Administrator's decisions regarding revision of the particulate NAAQS. The committee took the unprecedented steps of writing to the Administrator both after he proposed the standards in January, and after he promulgated them in September. In the latter communication, CASAC stated unanimously that the Administrator's action "does not provide an 'adequate margin of safety ... requisite to protect the public health' (as required by the Clean Air Act) ...." (Italics in original) Within a month of CASAC's September 2006 letter, the committee's ozone review panel approved EPA's policy options Staff Paper, the next-to-last formal step before the Administrator proposed to revise the ozone NAAQS. In doing so, the panel drew a firm line ("There is no scientific justification for retaining the current primary 8-hr NAAQS"), and recommended a range far more stringent than the previous standard. The Administrator promulgated a standard outside of CASAC's range in March 2008. At the same time that CASAC panels were speaking out, EPA was conducting a review of CASAC's role and other aspects of the NAAQS-revision process. A December 7, 2006 EPA memorandum made a number of changes in that process that many argue will diminish the role of CASAC and agency scientists. As the changes have been implemented, CASAC has objected to some of the new procedures and a number of Senators have written the EPA Administrator to express their opposition to the changes. Congress is expected to continue taking an interest in the subject. This report discusses these issues, focusing on the statutory and historical role of CASAC and various proposals for change. |
When a Senator introduces a bill or joint resolution, the measure is usually referred to committee, pursuant to provisions of Senate Rules XIV, XVII, and XXV. When the House informs the Senate that it ha s passed a bill or joint resolution that was introduced in the House, and the Senate receives the measure, the measure is also often referred to a Senate committee. Senate Rule XIV, paragraph 2 requires that bills and joint resolutions have three readings before passage, and that they be read twice before being referred to committee. Although a Senator may demand (under paragraph 2) that the readings occur on three different legislative days, bills and joint resolutions may be read twice on the same day "for reference" (referral) if there is no objection (under paragraph 3). Most bills and joint resolutions are read twice "without any comment whatsoever from the floor" and referred to committee on the same day that they are introduced by a Senator or received from the House. Senate Rule XVII, paragraph 1 states that a measure should be referred to the committee "which has jurisdiction over the subject matter which predominates.... " Rule XXV contains the jurisdictions of the Senate's standing committees. These rules and the precedents from referral decisions based on them guide the referral of measures. There also exist agreements between committees that might govern the referral of certain bills and joint resolutions. Under Rule XVII, paragraph 1, the presiding officer formally refers bills and joint resolutions; in practice, the parliamentarian refers measures in behalf of the presiding officer. The introduction and referral of bills and joint resolutions, and the referral of House-passed bills and joint resolutions, occurs as "morning business," pursuant to Senate Rule VII, paragraph 1. The Senate may, however, use provisions of Senate Rule XIV or unanimous consent to bypass referral of a bill or joint resolution to a committee. The Senate might also hold a measure in abeyance at the desk (of the presiding officer), at least temporarily not referring it to committee or proceeding on it. The Senate might also agree by unanimous consent to truncate a committee's consideration of a measure that had been referred to it. Reasons for bypassing a committee's consideration of a bill or joint resolution include wishing to place the measure directly on the Senate's Calendar of Business, which under General Orders lists measures eligible for floor consideration, or wanting to immediately call up and consider the measure. Senators might also convert introduced bills and resolutions into an amendment form and offer their proposal as a germane, relevant, or nongermane amendment, including amendments in the nature of a substitute and managers' amendments, to a measure being considered on the Senate floor. They might also choose not to introduce a bill or resolution at all, but only seek to amend another measure. This report does not examine the use of the amendment process as a way to bypass Senate committees. This report examines alternative procedures and actions that the Senate uses to bypass committee consideration of bills and joint resolutions. It also provides examples of how the Senate uses these alternative procedures and actions to facilitate consideration and passage of some bills and joint resolutions. In the remainder of this report, bill or bills and measure or measures will be used to refer to bills and joint resolutions. Senate Rule XIV, paragraph 4, states: "... every bill and joint resolution introduced on leave, and every bill and joint resolution of the House of Representatives which shall have received a first and second reading without being referred to a committee, shall, if objection be made to further proceeding thereon, be placed on the Calendar ." ( Emphasis added .) Therefore, through objection, a bill after two readings is prevented from being referred to committee and is placed directly on the Senate's Calendar of Business. It is usually the majority leader (or a Senator acting in the majority leader's stead), acting on his own or at the request of any other Senator, who objects to "further proceeding"—committee referral—on a measure. For example, this procedure was used to place S. 1035 directly on the calendar. On April 21, 2015, the presiding officer recognized Majority Leader McConnell for this colloquy with the chair: Mr. McCONNELL. Mr. President, I understand that there is a bill at the desk, and I ask for its first reading. The PRESIDING OFFICER. The clerk will read the bill by title for the first time. The senior assistant legislative clerk read as follows: A bill ( S. 1035 ) to extend authority relating to roving surveillance, access to business records, and individual terrorists as agents of foreign powers under the Foreign Intelligence Surveillance Act of 1978 and for other purposes. Mr. McCONNELL. I now ask for a second reading and, in order to place the bill on the calendar under the provisions of rule XIV, I object to my own request. The PRESIDING OFFICER. Objection having been heard, the bill will be read for the second time on the next legislative day. In the next edition of the Senate's Calendar of Business on April 22, this action was recorded in the section Bills and Joint Resolutions Read the First Time. The measure was pending at the desk (of the presiding officer). Since objection had been heard to the second reading, the presiding officer recognized Majority Leader McConnell the next legislative day, April 22: Mr. McCONNELL. Mr. President, I understand there is a bill at the desk due for a second reading. The PRESIDING OFFICER. The clerk will read the bill by title for the second time. The legislative clerk read as follows: A bill ( S. 1035 ) to extend authority relating to roving surveillance, access to business records, and individual terrorists as agents of foreign powers under the Foreign Intelligence Surveillance Act of 1978 and for other purposes. Mr. McCONNELL. In order to place the bill on the calendar under the provisions of rule XIV, I object to further proceedings. The PRESIDENT pro tempore. Objection having been heard, the bill will be placed on the calendar. S. 1035 had received its second reading, but there was objection to further proceeding on referral of the bill to committee. The presiding officer, under Rule XIV, ordered that the bill be placed on the Senate Calendar. In the calendar beginning April 23, S. 1035 appeared as Calendar Order No. 60 in the section General Orders, with other measures eligible for floor consideration. This same procedure is followed to have House-passed bills and joint resolutions placed directly on the Senate calendar. Broadly, the two purposes of preventing referral of a bill to a committee by placing it on the Senate Calendar are (1) to facilitate the full Senate's opportunity to consider the measure; or (2) to bypass a committee's potential inaction or, to a bill's sponsor, potential hostile action. Although placing a bill directly on the calendar does not guarantee that the full Senate will ever consider it, the measure is available for floor consideration and certain procedural steps, like committee reporting or discharging a committee from a bill's consideration, and procedural requirements, like the two-day availability of a committee report, may be obviated. In the 114 th Congress, at least 82 bills were placed directly on the calendar using the Rule XIV procedure. For example, S. 1 , to approve the construction of the Keystone XL pipeline, was a priority for many Republican Senators and a group of Democratic Senators. A reason that it might have been placed directly on the calendar was that the issue had been discussed in the second session of the 113 th Congress and a related bill ( S. 2280 ) had been debated and voted on in the 113 th Congress's lame-duck session. On January 6, 2015, in the 114 th Congress, Senator John Hoeven introduced S. 1 . It was read a first time that day, and, on January 7, it was read the second time and placed on the calendar, thereby enabling the majority leader to expeditiously call up the bill in the Senate. Although no measure on the Senate Calendar is assured rapid or any consideration, the majority leader moved to proceed to the consideration of S. 1 on January 8 and immediately presented a motion to invoke cloture. The Senate on January 12 by a 63-32 vote invoked cloture on the motion to proceed. The Senate subsequently agreed to the motion to proceed on a voice vote on January 13, whereupon debate and the consideration of amendments began. Upon a second attempt to invoke cloture on the measure , cloture was invoked by a vote of 62-35 on January 29. The Senate voted 62-36 the same day to pass the bill. As mentioned, House-passed bills might also be placed directly on the calendar using the Rule XIV procedure. The Senate might choose this option when— a related Senate measure is already on the calendar; a Senate committee is in the process of completing consideration of Senate companion legislation; an amendment to the House measure is already in discussion among interested Senators and the House-passed measure will be the Senate's legislative vehicle; Senators of the committee of jurisdiction support for the House-passed measure is stronger in the full Senate than in the committee to which it would be referred; the House-passed measure includes tax or appropriations provisions, which must originate in the House, requiring the use of a House-passed legislative vehicle; or for another reason. House-passed measures placed on the calendar in this way in the 114 th Congress included H.R. 4465 , the Federal Assets Sale and Transfer Act, where the Senate Homeland Security and Governmental Affairs committee had earlier ordered reported a companion bill, and H.R. 2666 , the No Rate Regulation of Internet Broadnet Access Act, where the Senate Commerce, Science, and Transportation Committee subsequently reported a companion bill. The procedure under Rule XIV is also used by minority-party Senators, or by a majority-party Senator with a viewpoint different on an issue from that of other Senators of his or her party, to give added visibility to specific bills and to avoid potential inaction or hostility in a Senate committee. A Democratic Senator in the 114 th Congress, for example, used this procedure to put directly on the calendar S. 3348 , a bill to require major-party presidential candidates to disclose tax return information. By unanimous consent, bills may also be read the first and second times and placed directly on the calendar. This procedure was used in the 114 th Congress for bills such as H.R. 5687 , the GAO Mandates Revision Act. The Senate companion measure, S. 2964 , had been reported earlier from the Senate Homeland Security and Governmental Affairs Committee and was pending on the Senate Calendar. Even major legislation might be placed directly on the calendar by unanimous consent. For example, in the 113 th Congress, Majority Leader Reid anticipated that the Senate would soon receive from the House H.J.Res. 59 , the fiscal year 2014 continuing appropriations resolution. To ensure that he could quickly call up the measure, the majority leader made this unanimous consent request on September 19, 2013: Mr. President, I ask unanimous consent that[,] when the Senate receives H.J.Res. 59 from the House, the measure be placed on the calendar with a motion to proceed not in order until Monday, September 23. When the majority leader obtained the Senate's unanimous consent, the House was still one day from voting to proceed to the consideration of H.J.Res. 59 . Senate floor consideration of a bill could be characterized as a two-step process. There is first debate and a decision by the Senate whether to consider a measure: a vote on, invoking cloture on, or unanimous consent to a motion to proceed to consideration of the measure. There is then debate, possible amendment, and a vote on final passage of the measure itself. On many pieces of noncontroversial legislation, Senate leaders might use one of two informal processes called clearance and hotlining to determine the feasibility of expeditious or immediate consideration of a measure. Senators are notified of pending noncontroversial bills to determine if any Senator would object to proceeding to consider and then passing a specific measure by unanimous consent—with little or no debate, no motion or amendment unless it is sought as part of clearance, and, likely, no recorded votes. The process of passing noncontroversial measures may include bypassing a Senate committee or truncating committee action, although a committee might well have played a key role in the development of the noncontroversial measure sought to be passed or in the measure's clearance. On major legislation, the majority leader also attempts through clearance to obtain unanimous consent to proceed to consideration of a measure. The majority leader might seek unanimous consent even if the measure was not referred to or reported by a committee. If successful in negotiating unanimous consent to proceed to the consideration of a measure, or perhaps to discharge a committee from further proceedings on a measure and then to proceed to its consideration, the majority leader propounds a unanimous consent request on the Senate floor to proceed to the consideration of the specified measure. This section of the report illustrates the use of unanimous consent to bypass or truncate committee consideration of legislation and, particularly for noncontroversial legislation, to expeditiously pass such bills on the Senate floor. The Senate may pass some noncontroversial bills the day they are introduced, for example, in the 113 th Congress, S. 1568 , to facilitate the replacement of a Veterans Administration medical center in Denver: Mr. GARDNER. Mr. President, I ask unanimous consent that the Senate proceed to the immediate consideration of S. 1568 , introduced earlier today. The PRESIDING OFFICER. The clerk will report the bill by title. The bill clerk read as follows: A bill ( S. 1568 ) to extend the authorization to carry out the replacement of the existing medical center of the Department of Veterans Affairs in Denver, Colorado, to authorize transfers of amounts to carry out the replacement of such medical center, and for other purposes. There being no objection, the Senate proceeded to consider the bill. Mr. GARDNER. Mr. President ... I ask unanimous consent that the bill be read a third time and passed, and the motion to reconsider be laid upon the table. The PRESIDING OFFICER. Without objection, it is so ordered. The Senate may also pass some House-passed bills when they are received. For example, the Senate received a message from the House July 14, 2016, regarding H.R. 5722 , establishing the John F. Kennedy Centennial Commission, and passed the bill that day: Ms. MURKOWSKI. Mr. President, I ask unanimous consent that the Senate proceed to immediate consideration of H.R. 5722 , which was received from the House and is at the desk. The PRESIDING OFFICER. The clerk will report the bill by title. The senior assistant legislative clerk read as follows: A bill ( H.R. 5722 ) to establish the John F. Kennedy Centennial Commission. There being no objection, the Senate proceeded to consider the bill. Ms. MURKOWSKI. Mr. President, I further ask unanimous consent that the bill be read three times and passed and the motion to reconsider be considered made and laid upon the table with no intervening action or debate. The PRESIDING OFFICER. Without objection, it is so ordered. If the measure is a joint resolution rather than a bill, and the joint resolution has a preamble, the unanimous consent request on passage must encompass the preamble. So, for example, Majority Leader Reid made this request pertaining to S.J.Res. 22 (112 th Congress), to grant congressional consent to a change in a compact between the states of Missouri and Illinois: I ask unanimous consent the joint resolution be passed, the preamble be agreed to , the motion to reconsider be made and laid upon the table, there be no intervening action or debate, and any statements be printed in the Record. ( Emphasis added .) House bills might be received by the Senate, or Senate bills might be introduced, with no immediate further proceedings on them. They may be held at the desk or ordered to be held at the desk, sometimes pending a decision on referring them to committee, passing them without committee consideration, or obtaining clearance from all Senators. For example, H.R. 5936 , the West Los Angeles Leasing Act of 2016 (dealing with local Veterans Administration leases), was received in the Senate on September 13, 2016. Although several other bills received from the House that day were referred, no proceedings occurred on H.R. 5936 . On September 19, the Senate took up and passed H.R. 5936 by unanimous consent. To proceed to consideration, Majority Leader McConnell simply stated, I ask unanimous consent that the Senate proceed to the immediate consideration of H.R. 5936 , which was received from the House and is at the desk. The bill was passed without debate by voice vote. The Senate might even amend a bill that is taken from the desk and considered, as it did with H.R. 6302 , the Overtime Pay for Secret Service Agents Act of 2016. The pertinent words spoken after there was no objection to the Senate's proceeding to consider the bill were: I ask unanimous consent that the Johnson substitute amendment be agreed to; the bill, as amended, be considered read a third time and passed; the title amendment be agreed to; and the motion to reconsider be considered made and laid upon the table. H.R. 6302 , as amended, was passed by unanimous consent. The Senate might anticipate passage of a measure by the House, and agree by unanimous consent to Senate passage. For example, the Senate in the 113 th Congress anticipated House passage of a bill that would provide a short-term extension for special Iraqi immigrant visas: Mr. REID. Mr. President, I ask unanimous consent that if the Senate receives a bill from the House which is identical to S. 1566 , a bill providing a short-term extension of Iraq special immigrant visas, as passed by the Senate, then the bill be read three times and passed and the motion to reconsider be laid on the table with no intervening action or debate. The PRESIDING OFFICER. Without objection, it is so ordered. The Senate might even anticipate House action on major legislation and, in response to exigent circumstances, agree by unanimous consent to its automatic consideration and passage. This happened, for example, when Hurricane Katrina decimated the Gulf Coast during the August 2005 congressional recess. Speaker Dennis Hastert and Majority Leader Bill Frist called Congress back into session on September 1, 2005 (the Senate) and September 2 (the House). With only a handful of Members present, the House on September 2 passed H.R. 3645 , emergency supplemental appropriations to deal with the immediate consequences of Hurricane Katrina. On September 1, anticipating House action, Senator Thad Cochran, chair of the Appropriations Committee, made this unanimous consent request, which was agreed to: Mr. President, at this point, I ask unanimous consent that notwithstanding the recess or adjournment of the Senate, the Senate may receive from the House an emergency supplemental appropriations bill for relief of the victims of Hurricane Katrina, the text of which is at the desk, and that the measure be considered read three times and passed and a motion to reconsider laid on the table; provided that the text of the House bill is identical to that which is at the desk. The House and Senate passed the supplemental appropriations bill September 2 and President George W. Bush signed it into law the same day ( P.L. 109-61 ). Noncontroversial Senate bills and House-passed measures are often referred to committee. A committee might later be discharged by unanimous consent of the Senate from a measure's consideration. (If unanimous consent cannot be obtained, a motion to discharge could be made. ) For example, H.R. 1168 , an amendment to the Social Security Act to preserve access to rehabilitation innovation centers under the Medicare program, was introduced on April 30, 2015. On December 9, 2016, the measure was discharged by unanimous consent from the Senate Finance Committee. With an amendment included in the unanimous consent request on reading and passage, the Senate passed the bill: Mr. PORTMAN. Mr. President, I ask unanimous consent that the Committee on Finance be discharged from further consideration of S. 1168 and the Senate proceed to its immediate consideration. The PRESIDING OFFICER. Without objection, it is so ordered. The clerk will report the bill by title. The senior assistant legislative clerk read as follows: A bill ( S. 1168 ) to amend title XVIII of the Social Security Act to preserve access to rehabilitation innovation centers under the Medicare program. There being no objection, the Senate proceeded to consider the bill. Mr. PORTMAN. Mr. President, I ask unanimous consent that the Kirk amendment at the desk be agreed to; that the bill, as amended, be read a third time and passed; and that the motion to reconsider be considered made and laid upon the table. The PRESIDING OFFICER. Without objection, it is so ordered. Although legislation might be discharged from a committee that has taken no formal action on a measure, legislation might also be discharged following formal committee action. For example, the Veterans' Affairs Committee held hearings on S. 3021 , the Veterans Education Improvement Act of 2016. The committee was subsequently discharged from further consideration of S. 3021 . Similarly, the Veterans' Affairs Committee was discharged following committee hearings from further consideration of S. 3055 , the Department of Veterans Administration Dental Insurance Reauthorization Act of 2016. In the 112 th Congress, the Judiciary Committee was discharged from further consideration of S. 3250 , the Sexual Assault Forensic Evidence Reporting Act of 2012 (the SAFER Act), after the committee had ordered the bill to be favorably reported. Measures might also be discharged and considered en bloc. | Most bills and joint resolutions introduced in the Senate, and many House-numbered bills and joint resolutions received by the Senate after House passage, are referred to committee. Some bills and joint resolutions, however, are not referred to committee. This report examines the alternative procedures and actions that the Senate uses to bypass committee consideration of bills and joint resolutions. It also provides examples of how the Senate uses these alternative procedures and actions to facilitate consideration and passage of some bills and joint resolutions. Provisions of Senate Rule XIV and the practice of unanimous consent allow the Senate to bypass a measure's referral to committee, whether that measure might be major or noncontroversial. Rule XIV requires measures to be read twice before referral to committee. By objecting after the second reading of a measure to any further proceeding on it, a Senator, normally the majority leader, acting on his own initiative or at the request of any Senator, prevents a bill or joint resolution's referral to committee. The measure is placed directly on the Senate Calendar of Business. Alternately, unanimous consent is also used to bypass referral and place measures directly on the calendar. Although placing a measure directly on the calendar may facilitate calling it up later for consideration on the Senate floor, placement on the calendar does not guarantee floor consideration. A bill or joint resolution, in addition, might be neither referred to committee nor placed on the calendar: a measure might be held at the desk (of the presiding officer)—either simply being at the desk in the absence of any proceeding on it or after being ordered by unanimous consent to be held at the desk. This status has been applied to both major and noncontroversial measures. Unanimous consent may be used to truncate a committee's consideration of a measure referred to it: a measure might be referred to a committee but then the committee by unanimous consent of the Senate is discharged from further consideration of the measure. The Senate regularly uses unanimous consent to consider and pass noncontroversial legislation that was placed directly on the calendar, that is at the desk (neither placed on the calendar nor referred to committee), or that has been discharged from committee. One purpose of using any of the means of bypassing committee referral or truncating committee consideration of a measure is to facilitate a measure's Senate consideration. The Senate leadership might use one of two informal processes, called clearance and hotlining, to determine if any Senator would object to a specific bill or joint resolution being considered and possibly passed by unanimous consent. This report does not examine procedures applicable to concurrent and simple resolutions, treaties, or nominations. Nor does it examine the use of a germane, relevant, or nongermane amendment instead of a bill or joint resolution. This report will not be updated again in the 115th Congress unless Senate procedures change. |
Illegal logging is a pervasive problem affecting countries that produce, export, and import wood and wood products. Some have estimated that between 2% and 4% of softwood lumber and plywood traded globally, and as much as 23% to 30% of hardwood lumber and plywood traded globally, could be from illegal logging activities. The World Bank estimates that illegal logging costs governments approximately $15 billion annually in lost royalties. Illegal logging is a concern to many because of its economic implications as well as its environmental, social, and political impacts. Some are concerned that U.S. demand for tropical timber from countries in Latin America and Southeast Asia may be a driver of illegal logging. The United States is the world's largest wood products consumer and one of the top importers of tropical hardwoods. For example, the United States is the largest importer of Peruvian mahogany, which some estimate to be 80% illegally logged. Some others contend that illegal logging activities devalue U.S. exports of timber. According to one study, illegal logging of roundwood and its wood products depresses world wood prices on average by 7%-16% annually. If there were no illegally logged wood in the global market, it has been projected that the value of U.S. exports of roundwood, sawnwood, and panels could increase by an average of approximately $460 million each year. (This estimate is provided by a U.S. industry trade association opposed to low-cost imports.) No internationally accepted definition of illegal logging exists, and there is considerable debate over definitions that have been presented. For example, logging without a government-approved management plan may be legal in parts of the United States, but illegal in Brazil. Definitions of illegal logging can be specific or broad. Illegal logging can be broadly defined as "large scale, destructive forest harvesting that transgresses the laws of the nation where said harvesting occurs." An example of a specific definition is provided by Conteras-Hermosilla, where 12 activities are defined as illegal logging, including the following: Logging protected species; Duplication of felling licenses; Girdling or ring-barking, to kill trees so that they can be legally logged; Contracting with local entrepreneurs to buy logs from protected areas; Logging in protected areas; Logging outside concession boundaries; Logging in prohibited areas such as steep slopes, riverbanks, and water catchments; Removing under/oversized trees from public forests; Extracting more timber than authorized; Reporting high volumes of timber extracted in forest concessions to mask the volume taken from areas outside concession boundaries; Logging without authorization; and Obtaining logging concessions through bribes. Due to the often clandestine nature of illegal logging, the variability in defining illegal logging, and the difficulty of obtaining large-scale data on illegal logging practices in many countries, estimates on the extent of illegal logging are difficult to quantify. A variety of techniques are used to determine where illegal logging is most prevalent. Examples include government records, court cases, witness accounts, interviews, and satellite imagery. Using these data and other sources, some estimate that the three countries where illegal logging is greatest (in terms of volume in 2003) are Russia, Indonesia, and Brazil. Other estimates of illegal logging activities that are derived from a variety of measures are presented from a sample of countries in Table 1 . Illegal logging exists in the United States but is primarily done by individuals or small operations. Some report that up to 10% of forest production in the U.S. is illegal. The U.S. Forest Service estimates that approximately one out of every 10 trees harvested in national forests is taken illegally. Private lumber companies estimate that nearly 3% of their cut trees are stolen, amounting to losses of approximately $350 million annually. Statistics for illegal logging on private lands are unavailable, yet are anecdotally quoted as a serious problem. Some countries allegedly contribute to illegal logging by importing illegally obtained wood products. For example, China is a major importer of timber from Gabon, Cameroon, Equatorial Guinea, and Mozambique, all of which export illegally harvested timber. Others contend that some of the illegal timber imported by China is manufactured into products that are re-exported to the United States. The European Union (EU) has also been accused of importing illegally logged wood; the World Wildlife Fund estimates that the EU is spending £3 billion a year on illegal wood, much of it coming from the Amazon Basin, the Baltic States, the Congo Basin, east Africa, Indonesia, and Russia. Several ecological impacts can be associated with illegal logging practices. These impacts depend on how illegal logging practices are defined and where they occur. If illegal logging is characterized as large-scale destructive logging, it can potentially lead to the conversion of forests to grassland, depletion of plant species (e.g., tree species such as mahogany), and in some cases depletion of animal populations that depend on the habitats being logged. If logging illegally occurs in protected areas, important biological resources (e.g., rare plant and animal species) may become threatened. If logging is not done according to mandated management plans, it can potentially lead to collateral damage, whereby other tree species and younger trees are damaged, risk of fire is increased, and potential for sustainable harvesting of timber is lowered. In some instances in the tropics, logging has been characterized as the initial stimulus for road-building, which leads to greater access to primary forests. If illegal logging occurs in protected areas, improved access to these areas through logging roads may lead to further activities such as clear-cutting, ranching, and agricultural development in the area. Illegal logging can have economic impacts in the countries where it occurs. In several countries where illegal logging takes place, the volume of timber extracted illegally is greater than the official harvested total. Further, illegal logging and trade are connected to other illegal activities such as corruption, tax evasion, and money laundering, among other things. If illegal logging is prevalent in a country, there may be a low propensity to invest. For example, illegal logging may signal that law enforcement is lax and that corruption is prevalent. These factors may deter long-term investment in these countries and may increase costs for investors already involved in the country. One definition of illegal logging is extracting timber without reporting it to government officials. Without reporting, governments cannot assess taxes on the wood being extracted, which results in a loss of revenue for the country. For example, Indonesia estimated that its losses from illegal logging are $3 billion annually, which is equivalent to more than 45% of the total value of its legitimate exports of wood and wood products, valued at $6.5 billion annually. Illegal logging can arguably have a positive economic impact. Illegal logging can create jobs in impoverished areas, provide short-term low-cost timber, and satisfy excessive timber demands from within the country and importing countries. If local governments and citizens perceive that illegal logging is beneficial to the community, some will not seek the enforcement of laws or will attempt to legalize illegal timber to preserve revenues. Illegal logging can affect local communities in the countries where it is occurring. Local communities may depend on forests for non-timber forest products (e.g., fruits and medicines) as well as for habitat and cover for wild game and fish. Illegal logging in these areas may convert forest ecosystems to less useful ecosystems such as grasslands or savannahs. In some parts of the world, illegal logging has been termed "conflict logging," similar in meaning to conflict diamonds. For example, money earned from the illegal trade in wood has been traced to the purchase of weapons used in conflicts such as the one between Liberia and Sierra Leone. Several relevant multilateral and international agreements relate to illegal logging and illegal timber trade. These range from voluntary agreements that, for example, allow consumer countries to exchange data with producing countries, to legally binding multilateral agreements that enable signatory governments to seize illegal products and exercise financial penalties on illegally produced timber. This section reviews some of the agreements that have been implemented and some international institutions involved in addressing illegal logging. Two primary wood certification programs affect wood consumed in the United States. The Forest Stewardship Council (FSC) is an independent, international nongovernmental organization that certifies that wood comes from well-managed forests that meet an established set of criteria. One key criterion is that the "chain of custody" information is provided. This information strives to contain the names and locations of each handler of the wood from the forest it came from to the shop where the product is being sold. Approximately 220 million acres are certified under the FSC program worldwide. (Approximately 110 million acres are in North America.) A second certification program is offered by the Sustainable Forest Initiative (SFI), which was created by the American Forest and Paper Association (AF&PA) and is now independent. SFI also contains a set of guidelines and principles that must be followed to earn its certification. SFI certification is done for North American forests and does not have a "chain of custody" requirement. Approximately 107.8 million acres are certified under this program in North America. Other certification programs exist in Canada, the EU, and elsewhere. For reference, there are nearly 10 billion acres of forested land on the Earth. Some contend that certification programs, if managed and monitored consistently, could reduce illegal logging. Most certified forests are in Europe and North America; only 8% of the total certified area is in developing countries (2% in Asia and the Pacific, 3% in Latin America, and 3% in Africa). Others, however, argue that obtaining certification in developing countries is prohibitively expensive for most logging operations. Costs for managing forests to maintain certification, disorganized bureaucracy, and lax rules make certification in developing countries difficult. Some argue that certification is not worth it, because the demand for certified tropical wood is not consistent from year to year and the cost to obtain certification makes wood less competitive on the market. To increase the demand for certified wood and to stimulate interest in certification, some have suggested that importing countries require certified wood for government projects. Five countries in the European Union, including Great Britain, have implemented or are trying to implement policies that would require state-financed construction projects to use certified wood. The United Nations Forum on Forests is an intergovernmental forum that promotes the sustainable development, management, and conservation of forests. It aims to provide a multi-year program of work to develop policies regarding forests with the goal of developing a legal framework on all types of forests. The ITTO promotes sustainable forest management, including forest enforcement, among its member countries, which include the United States. The ITTO was established under the International Tropical Timber Agreement, which expired in December 2006. A successor agreement is currently being negotiated. The ITTO provides a framework for collecting data on the trade of illegal timber and investigates import and export data that represent illegal trade. The World Bank is the largest of several regional and international development banks that lend money to developing countries for projects identified by the host country. The World Bank has taken steps to assess projects for their environmental consequences, including the potential for illegal logging. In a revised Forest Strategy, the World Bank has proposed to address illegal logging through sustainable forest management and certification. In collaboration with the World Wildlife Fund, the World Bank is establishing a program for certifying sustainably managed forests. Under this program, logging operations must show progress toward sustainability to achieve their certification, as opposed to having already met all of the certification requirements. This initiative is convening legislators from the G8 (Canada, France, Germany, Italy, Japan, Russia, United Kingdom, and United States), China, India, and other timber-producing nations with industry representatives and other stakeholders to develop a plan for addressing illegal logging. The dialog began in 2006 will run until the end of the G8 meeting in 2008. The United States has no specific laws that address all aspects of illegal logging. Logging within the United States is addressed by several laws and regulations—some federal, but many state—that depend on what species is logged, and where and how it is done. Logging can be restricted or banned if it affects species listed under the Endangered Species Act (ESA; 16 U.S.C. §§1531-1543). ESA also regulates the import of foreign species if they are listed as threatened or endangered under the act. ESA authorizes the participation of the United States in the Convention on the International Trade in Endangered Species of Wild Flora and Fauna (CITES). CITES was established to protect plants and animals from unregulated international trade. Under the treaty, countries make a commitment that any trade in protected plant and animal species will be sustainable, and that there is a process to ensure that wildlife trade is consistent with the treaty. U.S. imports of wood and wood products from tree species listed on CITES are regulated according to their status under the treaty. Currently, 15 tree species are listed as trade-restricted under CITES. Regulating timber species listed under CITES has been controversial. For example, big leaf mahogany and ramin are listed in Appendix II of CITES, which regulates trade through export permits. Several allegations contend that mahogany and ramin have been imported in the United States without proper CITES permits and authorizations. The Tropical Forest Conservation Act ( P.L. 105-24 ; 22 U.S.C. §§2431 et seq.) indirectly addresses illegal logging by authorizing debt-for-nature transactions with developing countries that provide funds for conserving tropical forests. Eligible activities under this act include establishing, maintaining, and restoring parks, protected reserves, and natural areas, and training programs to increase the capacity of personnel to manage parks, among other things. Several countries have used funds generated from transactions authorized under this act to monitor logging activities and train enforcement personnel to address illegal logging activities in protected areas. Expenditures to address illegal logging are also provided in programs authorized by the Foreign Assistance Act (P.L. 87-195; 22 U.S.C.§§2151p-1). A portion of funds given to countries is used for activities to prevent illegal logging and enforce illegal logging laws. Some activities funded under this act are a part of the Administration's initiative against illegal logging. (See " Foreign Policy on Illegal Logging " section, below.) Some argue that the United States should enact legislation prohibiting the import of illegally logged wood and wood products, and amend the Lacey Act (16 U.S.C. §§3371-3378) to include foreign plant species. The Lacey Act includes enforcement mechanisms for the illegal trade of wildlife within the United States. Specifically, the Lacey Act makes it illegal to engage in the trade of fish, wildlife, or plants taken in violation of any U.S. or Indian tribal law, treaty, or regulation, as well as the trade of any of wildlife acquired through violations of foreign law or treaties (including CITES). The Lacey Act does not address plants that are traded in violation of any foreign law or treaties. A plant is not covered under the Lacey Act unless it is indigenous to a state. Amending the Lacey Act to include plants traded in violation of foreign laws would establish legal structures to prosecute parties who import and trade wood found in violation of other countries' forest laws. The 2008 farm bill ( P.L. 110-234 ) amends the Lacey Act to include plants harvested or taken illegally in areas outside the United States. This law applies to illegally harvested timber species imported into the United States. In 2003, the United States developed an initiative to help developing countries stop illegal logging. This initiative adopted several approaches to address illegal logging: addressing legal and institutional barriers that prevent on-the-ground law enforcement of illegal logging; using technology to monitor logging; encouraging good business practices, legal trade, and transparency in logging; and creating incentives to promote local communities to abolish illegal logging practices. The initiative focuses on five regions: the Congo Basin, the Amazon Basin, Central America, South Asia, and Southeast Asia. The initiative states that it will provide $15 million to address illegal logging. In the Congo Basin, the U.S. government has developed the Congo Basin Forest Partnership. This partnership is aimed at improving forest management and governance to reduce forest degradation and reduce illegal logging in the region. Earlier sanctions of illegal logging activities by the United States were directed to single countries (e.g., Cambodia, Burma, and Indonesia). Report language of some congressional appropriation acts have included provisions that indicate the intent of Congress to provide funds to stop illegal logging. Bilateral free trade agreements between the United States and other nations have sometimes been criticized for deficient environmental rules that may have implications for illegal logging. For example, some argued that a free trade agreement (FTA) with Singapore increased U.S. imports of illegally obtained timber from Singapore. Singapore acquires wood from countries such as Indonesia and Malaysia, which allegedly harvest large portions of their timber illegally, and re-exports it to the United States. The United States addressed illegal logging during negotiations with Indonesia on a pending FTA. In 2006, the United States and Indonesia signed a memorandum of understanding (MOU) to enhance bilateral efforts to combat illegal logging and associated trade. The United States committed $1 million with this agreement to fund projects that would reduce illegal logging in Indonesia, such as using remote sensing to identify illegally logged tracts of land. The MOU also sets up a working group to assist in implementing the initiative under a pending U.S.-Indonesia Trade and Investment Framework Agreement. Similarly, some contend that an FTA with Peru could lead to an increase in exports of illegal logged timber to the United States from Peru. The primary species of concern is Peruvian big leaf mahogany ( Swietenia macrophylla ). The United States is the predominant importer of Peruvian mahogany. Big leaf mahogany is currently listed under CITES as an Appendix II species. To meet CITES requirements for this species, the United States (and CITES) requires an export permit from Peru validating that mahogany entering the United States was harvested in a sustainable manner that is not detrimental to the species. Some contend that Peruvian mahogany is being harvested illegally and at rates detrimental to the species and to the Amazon rainforest in Peru. Further, they contend that export permits provided by Peru, as required by CITES, have been granted without sufficient monitoring and assessment of harvesting practices. The U.S.-Peru TPA is expected to increase protections for foreign investors engaging in business in Peru, which may lead to a larger timber industry in Peru and greater mahogany harvesting. The TPA would not alter the requirement for export and permits under CITES. These concerns may be tempered by potential positive consequences of the TPA on the illegal logging of mahogany. The TPA between Peru and the United States is expected to increase awareness of illegal logging in Peru and adds additional mechanisms that may be used to address illegal logging in Peru. The TPA requires each country to effectively enforce its own environmental laws in a manner affecting trade between the parties and establish a policy mechanism to address public complaints that a party is not effectively enforcing its environmental laws whether or not the failure is trade-related. Complaints could be filed by individuals and firms of each party to the agreement and would be addressed according to a set of procedures outlined in the TPA. A separate dispute settlement mechanism is also available for trade-related complaints by one TPA party against another. Further, the TPA stipulates that nothing in its investment chapter would prevent a party from adopting, maintaining, or enforcing any measures that would ensure that investment activity is conducted in a manner sensitive to the environment. Ongoing negotiations for TPA with Columbia do not include specific provisions related to illegal logging. However, provisions establishing an environmental committee to address complaints and requirements for enforcing multilateral environmental treaties (e.g., CITES) and domestic laws are included. Many contend that illegal logging may indirectly contribute towards climate change because it is a driver of deforestation in the tropics. Deforestation is responsible for the largest share of CO 2 released to the atmosphere from land use changes and results in approximately 20% of anthropogenic greenhouse gas emissions. Much of the deforestation responsible for CO 2 releases occurs in tropical regions, which are substantially located in developing countries such as Brazil, Indonesia, and the Democratic Republic of the Congo. Climate change mitigation programs that address deforestation might consider targeting illegal logging activities to effectively implement forest conservation plans in tropical areas. | Illegal logging is a pervasive problem throughout the world, affecting countries that produce, export, and import wood and wood products. Illegal logging is generally defined as the harvest, transport, purchase, or sale of timber in violation of national laws. In some timber-producing countries in the developing world, illegal logging represents over half of timber production and exports. The World Bank estimates that illegal logging costs governments approximately $15 billion annually in lost royalties. Illegal logging may stimulate corruption, collusion, and other crimes within governments, and has been linked to the purchase of weapons in regional conflicts in Africa. Illegal logging, however, benefits perpetrators by reducing the cost of legal and regulatory compliance of timber harvesting, sometimes resulting in higher profits. Illegal logging in protected areas can lead to degraded forest ecosystems, loss of biodiversity, and indirectly to deforestation and the spread of agrarian activity in some developing countries. Several relevant multilateral and international agreements address illegal logging and illegal timber trade. These range from voluntary agreements that, for example, allow consumer countries to exchange data with producing countries, to legally binding multilateral agreements that enable signatory governments to seize illegal products and exercise financial and criminal penalties on those who possess or transport illegally produced timber. The United States is the world's largest wood products consumer and one of the top importers of tropical hardwoods. Some are concerned that U.S. demand for tropical timber from countries in Latin America and Southeast Asia may be a driver of illegal logging. Others assert that if there were no illegally logged wood in the global market, the value of U.S. exports of timber could increase substantially. The United States has no specific domestic laws that address all aspects of illegal logging. Logging within the United States is addressed by several laws and regulations—some federal, but many state—that depend on what species is logged, and where and how it is done. In 2003, the United States developed an initiative to help developing countries stop illegal logging. This initiative aims to remove legal and institutional barriers to combating illegal logging; promote technology to improve monitoring the legal trade in logging; and create incentives to abolish illegal logging practices in rural communities. The United States also addressed illegal logging in a free trade agreement (FTA) with Peru. The agreement requires that the Peruvian government enforce its international treaty obligations and increase monitoring and enforcement of illegal logging in its country. Illegal logging is addressed by Congress in the 2008 farm bill (P.L. 110-234). A provision in the law amends the Lacey Act to include plants traded in violation of foreign laws. This was primarily intended to deter imports of illegally obtained timber from foreign countries. |
Executive orders requiring agencies to impose certain conditions on federal contractors as terms of their contracts have raised questions about presidential authority to issue such orders. These orders typically cite the President's constitutional authority, as well as his authority pursuant to the Federal Property and Administrative Services Act of 1949 (FPASA). FPASA authorizes the President to prescribe any policies or directives that he considers necessary to promote "economy" or "efficiency" in federal procurement. For example, there have been legal challenges to orders (1) encouraging agencies to require the use of project labor agreements on large-scale construction projects; (2) requiring that certain contracts include provisions obligating contractors to post notices informing employees of their rights not to be required "to join a union or to pay mandatory dues for costs unrelated to representational activities"; and (3) directing departments and agencies to require their contractors to use E-Verify to check the work authorization of their employees. These challenges have alleged, among other things, that the orders were beyond the President's authority, under FPASA or otherwise. A 2011 draft executive order that would have directed departments to require contractors to "disclose certain political contributions and expenditures" raised similar and additional questions as to whether it would have been within the President's authority, as it resembled legislation that was considered, but not enacted, by the 111 th Congress. The issuance of executive orders requiring agencies to impose certain conditions on federal contractors and subcontractors has practical as well as legal significance given the scope of federal procurement activities. Spending on federal contracts totaled $541.1 billion, or approximately four percent of U.S. gross domestic product, in FY2010, and approximately 22% of U.S. workers are employed by entities subject to requirements placed on certain federal and federally funded contractors and subcontractors pursuant to executive orders. Thus, some commentators have expressed concern that, if presidential authority to issue directives imposing requirements on federal contractors is construed broadly, the executive branch effectively could regulate significant segments of the U.S. economy. This report provides background on the authorities under which Presidents have historically issued executive orders pertaining to federal contractors and the legal issues potentially raised by the exercise of these authorities. It also surveys key cases challenging executive orders pertaining to federal contractors, which typically were issued under the authority granted to the President under the FPASA. The report concludes by addressing potential limitations on and congressional responses to presidential exercises of authority regarding federal contractors. Broadly speaking, executive orders are directives issued by the President. Such directives may have the force and effect of law if they are based on express or implied constitutional or statutory authority. Executive orders are "generally directed to, and govern actions by, Government officials and agencies" and are sometimes characterized as "affect[ing] private individuals only indirectly." However, they can effectively reach private conduct, such as when an executive order requires agencies to incorporate particular terms in their contracts, or prohibits them from entering contracts with persons who do not comply with certain conditions. Presidents from Franklin D. Roosevelt through Barack Obama have issued orders that seek to leverage the government's procurement spending to promote socio-economic policies that some commentators would characterize as extraneous to contractors' provision of goods or services to the government. The issuance of such orders has been controversial, partly because of disputes regarding the desirability of the underlying socio-economic policies to be promoted through the procurement process and partly because some commentators characterize such presidential actions as trespassing upon congressional prerogatives. Presidential power to issue executive orders must derive from the Constitution or from an act of Congress. Contractor-related executive orders historically have been issued based upon the President's powers under Article II of the Constitution or the powers delegated to the President by FPASA. The earliest orders using the procurement process to further socio-economic policies of the President appear to have been issued during World War II, and were based upon the President's constitutional authority as commander-in-chief. Later, during the 1960s, several orders were issued under the authority of prior executive orders or other provisions of federal law. More recently, orders have been issued based on presidential authority under FPASA. FPASA states that its purpose is to "provide the Federal Government with an economical and efficient system for … [p]rocuring and supplying property and nonpersonal services" and authorizes the President to prescribe any "policies and directives" consistent with the act that he "considers necessary to carry out" the act's goals of efficiency and economy. Courts and commentators have disagreed as to whether Congress intended to delegate to the President broad authority over procurement or authority only over narrow "housekeeping" aspects of procurement, and FPASA's legislative history is arguably inconclusive. While a few courts have found that the President has "inherent authority" over procurement, questions have arisen about whether such authority survived the enactment of FPASA. Some commentators have suggested that the authority delegated to the President under FPASA is so broad that Presidents do not need to assert inherent authority over procurement. Parties challenging procurement-related executive orders and actions taken pursuant to such orders may raise different legal issues depending upon whether the President issues the executive order pursuant to the statutory authority granted to him by FPASA or under his constitutional authority. When the President relies upon the authority delegated by FPASA, courts may treat challenges alleging that presidential actions exceed statutory authority under FPASA as questions of statutory interpretation. Such courts have focused upon the text and legislative history of FPASA, as well as prior uses of presidential authority under FPASA, in determining whether Congress contemplated the President taking the challenged actions when it delegated authority to prescribe policies and procedures "necessary" to promote "economy" and "efficiency" in federal procurement. In a few cases, parties have unsuccessfully challenged a contractor-related executive order by asserting that FPASA itself, or a particular action taken under it, runs afoul of the nondelegation doctrine, which concerns the delegation of legislative power to the executive branch. The premise of the nondelegation doctrine is that Article I of the Constitution vests legislative power in Congress to make the laws that are necessary and proper, and "the legislative power of Congress cannot be delegated" to other branches of government. A congressional delegation of legislative authority will be sustained, according to the Supreme Court, whenever Congress provides an "intelligible principle" that executive branch officials must follow and against which their actions may be evaluated. Today, the nondelegation doctrine constitutes only a "shadowy limitation on congressional power," as the Court has not struck down a congressional delegation since 1935. Parties challenging contractor-related executive orders and/or courts reviewing such challenges have sometimes also articulated constitutional arguments based on the three-part scheme for analyzing the validity of presidential actions set forth in Justice Jackson's concurring opinion in Youngstown Sheet & Tube Company v. Sawyer . This analysis has appeared when presidential action has been taken pursuant to the President's express statutory authority under FPASA, when presidential action has been viewed as conflicting with an existing statute, and when presidential action has been based on the President's constitutional authority. In Youngstown , the Supreme Court struck down President Truman's executive order directing the seizure of the steel mills during the Korean War. It did so, in part, because the majority deemed the order to be an unconstitutional violation of the separation of powers doctrine given that it was, in essence, a legislative act, and no constitutional provision or statute authorized such presidential action. To the contrary, Congress had expressly rejected seizure as a means to settle labor disputes during consideration of the Taft-Hartley Act. The concurring opinion of Justice Jackson in Youngstown , which has come to be regarded as more influential than the majority opinion, set forth three types of circumstances in which presidential authority may be asserted and established a scheme for analyzing the validity of presidential actions in relation to constitutional and congressional authority. First, if the President has acted according to an express or implied grant of congressional authority, presidential "authority is at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate," and such action is "supported by the strongest of presumptions and the widest latitude of judicial interpretation." Second, in situations where Congress has neither granted nor denied authority to the President, the President acts in reliance only "upon his own independent powers, but there is a zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain." Third, in instances where presidential action is "incompatible with the express or implied will of Congress," the power of the President is at its minimum, and any such action may be supported pursuant only to the President's "own constitutional powers minus any constitutional powers of Congress over the matter." In such circumstances, presidential actions must rest upon an exclusive power, and the courts can uphold the measure "only by disabling the Congress from acting upon the subject." Because Congress had passed three statutes on seizure of private property in particular circumstances and had considered, but not granted, the President general seizure authority for use in emergencies, Justice Jackson's taxonomy supported the majority's holding that the President lacked the authority to seize the steel mills in Youngstown . Some commentators have proposed that this taxonomy ought to serve to invalidate at least certain contractor-related executive orders. Such arguments are most common when the executive order requires agencies to impose requirements similar to those previously considered, but not passed by Congress. However, separation of powers arguments generally have been unavailing so long as the executive order is also based on authority delegated to the President under the FPASA. When acting under the FPASA, the President arguably is acting according to an express grant of congressional authority, and, under Youngstown 's first category, such actions are "supported by the strongest of presumptions and the widest latitude of judicial interpretation." Cases alleging that particular executive orders are beyond the President's authority may be broadly divided into two types based upon the arguments raised in these cases and the courts' treatment thereof: (1) cases challenging one of several executive orders directing executive branch agencies to require certain federal and federally funded contractors to adhere to anti-discrimination or affirmative action requirements, and (2) cases challenging other contractor-related executive orders. Some executive orders regarding contractors' anti-discrimination and affirmative action obligations were issued prior to the enactment of FPASA, and, in part because they rely upon constitutional authority, they can raise somewhat different legal issues than cases challenging orders issued under the authority of the FPASA. The following discussion of key cases regarding contractor-related executive orders is arranged chronologically, so as to highlight developments in the case law over time. In a few instances, cases addressing similar issues have been grouped together, rather than treated individually. Although Presidents began issuing executive orders in 1941 requiring agencies to impose on federal contractors contract terms promoting particular socio-economic policies, their authority to do so apparently was not subject to legal challenge for several decades. The first case to address whether a particular executive order was within the President's authority seems to have been Farmer v. Philadelphia Electric Co. , a 1964 decision by the U.S. Court of Appeals for the Third Circuit (Third Circuit) holding that employees could not bring an action in district court to recover damages for alleged discrimination on the basis of color and race in violation of Executive Order 10925 prior to exhausting their administrative remedies. Executive Order 10925 had directed agencies to include in their contracts provisions obligating the contractor not to discriminate against "any employee or applicant for employment because of race, creed, color, or national origin." The plaintiff in Farmer asserted he was a third party beneficiary entitled to enforce these provisions against a contractor who allegedly terminated his employment because of race. In finding that Executive Order 10925 did not authorize a private cause of action prior to the exhaustion of administrative remedies, the court indicated its view that Executive Order 10925 had "the force of law." While Farmer sometimes has been construed as holding that Executive Order 10925 is within the President's authority, other courts and commentators have noted that the defendant did not challenge the validity of the order, and the Third Circuit's statement was made in dicta . Similarly, in Farkas v. Texas Instruments, Inc ., a 1967 decision by the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit), the defendants did not challenge the validity of the executive order. The Farkas court also held that Executive Order 10925 does not authorize a private right of action and that the refusal of relief by an administrative body was final, leading to the dismissal of the claims for "breach of contractual nondiscrimination provisions" for "failure to state a cause of action." In Farkas , as in Farmer , the court arguably assumed, rather than held, that the issuance of Executive Order 10925 was within the President's authority. The Farkas court did not mention Youngstown , while the Farmer court mentioned it only in passing, citing Youngstown to support its statement that the "[d]efendant does not contend that the requiring of non-discrimination provisions in government contracts is beyond the power of Congress." While the defendants in Farmer and Farkas did not question the validity of the executive order requiring agencies to impose anti-discrimination requirements on federal contractors, the plaintiffs in Contractors Association of Eastern Pennsylvania v. Secretary of Labor directly challenged the validity of certain orders issued under the authority of Executive Order 11246, which superseded Executive Order 10925. It imposed similar anti-discrimination requirements on federal contractors and federally funded construction contractors, as well as required them to "take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex or national origin." Under the authority of Executive Order 11246, officials of the Department of Labor issued two orders commonly know as the Philadelphia Plan. The Philadelphia Plan required bidders for federal and federally funded construction contracts in the Philadelphia area valued in excess of $500,000 to submit "acceptable affirmative action program[s]," including "specific goals" for "minority manpower utilization" in six construction trades prior to contract award. Several contractor groups challenged the plan, asserting, among other things, that it was without a constitutional or statutory basis. The Third Circuit upheld the validity of the Philadelphia Plan. Citing Youngstown , the court found that "[i]n the area of Government procurement[,] Executive authority to impose non-discrimination contract provisions falls in Justice Jackson's first category: action pursuant to the express or implied authorization of Congress." It reached this conclusion after reviewing the various anti-discrimination and affirmative action executive orders issued by Presidents from Franklin Roosevelt to Lyndon Johnson and noting that Congress continued to authorize appropriations for programs subject to these executive orders. According to the court, given these continuing appropriations and absent specific statutory restrictions, Congress "must be deemed to have granted to the President a general authority to act for the protection of federal interests." The court further found that the President had exercised this general congressionally granted authority in issuing Executive Order 11246. It specifically viewed the President as issuing the order to address "one area in which discrimination in employment was most likely to affect the cost and the progress of projects in which the federal government had both financial and completion interests," rather than to impose the President's "notions of desirable social legislation on the states wholesale." Thus, the court stated that the inclusion of the plan "as a pre-condition for federal assistance was within the implied authority of the President and his designees," unless it was "prohibited by some other congressional enactment." The court added that the President has "implied contracting authority," under which the various anti-discrimination and affirmative action requirements imposed on federal contractors were valid. However, it also suggested that these orders were within the President's authority under the FPASA, and later courts have generally emphasized this aspect of the Third Circuit's decision, as opposed to its statements about the President's implied contracting authority. The Third Circuit rejected challenges to the executive order under the National Labor Relations Act (NLRA), which the court said does not "place any limitation upon the contracting power of the government," and to the Department of Labor's interpretation of the affirmative action provision of the executive order. The Third Circuit also rebuffed plaintiffs' allegation that the Philadelphia Plan was invalid because Executive Order 11246 "requires action by employers which violates" Title VII of the Civil Rights Act. In particular, the plaintiffs asserted that the plan violated Title VII by establishing "specific goals for the utilization of available minority manpower in six trades," while Title VII states that employers cannot be required to grant preferential treatment on account of workforce imbalances. The plaintiffs further asserted that the Philadelphia Plan interfered with a bona fide seniority system, contrary to Title VII, by imposing quotas on who may be hired. The court rejected both arguments. It found the first argument unavailing because Title VII stated only that "preferential treatment" (e.g., specific goals) based on workforce imbalances could not be required under Title VII. According to the court, Title VII did not prohibit agencies from requiring preferential treatment under other authority, such as Executive Order 11246's required contract provision. The court relied upon similar logic as to the alleged interference with the bona fide seniority system, stating that Title VII only prohibited interference with the seniority system under Title VII and did not prevent interference through the executive order or the Philadelphia Plan. This later holding regarding the bona fide seniority system was, however, effectively overturned by the Supreme Court in International Brotherhood of Teamsters v. United States , which rejected the government's assertion that a seniority system "adopted and maintained without discriminatory intent" and expressly exempted from Title VII, nonetheless violated Title VII because it perpetuated discrimination. Based upon Teamsters , the Fifth Circuit held in United States v. East Texas Motor Freight Systems, Inc. that a bona fide seniority system cannot be prohibited by Executive Order 11246, which "imposes obligations on government contractors and subcontractors designed to eliminate employment discrimination of the same sort to which Title VII is directed," because Congress explicitly exempted the seniority system from Title VII. In so holding, the court noted that the President could not make unlawful in an executive order a bona fide seniority system that "Congress has declared ... shall be lawful." The Fifth Circuit cited Youngstown in support of this statement, suggesting that the order may not have the force of law to the extent that the order conflicted with the statute (i.e., Title VII) regarding the seniority system. However, the court commented that the executive order "is authorized by the broad grant of procurement authority." In United States v. Trucking Management, Inc. , the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) also considered whether a bona fide seniority system that was lawful under Title VII could be unlawful under Executive Order 11246. The court found the Fifth Circuit's reasoning in East Texas to be persuasive, and dismissed the government's arguments regarding the statutory language and legislative history of Title VII. The D.C. Circuit echoed the Fifth Circuit's statement noting that the government had failed to argue, prior to the Supreme Court's decision in Teamsters , that Congress intended the executive order to extend beyond the limits of Title VII with regard to discrimination potentially perpetuated by seniority systems. The court did not cite to Youngstown , although it noted that the government did not argue whether the President has inherent authority to issue the executive order "to override the expressed or implied will of Congress." Like Contractors Association , Chrysler Corporation v. Brown involved a challenge to actions taken under the authority of Executive Order 11246, as amended. The litigation in Chrysler arose because of regulations that the Department of Labor promulgated under the authority of Executive Order 11246 and a Department of Labor disclosure regulation. These regulations provided for the public disclosure of information filed with or maintained by the Office of Federal Contract Compliance Programs (OFCCP) and other agencies about contractors' compliance with their contractual anti-discrimination and affirmative action requirements. The regulations stated that, despite being exempt from mandatory disclosure under the Freedom of Information Act (FOIA): records obtained or generated pursuant to Executive Order 11246 (as amended) … shall be made available for inspection and copying … if it is determined that the requested inspection or copying furthers the public interest and does not impede any of the functions of the [OFCCP] or the Compliance Agencies. Chrysler objected to the proposed release of the annual affirmative action program and complaint investigation report for an assembly plant. Chrysler asserted, among other things, that disclosure was not "authorized by law" within the meaning of the Trade Secrets Act because the OFCCP regulations that purported to authorize such disclosure did not have the force and effect of law. The Supreme Court considered whether the OFCCP regulations provided the "[authorization] by law" required under the Trade Secrets Act. The Court stated that agency regulations, as an "exercise of quasi-legislative authority," must be based on a congressional grant of authority. As mentioned above, the Department of Labor regulations were issued under the authority of Executive Order 11246, which authorized the Secretary of Labor to adopt regulations to achieve its purposes, and an existing disclosure regulation. The Court determined that the regulations lacked the required nexus to congressionally delegated authority, as the legislative grants of authority relied on for the disclosure regulations were not contemplated in "any of the arguable statutory grants of authority" for Executive Order 11246. The Court further noted that "[t]he relationship between any grant of legislative authority and the disclosure regulations becomes more remote when one examines" the section of the order under which the challenged regulations were promulgated, which authorizes regulations "necessary and appropriate" to end discrimination in government contracting. The Court then held that "the thread between these regulations and any grant of authority by the Congress is so strained that it would do violence to established principles of separation of powers" to find that the regulations had the force and effect of law. In finding the challenged regulations invalid, the Court articulated what has become the prevailing test of the validity of presidential actions under the FPASA, requiring that there be a "nexus" between the challenged executive branch action and congressionally delegated authority to promote economy and efficiency in federal procurement. However, the Court emphasized: This is not to say that any grant of legislative authority to a federal agency by Congress must be specific before regulations promulgated pursuant to it can be binding on courts in a manner akin to statutes. What is important is that the reviewing court reasonably be able to conclude that the grant of authority contemplates the regulations issued. Several months after the Supreme Court's decision in Chrysler , the D.C. Circuit issued its decision in AFL-CIO v. Kahn , apparently the first in a series of cases challenging procurement-related executive orders that did not involve the anti-discrimination and affirmative action requirements. In Kahn , several labor unions challenged the validity of Executive Order 12092, which directed agencies to incorporate in their contracts clauses requiring compliance with certain wage and price standards that were otherwise voluntary. The unions alleged that the executive order was beyond the President's power under FPASA and contravened other provisions of federal law. The district court agreed, finding, among other things, that "[s]uch an indirect and uncertain means of achieving economy in government was certainly not contemplated nor would it appear that Congress would have desired such a result when it enacted" FPASA. To the contrary, the court noted that the order could result in the government paying higher prices, as it would be "forced to pass over the low bidder to do business with an adherent to the wage guidelines." The district court also found that the order was barred by the Council on Wage and Price Stability Act (COWPSA), which expressly stated that it did not "authorize[] the … imposition … of any mandatory economic controls with respect to prices, rents, wages, salaries, corporate dividends, or any similar transfers." Further, it concluded that "constitutional separation of powers issues cannot be ignored," and that the order fell within Justice Jackson's third category and was incompatible with the expressed intent of Congress. A majority of the en banc court of appeals reversed, finding that that the "terms of the FPASA, its legislative history, and Executive practice since its enactment" all indicated that Executive Order 12092 was within the President's power under FPASA. In particular, the court noted that the goals of FPASA—"economy" and "efficiency"—"are not narrow terms," and can encompass factors "like price, quality, suitability, and availability of goods or services." As such, the court would not treat the executive order as lacking statutory authority, but rather held that the President's order was within his statutory authority under FPASA. It also construed the legislative history of FPASA as evidencing congressional intent to give the President "particularly direct and broad-ranging authority over those larger administrative and management issues that involve the Government as a whole." Further, the court noted that prior Presidents had exercised their procurement power under the act to "impose[] additional considerations on the procurement process." Given all this, the court found that there was a "sufficiently close nexus" between the executive order and economy and efficiency in procurement, even if the order resulted in temporary increases in prices on certain contracts. The court further found that the procurement compliance program authorized by the executive order was not barred under COWPSA because COWPSA stated only that it did not "authorize" the imposition of mandatory wage and price controls; it did not prohibit the imposition of such controls under FPASA. The court also suggested that the requirements of the procurement program were not "mandatory" because only "[t]hose wishing to do business with the Government must meet the Government's terms; others need not." The majority emphasized that its decision did not "write a blank check for the President to fill in at his will" and that the President must use his procurement authority in a manner "consistent[] with the structure and purpose" of the FPASA. The court suggested in a footnote that its approach "might raise serious questions" about a hypothetical executive order suspending willful violators of the NLRA from government contracts for three years. Two concurring opinions also emphasized the "narrowness" of the majority's decision and the "close nexus" between the executive order and the purposes of FPASA. The dissent strongly disagreed, emphasizing both that FPASA "contains no warrant for using the procurement process as a tool for controlling the Nation's economy," and that the majority's reading of FPASA would: permit[] the President to effect any social or economic goal he chooses, however related or unrelated to the true purposes of the 1949 Act, as long as he can conceive of some residual consequences of the order that might in the long run help the Nation's economy and thereby serve the 'not narrow' and undefined concepts of 'economy' and 'efficiency' in federal government procurement. The dissent also stated that, were the majority's interpretation of FPASA correct, FPASA would constitute an unconstitutional delegation of legislative authority to the executive branch because "the close nexus test … cannot supply an adequate standard." The majority and the dissent agreed that the order raised no issues under Youngstown . The majority, in particular, stated that challenges to executive actions under FPASA entail primarily questions of statutory interpretation, not broader questions of separation of powers under Youngstown . The majority said that the main question was "whether the FPASA indeed grants to the President the powers he has asserted," and answered that question in the affirmative. Two years after Kahn , the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) found that a Department of Labor (DOL) determination that insurance underwriters are subject to the recordkeeping and affirmative action requirements of Executive Order 11246 was invalid under the "reasonably close nexus" tests of Chrysler and Kahn . The plaintiffs in Liberty Mutual Insurance Co. v. Friedman underwrote workers' compensation policies for many companies with government contracts, but did not underwrite any insurance policies for federal agencies, or sign any contracts or subcontracts containing the anti-discrimination or affirmative action clauses required under Executive Order 11246. When DOL informed the plaintiffs that they were "subcontractors" for purposes of Executive Order 11246 because their services were "necessary" to the performance of federal contracts, they filed suit. The plaintiffs alleged that they were outside the definition of "subcontractor" provided in the regulations implementing Executive Order 11246, or, alternatively, (1) that the regulations were outside the scope of the executive order or the legislative authority granted by Congress, or (2) that the executive order constituted an invalid delegation of legislative authority. The district court rejected all these arguments, noting that the situation here corresponded to that in the first of Justice Jackson's categories (i.e., action pursuant to an express or implied grant of congressional authority). It also distinguished this situation from Chrysler because "[t]he regulations here … are not tangentially related to the express purpose of combating employment discrimination through government procurement but rather are directly aimed at implementing civil rights programs by requiring government contractors to submit specific affirmative action plans." The court further found that the plaintiffs had a choice as to whether to deal with the government, and they would not have to comply with the "requirements" if they did not deal with the government. A majority of the Fourth Circuit reversed. While agreeing with the district court that the plaintiffs fell within the definition of "subcontractor" under the regulations, the court found that the application of the executive order to the insurance company was outside the scope of any legislative authority granted to the President. In so finding, the court relied heavily on Chrysler , which held that a disclosure rule issued pursuant to Executive Order 11246 was not within the congressional grants of authority. The court looked at the possible sources of congressional grants of authority "to require Liberty to comply with" Executive Order 11246 and found that none of them "reasonably contemplates that Liberty, as a provider of workers' compensation insurance to government contractors, may be required to comply with EO 11,246." The court observed that FPASA did not "provide[] the necessary [congressional] authorization for application of the [Executive] Order to Liberty." The court distinguished the instant case from Contractors Association , in which that court found FPASA to be the congressional authority for Executive Order 11246 and the Philadelphia Plan issued under that order which was being challenged. Unlike the courts in Contractors Association and Kahn , the court in Liberty Mutual held that the application of the executive order to Liberty failed the reasonably close nexus test "between the efficiency and economy criteria of the" FPASA and the requirements imposed on contractors under the executive order. The court held that "[t]he connection between the cost of workers' compensation policies … and any increase in the cost of federal contracts that could be attributed to discrimination by these insurers is simply too attenuated to allow a reviewing court to find the requisite connection between procurement costs and social objectives." In differentiating the instant case from Contractors Association , the Liberty Mutual court noted that there had been administrative findings of serious underrepresentation of minority employees in the six trades included in the Philadelphia Plan. Here, [b]y contrast, no such findings were made …. Liberty is not itself a federal contractor and there is, therefore, no direct connection to federal procurement. … There are no findings that suggest what percentage of the total price of federal contracts may be attributed to the cost of this insurance. Further, there is no suggestion that insurers have practiced the deliberate exclusion of minority employees found to have occurred in Contractors Association. The court did not explicitly state why the existence of such findings was necessary for the application of Executive Order 11246 to the insurance company to be valid. However, subsequent courts generally have declined to follow Liberty Mutual in requiring that procurement-related executive orders be based on presidential findings, although its holding that parties not within the contemplation of a congressional grant of authority in the FPASA cannot be subjected to requirements promulgated under the authority of the FPASA apparently remains valid. The court mentioned Youngstown in a footnote, and cited the case as preventing consideration of the argument that the authority for the executive order could be based upon the President's inherent constitutional powers, as there was a lack of congressionally authorized legislative authority in both Youngstown and the instant case. After Liberty Mutual , the next significant challenge to a procurement-related executive order came in 1996, when the U.S. Court of Appeals for the District of Columbia Circuit found that Executive Order 12954 was invalid because it conflicted with the NLRA and was "regulatory in nature." Executive Order 12954 directed the Secretary of Labor to promulgate regulations providing for the debarment of contractors who hired permanent replacements for striking workers, and was issued after Congress debated, but failed to pass, amendments to the NLRA that would have prohibited employers from hiring permanent replacements. The Chamber and several business groups challenged the order on the grounds that it was barred by the NLRA, which "preserves to employers the right to permanently replace economic strikers as an offset to the employees' right to strike." They also alleged that the order was beyond the President's authority under FPASA because there were no findings demonstrating that its requirements would lead to "savings in government procurement costs." The district court disagreed, finding that the order was not reviewable under Dalton v. Specter , and even if it were reviewable, was within the President's broad authority under FPASA. In particular, it noted that the validity of policies implemented under the authority of FPASA need not be established by empirical proof. The appeals court reversed as to both the reviewability and validity of the order. In one of the few decisions regarding procurement-related executive orders to focus extensively on this issue, the court discussed the ability of the courts, in cases where Congress has not precluded non-statutory judicial review, to review the legality of the President's order and the actions of subordinate executive officials acting pursuant to a presidential directive. The court stated that it was "untenable to conclude that there are no judicially enforceable limitations on presidential actions, besides actions that run afoul of the Constitution or which contravene direct statutory prohibitions, so long as the President claims that he is acting pursuant to the [FPASA] in pursuit of governmental savings." Having determined that it had jurisdiction, the court then found that Executive Order 12954 was invalid because it conflicted with NLRA provisions guaranteeing the right to hire permanent replacements during strikes and that such a conflict with federal labor relations policy was unacceptable under a body of Supreme Court case law known as the NLRA preemption doctrine. The court concluded that the order was "regulatory" in nature because it sought to impose requirements upon contractors, rather than protect the government's interests as a purchaser, although preemption of other federal actions by the NLRA was "still relevant" when the government acts as a purchaser instead of a regulator. The court did not suggest that the order exceeded the President's authority under FPASA and even reaffirmed interpretations of the President's broad authority to issue executive orders in pursuit of FPASA goals of economy and efficiency in procurement with the appropriate nexus between standards and government savings, even those orders that "reach beyond any narrow concept of efficiency and economy in procurement." However, the court noted the potential effects of the order's policy upon "thousands of American companies" and "millions of American workers," as well as the implications of the broad authority that the President claimed under FPASA. Finding that the order affected labor policy, the court noted that if the government is correct that there are few limits on presidential power under the FPASA, a future President could not only revoke the executive order, but also impose a new one requiring government contractors to permanently replace striking workers in the interests of economy and efficiency in federal procurement. The court did not mention Youngstown . Reich was followed by several decisions that highlighted the breadth of presidential power under FPASA along the lines suggested by the appellate court in Reich . For example, in Building and Construction Trades Department, AFL-CIO v. Allbaugh , the U.S. Court of Appeals for the District of Columbia Circuit found that the Executive Order 13202, which provided that the government would "neither require nor prohibit the use of" project labor agreements (PLAs) on federally funded contracts, was within the President's constitutional authority to issue and not preempted by the NLRA. Under the executive order, contractors and subcontractors were still free to enter into PLAs, and in practice would potentially do so depending on the effect of a PLA on costs. The D.C. Circuit reversed the district court's decision finding the order invalid and enjoining its enforcement, as well as criticized its Youngstown analysis . Noting that Youngstown requires the President to have statutory or constitutional authority for an executive order, the D.C. Circuit found that the President possessed the necessary constitutional authority. The court determined that the order was "an exercise of [his] supervisory authority over the Executive Branch," in that it addressed the administration of federally funded projects "to the extent permitted by law." The court noted that the situation here was unlike that in Youngstown because the order to seize the steel mills in Youngstown was self-executing, and Executive Order 13202 directed executive branch employees "in their implementation of statutory authority." The D.C. Circuit also found that the executive order was not preempted by the NLRA because the order was a proprietary, as opposed to a regulatory, action, in that the government was "acting as a proprietor, 'interacting with private participants in the marketplace.'" The court distinguished this case from Reich , in which it had held that the NLRA preempted the executive order at issue because the order was regulatory. According to the court, the order in Reich was regulatory "not because it decreed a policy of general application … but because it disqualified companies from contracting with the Government on the basis of conduct [not hiring permanent replacements for striking workers] unrelated to any work they were doing for the Government." In the instant case, in contrast, the D.C. Circuit found that the executive order was proprietary because it did "not address the use of PLAs on projects unrelated to those in which the Government has a proprietary interest." Similarly, in UAW-Labor Employment and Training Corp. v. Chao , the D.C. Circuit found that Executive Order 13201 was not preempted by the NLRA and that the President possessed authority to issue the order under FPASA because the order had an adequate nexus to FPASA's goals of economy and efficiency in procurement. The order required that all contracts valued in excess of $100,000 include a provision obligating contractors to post notices informing employees of their rights not to be required "to join a union or to pay mandatory dues for costs unrelated to representational activities." The district court had found that the NLRA preempted the order, but did not reach the question regarding FPASA. The D.C. Circuit reversed, finding that although the order was regulatory and not proprietary, because it "operates on government procurement across the board," the NLRA preemption doctrine did not apply since the order did not cover a specific right that was "arguably protected by the NLRA" or conflict with the NLRA such that the NLRA preempted it. The court's decision largely focused on the NLRA and did not mention Youngstown . Turning to whether the order had a "sufficiently close nexus" to FPASA's requirements regarding economy and efficiency in procurement, the court held that although "[t]he link may seem attenuated," it was an adequate nexus, even if "one can with a straight face advance an argument claiming opposite effects or no effects at all." The most recent of these cases was Chamber of Commerce v. Napolitano , a 2009 decision by the U.S. District Court for the Southern District of Maryland upholding Executive Order 13465 and the regulations implementing it. This order directed agencies to require their contractors to use E-Verify to verify whether their hires are authorized to work in the United States. The order also required that the Federal Acquisition Regulation be amended to provide the requisite contract clauses. Several business groups challenged the order and the final rule, alleging that they were barred by the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA), beyond the President's authority under FPASA, in excess of E-Verify's statutory authority, and in excess of the executive branch's constitutional authority because they were legislative in nature. They also argued that the IIRIRA prohibited the Secretary of Homeland Security from "requiring any person or other entity to participate" in E-Verify. The court disagreed. The court first found that the Secretary of Homeland Security did not "require" contractors to use E-Verify, in violation of the IIRIRA, because the Secretary was acting in a ministerial manner pursuant to the executive order in making the designation. The court held that it was instead the executive order itself and the final rule that mandated that government contracts require contractors to use the E-Verify system designated by the Secretary. The court emphasized that entering into contracts with the government "is a voluntary choice." In responding to later arguments that the executive order and the final rule violated IIRIRA because they "required" contractors to use E-Verify, the court reiterated the holding in Kahn that the "decision to be a government contractor is voluntary and … no one has a right to be a government contractor." It specifically rejected the plaintiffs' assertion that the "choice" to contract with the government is not really voluntary for persons who make their living as government contractors, an argument that has been raised by courts and commentators who note the financial consequences that loss of the government's business could have for contractors. Thus, the court held that the executive order and the final rule directing agencies to require the use of E-Verify did not in fact "require any person or entity to use E-Verfiy," because such persons could choose not to contract with the government. In analyzing whether IIRIRA prohibited the executive order and the final rule, the court found that the relevant text of the IIRIRA applied to the Secretary of Homeland Security, not the President. The court then noted that the President had acted under the statutory authority of FPASA, not IIRIRA, when directing agencies to require that contractors use E-Verify. Finding that the executive order and the final rule were within the President's authority under FPASA, the court also held that the order had demonstrated a "reasonably close nexus" to the goals of FPASA. The court found that the President's explanation regarding the requirement that contractors use E-Verify met this "nexus test" because he found that "[c]ontractors that adopt rigorous employment eligibility confirmation policies are much less likely to face immigration enforcement actions … and they are therefore generally more efficient and dependable procurement sources." In so doing, the court specifically noted that Presidents are not required to base their findings regarding the promotion of economy and efficiency in procurement on evidence in a record. Rather, the court held that a "reasonably close nexus" exists so long as the "President's explanation for how an Executive Order promotes efficiency and economy [is] reasonable and rational." Additionally, the court held that the executive order and final rule were constitutional under FPASA. The court did not cite Youngstown . As the case law illustrates, Presidents have broad authority under FPASA to impose requirements upon federal contractors. However, this authority is not unlimited, and particular applications of presidential authority under FPASA have been found to be beyond what Congress contemplated when it granted the President authority to prescribe policies and directives that promote economy and efficiency in federal procurement. For example, in Chrysler , regulations promulgated under the authority of Executive Order 11246 were deemed to lack the required nexus to congressionally delegated authority because the regulations were not contemplated in statutory grants of authority such as the FPASA that may have been relied upon for Executive Order 11246. A similar argument was made in Liberty Mutual , where attempts to subject insurance underwriters to Executive Order 11246 failed the "reasonably close nexus" test between the economy and efficiency in federal procurement and the recordkeeping and other requirements imposed on contractors by the order. Additionally, the requirements of particular executive orders have been found invalid when they conflict with other provisions of law. In Reich , the court found that debarment of contractors who hired permanent replacements for striking workers was preempted by the NLRA. In East Texas and Truckers Mgmt. , the courts found that Executive Order 11246, which addressed the use of bona fide seniority systems by government contractors and subcontractors, conflicted with Title VII of the Civil Rights Act, which exempted bona fide seniority systems. Executive orders on federal contracting promulgated under authorities other than the FPASA potentially could be found invalid under Youngstown , although it is unclear that Presidents would rely solely on the Constitution for such authority given the breadth of presidential authority under the FPASA. However, in Building and Construction Trades Department, AFL-CIO , an executive order on the use of PLAs in federal contracting was upheld based, in part, on the President's constitutional authority. Further developments in the case law are possible, given that recent Presidents have continued the practice of their predecessors in terms of issuing executive orders on government contracting. These orders may require agencies to incorporate in their contracts provisions obligating contractors to take steps that some commentators would characterize as extraneous to contractors' provision of goods or services to the government. Legislation in this area is also possible, as Congress may amend or repeal an executive order, terminate the underlying authority upon which it is based, or use its appropriations authority to limit its effect. In the event that Congress sought to enlarge or cabin presidential exercises of authority over federal contractors, Congress could amend FPASA to clarify congressional intent to grant the President broader authority over procurement, or limit his authority to more narrow "housekeeping" aspects of procurement. Congress also could pass legislation directed at particular requirements of contracting executive orders. For example, the 112 th Congress enacted legislation that seeks to forestall implementation of any executive orders requiring disclosure of contractors' political contributions and expenditures. Specifically, the National Defense Authorization Act for FY2012 ( P.L. 112-81 , §823) prohibited the heads of defense agencies from requiring contractors to submit "political information" related to the contractor, a subcontractor, or any partner, officer, director, or employee thereof, as part of the solicitation or during the course of contract performance. The Consolidated Appropriations Act, 2012 ( P.L. 112-74 , §743) similarly barred the use of appropriated funds to "recommend or require" persons submitting offers for federal contracts to disclose political contributions or expenditures. | Executive orders requiring agencies to impose certain conditions on federal contractors as terms of their contracts have raised questions about presidential authority to issue such orders. Such executive orders typically cite the President's constitutional authority, as well as his authority pursuant to the Federal Property and Administrative Services Act of 1949 (FPASA). FPASA authorizes the President to prescribe any policies or directives that he considers necessary to promote "economy" or "efficiency" in federal procurement. There have been legal challenges to orders (1) encouraging agencies to require the use of project labor agreements; (2) requiring that contracts include provisions obligating contractors to post notices informing employees of their rights not to be required to join a union or pay dues; and (3) directing departments to require contractors to use E-Verify to check the work authorization of their employees. These challenges have alleged, among other things, that the orders were beyond the President's authority, under FPASA or otherwise. A 2011 draft executive order that would have directed departments to require contractors to "disclose certain political contributions and expenditures" raised similar and additional questions, as it resembled legislation that was considered, but not enacted, by the 111th Congress. The outcome of legal challenges to particular executive orders pertaining to federal contractors generally depends upon the authority under which the order was issued and whether the order is consistent with or conflicts with other statutes. Courts will generally uphold orders issued under the authority of FPASA so long as the requisite nexus exists between the challenged executive branch actions and FPASA's goals of economy and efficiency in procurement. Such a nexus may be present when there is an "attenuated link" between the requirements and economy and efficiency, or when the President offers a "reasonable and rational" explanation for how the executive order at issue relates to economy and efficiency in procurement. However, particular applications of presidential authority under the FPASA have been found to be beyond what Congress contemplated when it granted the President authority to prescribe policies and directives that promote economy and efficiency in federal procurement. Some courts and commentators also have suggested that Presidents have inherent constitutional authority over procurement. A President's reliance on his constitutional authority, as opposed to the congressional grant of authority under the FPASA, is more likely to raise separation of powers questions. In the event that Congress seeks to enlarge or cabin presidential exercises of authority over federal contractors, Congress could amend FPASA to clarify its intent to grant the President broader authority over procurement, or limit presidential authority to more narrow "housekeeping" aspects of procurement. Congress also could pass legislation directed at particular requirements of executive orders on federal contractors. For example, the 112th Congress enacted legislation that seeks to forestall implementation of any executive order requiring disclosure of contractors' political contributions and expenditures. Specifically, the National Defense Authorization Act for FY2012 (P.L. 112-81, §823) prohibited the heads of defense agencies from requiring contractors to submit "political information" related to the contractor, a subcontractor, or any partner, officer, director, or employee thereof, as part of the solicitation or during contract performance. The Consolidated Appropriations Act, 2012 (P.L. 112-74, §743) similarly barred the use of appropriated funds to "recommend or require" persons submitting offers for federal contracts to disclose political contributions or expenditures. |
Droughts raise several issues for Congress, including how to measure and predict drought, how to prepare, and how to coordinate federal agency actions responding to drought. In addition to resulting in agricultural losses, droughts also can affect the water supplies of individuals, communities, industries, species, and other services. Although many water allocation and other water management responsibilities lie largely at the state or local level, stakeholders may seek federal assistance with non-agricultural water supplies during droughts. Congress has created various programs to assist with non-agricultural water supplies for communities, households, and fish and wildlife habitat. These programs are spread across the jurisdictions of multiple agencies and congressional committees and vary widely in their use and funding. Current drought conditions, especially in western states, and exceptional and extreme drought conditions in portions of several states, including much of California, may test the effectiveness of these programs and raise questions about their role in federal drought response and policy. States, along with local governments and water providers, generally are responsible for preparing and planning for drought conditions. Often states take actions guided by state-level drought plans. Some states also have state assistance and authorities that are used to alleviate the impacts of drought conditions. For example, some states (e.g., California, Idaho, and Texas) have instituted water banks and water transfer mechanisms to deal with water supply shortages. The de facto federal policy since the 1980s has been that the U.S. Secretary of Agriculture takes the lead in responding and declaring eligibility for federal agricultural disaster assistance, including drought-related disasters. A declaration of an agricultural disaster area by the Secretary of Agriculture triggers the availability of multiple agricultural assistance programs, most notably the programs of the Farm Services Agency (FSA), and may trigger availability of other federal programs, such as the Economic Injury Disaster Loans of the Small Business Administration (SBA). Most of these programs are focused on mitigating the economic impacts of drought on agriculture or water-dependent small businesses. The federal programs authorized to assist with non-agricultural water supply emergencies are implemented largely independently from these agriculture disaster programs at FSA and SBA. The federal agencies authorized to assist with non-agricultural water supplies emergencies are: U.S. Department of Agriculture (USDA) Rural Utilities Service (RUS), through various water system loan and grant programs (FY2014 funds: $1.3 billion in loans, $374 million in grants). While most of these funds are provided for assisting with rural water and waste systems broadly, systems and households affected by drought may receive a priority. Department of the Interior's Bureau of Reclamation (Reclamation), through activation of the agency's Reclamation States Emergency Drought Relief Program assistance and contract authorities (FY20014 funds: $0.5 million). Department of Defense's U.S. Army Corps of Engineers, through its emergency drinking water and its water contract authorities (no funds specified for FY2014). Additional funds may become available through reprogramming or supplemental appropriations. Some authorized drought assistance programs have never been implemented, while others are used in limited circumstances, and others operate almost annually. For example, while Reclamation's direct assistance with well construction is regularly used (albeit limited by available appropriations), the Corps' drought emergency water assistance has been employed in more limited circumstances, primarily for tribes, due to the high thresholds for its use and nonfederal funding requirements. Figure 1 provides a summary of the RUS, Reclamation, and Corps programs and authorities and what triggers the availability of assistance. Numerous other federal programs and activities may assist in reducing long-term water use in urban, rural, agricultural, and industrial uses. These actions to promote water conservation and efficiency are beyond the scope of this report. RUS provides grants and loans for rural community and household water. Some of the programs are tailored for emergency situations, while others may prioritize loans and grants for rural communities and households facing drought-related declines in water quantity or quality. For RUS programs, rural communities are often defined as those with populations less than 10,000. The RUS programs that may assist in addressing drought-related rural water issues include: Water and Waste Disposal Grants and Loans: This RUS program provides grants and loans for rural community water systems. RUS may choose to prioritize during its competitive selection process projects for communities affected by droughts. While this is a broad program not focused on drought or emergencies, some of its funds in FY2014 may assist drought-affected communities (FY2014 funds: $1.3 billion in loans and $370 million in grants available). While most of these funds are provided for assisting with rural community water and waste systems broadly, systems affected by drought may receive a priority. Emergency Community Water Assistance Grants: This RUS program provides grants specifically to rural water systems experiencing an emergency resulting from a significant decline in quantity or quality of drinking water (FY2014 funds: $3 million reprogrammed by Administration for use in California communities, no other funds available). Household Water Well System Grants: This RUS program provides grants to nonprofit organizations for operating lending programs for the refurbishing of household water well systems in rural areas. Loans are to be made to individuals with low or moderate incomes. Some of this program's FY2014 funds may assist drought-affected households (FY2014 funds: $1 million). More information on these RUS rural water programs is available in the Appendix . Reclamation's authorities to assist with emergency water supplies and conservation stem primarily from the Reclamation States Emergency Drought Relief (RSEDR) Program (43 U.S.C. 2201, et seq.). The RSEDR program consists of a number of different authorities, including direct Reclamation water assistance and loans to reduce drought losses through temporary measures (except for certain wells), water purchases, temporary water contracts, drought planning grants, actions to facilitate water purchases and transfers, and technical assistance. Reclamation can provide much of this assistance to water users (including municipalities and water districts), private entities, tribes, and states. Most of the RSEDR program's authority is limited to the 17 western states and Hawaii, with the exception being that technical assistance is available nationally. RSEDR emergency actions often are provided by Reclamation at 100% federal expense, although some nonfederal reimbursement is authorized. These emergency actions are available to communities and water providers, regardless of their size, but are prioritized by need and congressional direction. As of mid-February 2014, RSEDR funding was $0.5 million for FY2014. Not all of the authorized activities have been implemented. For example, the authority for Reclamation to provide loans for nonfederal water entities to undertake activities to reduce losses and damages from droughts has never been used. Reclamation's drought relief program received $0.5 million in appropriations for FY2014. More information on Reclamation's direct assistance is available in the Appendix . Reclamation has other authorities to address variability in hydrology that are not specific to drought or emergency response. For example, Reclamation has authorities, which are now coordinated under the Department of the Interior's WaterSMART efforts, to promote water resources management preparedness, sustainability, and water and climate variability resilience through improved knowledge and information and mitigation actions such as water and energy efficiency, conservation, and planning. These do not appear in Figure 1 , since they are not designed to function as emergency response programs and were not targeted specifically at drought or drought emergencies and disasters. WaterSMART grants typically are available for water conservation and water and energy efficiency projects, including system optimization, and advanced water treatment. To date, most grants have been used for water reuse projects (e.g., recycling of urban wastewater), irrigation districts' water efficiency improvements, water banking, and watershed basin studies and activities. These grants typically cover only a portion of project costs (25% to 50% of project costs). The Corps (USACE) has authority to assist in the provision and transport of emergency water supplies when state resources have been exceeded and there is an imminent public health threat. While USACE is authorized to assist political subdivisions, farmers, and ranchers with non-irrigation water, this authority has largely been used for assisting tribes with drinking water supplies. These activities have generally been funded through reprogramming of agency funds. The agency also has authority to participate in temporary contracts to provide limited quantities of water (if available) for municipal and industrial purposes (33 U.S.C. 708). More information on the Corps' provision and transport of emergency water supplies is available in the Appendix . Additionally, if the effects of a drought overwhelm state or local resources, the President, at the request of the state governor or tribal governing body, is authorized under the Stafford Act (42 U.S.C. 5121 et seq.) to issue major disaster or emergency declarations resulting in federal aid to affected parties. However, requests by U.S. states for Stafford Act drought-related declarations and related assistance since the 1980s have been denied. The infrequency of presidential domestic drought declarations increases the uncertainty about the circumstances under which such a declaration is likely to be made. Therefore, the emergency assistance typically available to mitigate and respond to the impacts of drought on non-agricultural water supplies is primarily through the USDA's Rural Utilities Service, the Bureau of Reclamation's Emergency Drought Relief Program, and in limited circumstances the U.S. Army Corps of Engineers emergency water authorities. Since FEMA has deferred to USDA on drought declarations over the past three decades, there are no sections of the Stafford Act or regulations or policy guidance documents that address, or even appear to lend themselves to, a prolonged drought event as opposed to a disaster incident. On February 14, 2014, the President announced multiple actions to address drought conditions in California, including accelerating and reprogramming funds to assist with water conservation and irrigation using existing authorized programs; no Stafford Act declaration was made. Both the Bureau of Reclamation and the U.S. Army Corps of Engineers also alter the operations of their water resources facilities in response to droughts. Operations of federal water resource facilities, particularly reservoirs behind dams, may help meet water supply needs during droughts, yet can also be vulnerable to the effects of droughts. Federal dams, particularly in the West, were constructed in part to provide multi-year storage to help with variations in seasonal and annual precipitation. Sustained hydrological drought nonetheless affects operations of federally managed reservoirs, dams, locks, hydroelectric facilities, and other components of the nation's water infrastructure. The extent to which operational changes are authorized and can be implemented to reduce the water supply impacts of drought often is limited by the federal infrastructure's role in meeting multiple project purposes and satisfying legal requirements. Recent legislation has expanded Reclamation's authority for its drought-related operations. The Consolidated Appropriations Act of FY2014 ( P.L. 113-76 ) expanded the Secretary of the Interior's authority to participate in nonfederal groundwater banking in California, and waived certain reporting provisions for transfer of irrigation water among selected federal water contractors, while also directing Reclamation and the Fish and Wildlife Service to expedite "programmatic environmental compliance" to facilitate Central Valley Project (CA) water transfers. The same legislation also provided direction to the Corps regarding operation of its facilities during drought. The explanatory report accompanying P.L. 113-76 directed the Corps to work with communities to increase water storage in winter months, without significantly increasing flood risk, to assist those facing drought conditions. The federal government is also a significant provider of drought information. Congress enacted the National Integrated Drought Information System (NIDIS) Act of 2006 ( P.L. 109-430 ), which established NIDIS within the National Oceanic and Atmospheric Administration (NOAA) to improve drought monitoring and forecasting abilities. NIDIS coordinates the collaborative Drought Monitor and other drought forecasting information, which are used by a variety of stakeholders to plan their actions and investments. The U.S. Geological Survey also provides drought-related water information through its hydrologic monitoring network. This information is used by communities and states to plan water withdrawals and diversions, assess needs for water-use restrictions, and anticipate or respond to drought-related environmental stresses (e.g., fish kills, saltwater intrusion into aquifers, and habitat degradation from high water temperatures). During the widespread drought conditions of 2012 and early 2013, the National Disaster Response Framework was used by the Secretary of Agriculture to coordinate the federal drought response. The National Disaster Recovery Framework (NDRF) is the federal framework followed to assist disaster-affected communities to recover from a disaster. An outgrowth of that experience was the creation in November 2013 of the National Drought Resilience Partnership to align federal drought policies across the government and to facilitate access to drought assistance and information sharing across all levels of government. While the partnership was anticipated to function largely as part of the President's Climate Action Plan to help prepare for drought, the western water supply conditions in 2014 have resulted in the partnership playing a coordinating role in federal drought response. The economic and social consequences of a water supply emergency can be costly to individuals, communities, businesses, and governments. Early actions may help avoid a non-agricultural water supply emergency resulting from drought. These actions can range from rehabilitating wells to improve their reliability, to reducing leaks in conveyance and distribution systems, implementing water rationing, and other water conservation measures. Consequently, a recurrent policy issue is how to effectively and efficiently mitigate drought's water supply impacts across the local, state, and federal agencies. How well current programs help to prevent drought conditions from becoming drought emergencies and drought disasters is one policy question. Another is whether the fragmentation of existing authorizations results in duplication, waste, gaps, and perverse incentives to prepare for drought. The broader policy struggle is how to transition from drought assistance to drought risk reduction. Rural Utilities Service: Water and Waste Disposal Grants and Loans Form of Assistance, Condition of Assistance, and Eligibility Requirements The Rural Water and Waste Disposal Account, administered by RUS, supports construction and improvements to rural community water systems (i.e., drinking water, sanitary sewerage, solid waste disposal, and storm drainage facilities). The program is not exclusively a drought program; however, water systems affected by drought may receive priority during implementation. Eligible rural areas may include an area in any city or town that has a population of less than 10,000 residents and where the projects are needed to meet applicable health or sanitary standards. Applicants must be unable to obtain sufficient credit elsewhere at reasonable rates and grants are made only if needed to reduce user charges to a reasonable level given the median household income for the area. Direct loans carry interest rates of 5% or less. Required Approvals and Application and Selection Provision The program is generally available and receives regular appropriations. No specific trigger is required for eligible entities to apply for assistance. Applications for direct loans, guaranteed loans, and grants are made with state Rural Development offices. Authority and Appropriations This assistance can be provided under the authority of the Consolidated Farm and Rural Development Act of 1972 (7 U.S.C. 1926). Funding for the program is allocated to state rural development offices where state directors set priorities particular to the rural needs of their state. Loan authorization level for direct loans is $1.2 billion; loan authority for loan guarantees is $50 million and loan subsidy levels for loan guarantees are $355,000 in FY2014. FY2014 annual appropriations provided $345.5 million for water and waste disposal grants. While most of these funds are provided for assisting with rural community water and waste systems broadly, those systems affected by drought may receive a priority. Funding also may be provided through reprogramming and emergency supplemental funding. Rural Utilities Service: Emergency Community Water Assistance Grants Form of Assistance, Condition of Assistance, and Eligibility Requirements RUS administers emergency and imminent community water assistance grants. Eligible communities must face an emergency or a significant decline in quantity or quality of drinking water to apply. Grants can be made in rural areas and for cities or towns with a population of 10,000 or less, where the median household income is less than or equal to the state's non-metropolitan median household income. Eligible entities include most public bodies (e.g., state and local governmental entities), nonprofit corporations, and federally recognized Tribes serving rural areas. Privately owned wells are not eligible. Grants may cover 100% of project costs. Grants for projects where a significant decline in quantity or quality of water occurred within the last two years may not exceed $500,000 and grants for emergency repairs and replacement of facilities on existing systems may not exceed $150,000. Required Approvals and Application and Selection Provision Grants are only given for communities facing actual or imminent drinking water shortages. Applicants must submit an application, which then enters a nationally competitive process that evaluates the severity of the actual or imminent decline. The Secretary of Agriculture will act on all applications within 60 days of their submission to the extent practicable. Authority and Appropriations Assistance can be provided under the authority of Section 306A of the Consolidated Farm and Rural Development Act of 1972 (7 U.S.C. 1926a). At least 50% of funds provided annually must benefit rural communities with populations less than 3,000. The program is authorized for appropriations of $35 million annually in FY2014 through FY2018. For FY2014, the program was appropriated no funds. In February 2014, it was announced that the program would receive $3 million in reprogrammed funds in FY2013 to be made available for California's rural communities (less than 10,000 residents with a median household income less than $62,883). Additional funds often become available through reprogramming and may become available through supplemental appropriations. Rural Utilities Service: Household Water Well System Grants Form of Assistance, Condition of Assistance, and Eligibility Requirements RUS provides grants to nonprofit organizations for lending programs to refurbish household water well systems in rural areas; loans are to be made to individuals with low or moderate incomes. Eligible individuals include members of households in which members have a combined income at or below the median non-metropolitan household income for the state or territory in which the individual resides, according to the most recent United States census. Loans made with grant funds must not exceed $11,000 per water well system and must have an interest rate of 1%. Financed facilities will not be inconsistent with any development plans of the state, multi-jurisdictional area, county, or municipality in which the proposed project is located. Required Approvals and Application and Selection Provision Nonprofit organizations must demonstrate expertise in well-water systems. Grants are determined by the Secretary of Agriculture. Authority and Appropriations This assistance can be provided under the authority of Section 6012 of the 2002 farm bill ( P.L. 107-171 ) and Section 306D of the Consolidated Farm and Rural Development Act of 1972 (7 U.S.C. 1926e). For FY2014, the program has been appropriated $993,000. Bureau of Reclamation: Reclamation RSEDR Activities to Mitigate Drought Losses and Damage Form of Assistance, Conditions of Assistance, and Eligibility Requirements The Reclamation States Emergency Drought Relief (RSEDR) Act authorizes the Commissioner of the Bureau of Reclamation to undertake (or contract for) construction, management, and conservation activities that mitigate losses and damages resulting from drought conditions. Costs incurred by Reclamation are non-reimbursable (i.e., 100% federal). Construction activities are limited to temporary facilities, except certain wells to reduce losses and damages from drought can be permanent. Activities may occur within or outside of authorized Reclamation project areas. Eligible entities are water users, tribes, and local entities in the 17 Reclamation states and Hawaii. Required Approvals and Application and Selection Processes An eligible entity can apply for assistance if (1) the Secretary of the Interior has approved a request for RSEDR assistance by a governor or tribal governing body or (2) the state or tribe has a drought contingency plan that has been approved by Reclamation and transmitted to Congress. Eligible entities can request Reclamation's assistance through the area, regional, or Commissioner's Office. The Regional Office Drought Coordinators prioritize requests; Reclamation's Drought Coordinator approves or disapproves requests based on congressional direction, available funding, need, and compliance with environmental laws. The Regional Director can provide the assistance in compliance with state and federal law. Authority and Appropriations These activities are authorized under the Reclamation States Emergency Drought Relief Act of 1991, as amended (43 U.S.C. 2221). P.L. 113-76 extended the authority through September 30, 2017. The authorization of appropriations (43 U.S.C. 2241) for this assistance fell under the broader Reclamation States Emergency Drought Relief activities, which was $90 million for the period FY2006 through FY2012. As of mid-February 2014, RSEDR activities had received $0.5 million in appropriations for FY2014. Army Corps Assistance: Provision of Emergency Drinking Water Form of Assistance, Condition of Assistance, and Eligibility Requirements The U.S. Army Corps of Engineers can construct wells and transport water to provide emergency drinking water during drought conditions. Corps assistance is provided only to meet minimum public health and welfare requirements in the immediate future that cannot be met by state or local actions or through reasonable conservation measures. Transport expenses are non-reimbursable expenses (i.e., 100% federal); the purchase or acquisition of the water and the storage facility at the terminal point and permanent water facilities are reimbursable expenses. This authority cannot be used for the provision of water for livestock, irrigation, recreation, or commercial/industrial use. Eligible entities are limited to drought-distressed political subdivisions, farmers, and ranchers. Required Approvals and Application and Selection Provision A governor, his/her representative, or the governing body of a tribe must make a written request for assistance to the Army Corps of Engineers. The USACE Director of Civil Works or the Assistant Secretary of the Army (Civil Works) makes the determination that an area has an inadequate water supply causing, or is likely to cause, a substantial threat to the health and welfare of the inhabitants of the area. If an applicant submits a request directly to USACE, the submission will be referred to the State Emergency Management Agency or equivalent office. Authority and Appropriations This assistance can be provided under the authority of the Disaster Relief Act of 1974 (33 U.S.C. 701n). Funding is provided through the USACE Flood Control and Coastal Emergencies Account, which often receives some appropriations through annual Energy and Water Appropriations acts, with the majority of its funds through supplemental appropriations. The Corps has authority to reprogram its civil works funds to accomplish work under this authority. In many years, the Corps does not use this authority. The Corps most often uses this authority to assist tribes with emergency drinking water issues. | Drought conditions often fuel congressional interest in federal assistance. While drought planning and preparedness are largely individual, business, local, and state responsibilities, some federal assistance is available to mitigate drought impacts. While much of the federal assistance is targeted at mitigating impacts on the agricultural economy, other federal programs are authorized to provide non-agricultural water assistance. Interest in these non-agricultural programs often increases as communities, households, and businesses experience shrinking and less reliable water supplies. Authorized federal assistance is spread across a variety of agencies, and each has limitations on what activities and entities are eligible and the funding that is available. Rural Utilities Service (RUS): The U.S. Department of Agriculture's RUS provides grants and loans for rural water systems in communities with less than 10,000 inhabitants; its programs are for domestic water service, not water for agricultural purposes. Some of the programs are tailored to emergency situations, while others may prioritize loans and grants for communities and households facing drought-related declines in water quantity or quality. As of mid-February 2014, around $1.3 billion in loans and $370 million in grants are available for rural community water and waste systems. While these funds are provided for assisting with rural water systems broadly, systems affected by drought may receive priority. Also for FY2014, the RUS Household Water Well System Grants had received $1 million in appropriations, and the Administration had reprogrammed to the RUS Emergency Community and Water Assistance Grants program $3 million for California's rural communities. Bureau of Reclamation: Reclamation's authorities to assist with emergency water supplies and conservation stem primarily from the Reclamation States Emergency Drought Relief (RSEDR) Program. RSEDR consists of various authorities, including direct Reclamation water assistance to reduce drought losses, water contract authority, technical assistance, drought planning grants, and actions to facilitate water purchases and transfers. Reclamation can provide much of this assistance to water users (including municipalities and water districts), private entities, tribes, and states. Most of the RSEDR program's authority is limited to the 17 western states and Hawaii. RSEDR emergency actions often are provided by Reclamation at 100% federal expense, although some nonfederal reimbursement is authorized. These emergency actions are available to communities and water providers, regardless of their size, but are prioritized by need and congressional direction. As of mid-February 2014, RSEDR funding was $0.5 million for FY2014. Army Corps of Engineers (USACE): The Corps has authority to assist emergency water supplies and their transport when state resources are exceeded and a public health threat is imminent. This authority has largely been used for assisting tribes with imminent drinking water supply issues. These activities have generally been funded through reprogramming of available agency funds. The agency also has authority to contract for provision of limited quantities of water (if available) from its reservoirs for municipal and industrial purposes. Role of States and Other Federal Authorities. If a drought's effects overwhelm state or local resources, the President, at the request of a governor or tribal governing body, is authorized under the Stafford Act (42 U.S.C. 5121 et seq.) to issue major disaster or emergency declarations resulting in federal aid to affected parties. Since the 1980s, however, requests by U.S. states for Stafford Act drought-related declarations and related assistance for drinking water supplies have been denied. The U.S. Secretary of Agriculture has overseen most federal drought response through agricultural disaster assistance. |
C ongress has generally broad authority to impose requirements upon the federal procurement process (i.e., the process whereby agencies acquire supplies and services from other entities for the agency's direct benefit or use). One of the many ways in which Congress has exercised this authority is by enacting measures that encourage agencies to contract and subcontract with "small businesses." For purposes of federal procurement law, the term small business generally denotes a business that (1) is independently owned and operated, (2) is not dominant in its field of operations, and (3) has fewer employees or annual receipts than the standard that the Small Business Administration (SBA) has established for the industry in which the business operates. In exercising its authority over procurement, Congress has declared a policy of ensuring that a "fair proportion" of federal contract and subcontract dollars is awarded to small businesses. It has also required the executive branch to establish government-wide and agency-specific goals for the amount of contract and/or subcontract dollars awarded to small businesses that equal or exceed specified percentages of federal procurement spending (e.g., 3% to Historically Underutilized Business Zone (HUBZone) small businesses). Congress has similarly required or authorized agencies to conduct set-asides , or competitions in which only small businesses may compete, as well as to make noncompetitive or "sole-source" awards to small businesses in circumstances when such awards could not be made to other businesses. In addition, the SBA and officers of the procuring agencies are tasked with reviewing and restructuring proposed procurements to maximize opportunities for small business participation. CRS Report R42391, Legal Authorities Governing Federal Contracting and Subcontracting with Small Businesses , by [author name scrubbed] and [author name scrubbed], discusses these and related measures in more detail. Congress periodically amends the statutes governing contracting and subcontracting with small businesses to better achieve its declared policy of ensuring that small businesses receive a "fair proportion" of federal procurement spending. The 111 th and 112 th Congresses, in particular, made numerous changes. These Congresses enacted legislation ( P.L. 111-240 , P.L. 112-239 ) that addresses, among other things, (1) the standards under which business size is determined; (2) goals for contracting and subcontracting with small businesses; (3) prime contractors' obligations in subcontracting with small businesses; (4) SBA guarantees of small businesses' performance and payment bonds; (5) "bundling" and "consolidation" of agency requirements into contracts unsuitable for performance by small businesses; (6) set-asides for women-owned small businesses; and (7) mentor-protégé programs for small business contractors. Compared to the 111 th and 112 th Congresses, the 113 th Congress enacted relatively few measures addressing small business contracting, perhaps because the amendments made to the various laws governing small business contracting by its predecessors were still being implemented and assessed. This report describes, by issue area, the various small business contracting bills in the 113 th Congress and, particularly, the modifications to existing law that were made. In doing so, the report also briefly surveys current law on particular issues pertaining to small business contracting and subcontracting, including significant amendments to current law made by the 111 th and 112 th Congresses. The latter information is included because, in many cases, the legislation enacted or proposed in the 113 th Congress built upon changes made by its predecessors. Although the report cites numerous bills, it does not attempt to include all legislation related to small business contracting in the 113 th Congress. Nor does it discuss all provisions of bills that are included. Rather, its focus is upon legislation that reflects distinctive approaches to issues in small business contracting (e.g., increasing goals, authorizing set-asides or sole-source awards). The report will be updated as additional legislation is enacted or introduced. Government-wide and agency-specific goals for the percentage of contract and/or subcontract dollars awarded to small businesses have long been part of the federal procurement process. Congress amended Section 15(g) of the Small Business Act in 1978 to require that agency heads, in consultation with the SBA, set agency-specific goals for the percentage of federal contract and subcontract dollars awarded to small businesses each year. Ten years later, in 1988, Congress further amended Section 15(g) to require the President to set government-wide goals for the percentage of federal contract and/or subcontract dollars awarded annually to various categories of small businesses. These government-wide goals must equal or exceed certain percentages specified in statute (currently, 23% of federal contract dollars awarded to small businesses (of any type); 5% of federal contract and subcontract dollars awarded to women-owned small businesses; 5% to small businesses owned and controlled by "socially and economically disadvantaged" individuals and groups; 3% to HUBZone small businesses; and 3% to service-disabled veteran-owned small businesses). Individual contracts may be counted toward multiple goals. For example, an award to a HUBZone small business counts toward both that goal and the overall small business goal. The 1978 and 1988 amendments granted the executive branch considerable discretion in determining how the "total value of all prime contract and subcontract awards" for a fiscal year was to be calculated, and in deciding what steps should be taken to meet the government-wide and agency-specific goals. This discretion, coupled with persistent failures to meet the goals, prompted the 111 th and 112 th Congresses to make multiple changes to what is commonly known as the "Small Business Goaling Program." Initially, the 111 th Congress required that senior procurement executives, senior program managers, and agency directors of Small and Disadvantaged Business Utilization (OSDBUs) communicate to their subordinates the "importance of achieving small business goals." Subsequently, the 112 th Congress reiterated this requirement, and made other amendments to Sections 15(g) and (h) of the Small Business Act with the intent of improving performance as to these goals. Among other things, the 112 th Congress directed the SBA to review its "Goaling Guidelines" to ensure that certain types of spending are not excluded when goals are set. It also imposed several requirements as to the establishment of agency-specific contracting goals, directed agencies to take specified steps to meet their goals, and increased reporting regarding goaling program performance. In addition, the 112 th Congress mandated an independent assessment of the goaling program and required that certain members of the Senior Executive Service (SES) be trained on contracting requirements under the Small Business Act. Building on the work of its predecessors, the 113 th Congress addressed the government-wide and agency-specific goals for contracting and subcontracting with small businesses. One measure enacted by the 113 th Congress amended Section 15(h) to require that agency reports regarding performance in contracting and subcontracting with small businesses include a "remediation plan with proposed new practices to better meet such goals, including analysis of factors leading to any failure to achieve such goals." Previously, such plans only had to address (1) the extent of small business participation in agency contracts and subcontracts, (2) whether the agency achieved its goals, and (3) justifications for any failures to attain goals. Another measured enacted by the 113 th Congress amended Section 15(g) to permit the Department of Energy (DOE) to count first-tier subcontracts awarded by contractors managing and operating national laboratories toward the DOE and government-wide goals for prime contracts . This change arguably reflects the unique nature of the supplies and services the DOE purchases, a sizeable percentage of the total value of which is made up of contracts for the management and operation of laboratories that are generally seen as unsuitable for performance by small businesses. At earlier dates, the DOE had prime contract goals that were substantially lower than those of other agencies. However, the DOE could potentially have been said to have failed to comply with certain requirements imposed by the 112 th Congress—particularly a requirement that agencies "make a consistent effort to annually expand participation by small business concerns from each industry category in [agency] procurement contracts and subcontracts" —if it had reported this same low goal as to prime contracts year after year, without any increases. Counting certain subcontracts as if they were prime contracts arguably gives the DOE greater latitude for improvements in its performance as to its prime contracting goals. On the other hand, an argument could be made that treating subcontracts as if they were prime contracts minimizes the DOE's incentives to contract with small businesses. Those opposed to counting certain DOE subcontracts as prime contracts may also note that subcontractors do not enjoy the same protections as prime contractors under federal law, making it inappropriate to equate the two. Members of the 113 th Congress also introduced legislation that would have increased the government-wide goals for the percentage of contract and/or subcontract dollars awarded to small businesses, thereby also effectively increasing the agency-specific goals. Most commonly, these measures would have increased the goal for the percentage of prime contract dollars awarded to small businesses (of any type) from 23% to 25%, and the goals for the percentage of contract and subcontract dollars awarded to small disadvantaged businesses and women-owned small businesses from 5% to 10% each. Some measures would also have increased the goals for the percentage of contract and subcontract dollars awarded to HUBZone small businesses and service-disabled veteran-owned small businesses from 3% to 5%-6% each. Such measures responded to concerns that the goals—which were set a decade or more ago—are too low and do not adequately reflect the availability of minority-, women-, and service-disabled veteran-owned small businesses in today's marketplace. Also, given recent reports that the federal government has met its goals for contracting and subcontracting with small businesses for the first time in seven years, an argument could be made that increasing the goals is necessary to ensure continued federal efforts and improvements in this area. Other measures introduced in the 113 th Congress would have clarified how particular contracts are to be counted for goaling purposes. Several of these measures sought to prevent "double dipping," or counting a single contract toward multiple goals because, for example, it happens to be awarded to a firm that is owned by a service-disabled woman that is participating in the SBA's Minority Small Business Ownership and Capital Development Program (commonly known as the "8(a) Program"). These measures would have generally barred agencies from counting a small business in more than two categories (e.g., HUBZone, women-owned) when determining whether the agency has met its goals. Some measures would have also required agencies to count awards to small businesses participating in the 8(a) Program toward the goal for small disadvantaged businesses, as opposed to other goals. Other measures would have clarified how specific contracts (e.g., contracts with "teaming arrangement entities") are to be counted. Yet other bills in the 113 th Congress would have mandated reporting of specific information about agencies' performance in contracting and subcontracting with small businesses, or would have required independent assessments of agency performance. Other measures would have repealed the provisions, previously noted, that authorize the DOE to count first-tier subcontracts awarded by management and operations contractors toward the DOE and government-wide prime contracting goals. The basic requirement that agencies incorporate clauses stating U.S. policy as to subcontracting with small businesses into their prime contracts, and "subcontracting plans" into larger prime contracts, originated with the 1978 amendments to Section 8(d) of the Small Business Act. As amended, Section 8(d) generally requires agencies to incorporate terms addressing subcontracting with small businesses in contracts performed within the United States whose value exceeds a minimum threshold (currently, generally $150,000) . These terms (1) articulate that it is the "policy of the United States" that small businesses have the "maximum practicable opportunity to participate" in the performance of federal contracts, and (2) obligate the prime contractor to carry out this policy "to the fullest extent consistent with the efficient performance of th[e] contract." In addition, "larger" contracts (currently those whose value exceeds $700,000 ($1.5 million for construction contracts)) that offer subcontracting possibilities must generally also incorporate so-called subcontracting plans with percentage goals for the amount of work to be subcontracted with various types of small businesses (e.g., HUBZone small businesses); descriptions of the efforts the contractor will take to ensure that small businesses have "an equitable opportunity to compete" for subcontracts; assurances that the contractor will "flow down" these requirements to all subcontractors (other than small businesses) with "larger" subcontracts (currently, those valued in excess of $700,000 ($1.5 million for construction contracts)); and recitations of the types of records the contractor will maintain to demonstrate the procedures it has adopted to comply with its subcontracting plan. Recent Congresses have, however, made a number of amendments to Section 8(d), in part, because of concerns about agencies' performance in meeting the government-wide and agency-specific goals for contracting and subcontracting with small businesses. Initially, the 111 th Congress amended Section 8(d) in an attempt to address "bait-and-switch" (i.e., prime contractors using subcontractors other than those whom they said in their bid or offer that they would use), and subcontractors' difficulties in obtaining payment from prime contractors. Among other things, the 111 th Congress required that subcontracting plans include terms obligating prime contractors to make "good faith efforts" to obtain supplies and services from the small businesses they "used" in preparing their bids and proposals, and provide the contracting officer a written explanation if they do not. It also required prime contractors to notify the contracting officer in writing if they pay a "reduced price" to a subcontractor for completed work, or if payment to a subcontractor for work for which the agency has paid the prime contractor is more than 90 days past due. Subsequently, the 112 th Congress imposed additional requirements on the collection and reporting of data regarding prime contractors' performance of their subcontracting plans. It also provided statutory authority for contracting officers to consider prime contractors' performance in subcontracting with small businesses when evaluating their "past performance" for source-selection purposes. In addition, it established further protections for subcontractors by requiring that (1) offerors who intend to identify a particular small business as a potential subcontractor in their bid or proposal notify the small business prior to doing so, and (2) the SBA establish a mechanism whereby subcontractors can report "fraudulent activity or bad faith" by contractors with respect to subcontracting plans. The 113 th Congress expanded on these requirements by enacting legislation that imposes certain obligations on prime contractors whose subcontractors are also required, through the "flow down" of contract requirements, to have subcontracting plans. Among other things, the 113 th Congress required that prime contractors (and any subcontractors whose own subcontractors have subcontracting plans) review and approve their subcontractors' plans; monitor subcontractor compliance with these plans; ensure subcontracting reports are submitted when required; compare subcontractors' performance to the plans and goals; and discuss performance "when necessary" to ensure a "good faith effort" to comply. The 113 th Congress also required that subcontracting plans contain a recitation of all "records" that the prime contractor will maintain to demonstrate the procedures it has adopted to ensure that its subcontractors comply with their subcontracting plans. In addition, the 113 th Congress addressed when and how lower tier subcontracts may be counted toward prime contractors' subcontracting goals, as well as amended a subcontracting program unique to the Department of Defense, as discussed below. Other legislation in the 113 th Congress would have amended Section 8(d) to require that the goals for subcontracting with various types of small businesses included in subcontracting plans be "not less than 40 percent," rather than being left to agencies' discretion. Such legislation was intended to promote subcontracting with small businesses, as were other measures introduced in the 113 th Congress. One bill would, for example, have required the SBA to "collaborate" with contracting agencies to include contract terms that would provide contractors with "additional consideration"—an apparent reference to payment—if they meet their goals for subcontracting with small disadvantaged businesses. Another bill would have required the Administrator of the SBA to consult with other agency heads to develop and implement "standards" whereby contracting officers may consider potential contractors' prior performance as to their subcontracting plans when making source-selection determinations. Currently, the Small Business Act authorizes consideration of this information, and the Federal Acquisition Regulation (FAR) even requires it in certain circumstances. However, neither the Small Business Act nor the FAR prescribes specific "standards" for contracting officers to use in considering contractors' past performance in subcontracting with small businesses, such as those contemplated by the proposed legislation. The way in which agencies structure their contracting requirements can have significant implications for small businesses. When multiple requirements are grouped into a single contract, that contract may be difficult, or impossible, for small businesses to perform. For this reason, Congress has enacted progressively more stringent limitations upon the "bundling" and "consolidation" of requirements by federal agencies. First, in 1997, Congress amended the Small Business Act to define bundling as, consolidat[ing] 2 or more procurement requirements for goods or services previously provided or performed under separate smaller contracts into a solicitation of offers for a single contract that is likely to be unsuitable for award to a small business concern due to—(A) the diversity, size, or specialized nature of the elements of performance specified; (B) the aggregate dollar value of the anticipated award; (C) the geographical dispersion of the contract performance sites; or (D) any combination of the factors described in subparagraphs (A), (B), and (C). It also required agencies to take certain steps to ensure that any bundling that they engage in is "necessary and justified." Then, in 2003, Congress amended the Armed Services Procurement Act (ASPA) to prohibit defense agencies from executing any acquisition strategy that includes a "consolidation" of contract requirements valued in excess of $5 million (later adjusted for inflation to $6 million) without first (1) conducting market research, (2) identifying any alternative contracting approaches that would involve a lesser degree of consolidation of contract requirements, and (3) determining that the consolidation is "necessary and justified." The 111 th Congress subsequently imposed similar requirements upon other agencies' contracts valued in excess of $2 million. It also required (1) the development of a government-wide policy regarding bundling, (2) listings of and justifications for bundled contracts, and (3) periodic reports on the performance of agency officials who are tasked with minimizing bundling and promoting contracting with small businesses. Most recently, the 112 th Congress repealed the consolidation-related provisions of the ASPA and generally subjected defense agencies to the same requirements as civilian agencies. The 113 th Congress expanded on previous efforts to ensure that any bundling of contracts is "necessary and justified" by amending Section 15 of the Small Business Act to require the SBA Administrator, in consultation with the Small Business Procurement Advisory Council, the Administrator for Federal Procurement Policy, and the Administrator of General Services, to develop a plan to improve the quality of data reported on bundled or consolidated contracts in the Federal Procurement Data System-Next Generation (FPDS-NG). This plan is to describe the roles of specified officials in improving the quality of data reported on bundled and consolidated contracts, among other things. Currently, agencies are required to identify bundled and consolidated contracts in FPDS-NG, and Chief Acquisition Officers must annually certify that prior year FPDS-NG records are "accurate and complete." However, existing certification requirements are not specifically concerned with bundling and consolidation. Measures introduced in the 113 th Congress would have either placed further limitations on bundling or consolidation of contracts in general, or addressed bundling and consolidation within the context of strategic sourcing specifically. The former type of measure generally sought to amend the definition of bundling of contract requirements so that it would apply to requirements for construction (as the definition of consolidation of contract requirements currently does), as well as in situations where an agency adds a new requirement to requirements previously provided or performed under separate smaller contracts. These measures would also have generally altered—and established a statutory basis for—current regulatory and other procedures for resolving differences of opinion between the SBA and the procuring agency as to whether particular procurements are bundled. In contrast, the second type of measure would have addressed bundling and consolidation within the context of strategic sourcing specifically. The term "strategic sourcing" commonly describes the process of using analyses of an organization's spending to acquire frequently procured items more economically and efficiently. The General Services Administration (GSA) has recently promoted government-wide strategic sourcing as a way to save money. Individual agencies have also developed their own agency-specific strategic sourcing initiatives for the same purpose. On the other hand, small businesses have expressed concern that strategic sourcing could diminish opportunities for small businesses to obtain and perform federal contracts, since small businesses may not be able to supply the large quantities of supplies and services that are often required for discounted pricing. Several measures introduced in the 113 th Congress would have responded to these concerns by requiring the Office of Management and Budget (OMB) to develop guidance on strategic sourcing that "reflect[s] the requirements of the Small Business Act, including the provisions regarding contract bundling, contract consolidation, and the need to achieve the statutory small business prime contracting and subcontracting goals in section 15 of that Act." Other measures would have required the collection of data regarding strategic sourcing, or independent assessments of strategic sourcing's effects on small businesses. Competition is generally valued in federal contracting because it can result in the government paying lower prices, ensure some degree of transparency and accountability, and help prevent fraud. Because of this, Congress has generally required that agencies obtain "full and open competition through the use of competitive procedures" when awarding contracts, and defined full and open competition to mean that all responsible sources are permitted to submit bids or offers. However, in keeping with its declared policy of ensuring that small businesses obtain a "fair proportion" of federal procurement dollars, Congress has also enacted a number of statutes that require or authorize agencies to use other than full-and-open competition when contracting with small businesses. In particular, various provisions of the Small Business Act permit agencies to award contracts to small businesses on a set-aside or sole-source basis if certain requirements are met, as Table 1 illustrates. Key among these requirements is that the contracting officer reasonably expects bids or offers will be received from at least two small businesses, and the award can be made at a fair market price. This requirement is commonly known as the "Rule of Two" because of its focus upon receipt of bids or offers from at least two small businesses. The Department of Veterans Affairs (VA) has separate statutory authority, beyond that provided in the Small Business Act, to make set-aside and sole-source awards to service-disabled veteran-owned small businesses and other veteran-owned small businesses, as discussed below. Because legislation pertaining to the so-called "set-aside programs" for different types of small businesses (e.g., HUBZone, women-owned) has historically been enacted separately, each program is discussed below under its own heading. However, there have been occasional measures that affect set-asides or sole-source awards for all types of small businesses. These latter measures are grouped together under the heading "General." Although the various provisions of the Small Business Act requiring or authorizing set-asides or sole-source awards to small businesses each pertain to a particular type of small business (e.g., HUBZone, women-owned), in some cases, Congress has enacted or considered legislation that would affect the ability of all types of small businesses to obtain awards under these authorities. Perhaps the most notable example is legislation enacted by the 111 th Congress that expressly authorizes agencies to set aside all or part of "multiple-award contracts" for small businesses. A multiple-award contract is a single contract awarded to multiple vendors, each of which is generally entitled to a "fair opportunity to be considered" for orders valued in excess of $3,000. Prior to the enactment of P.L. 111-240 , the setting aside of multiple-award contracts for small businesses seems to have been an accepted practice. However, there was not express statutory authority for such set-asides. However, there was not express statutory authority for such set-asides. Even more significantly, some asserted that the setting aside of orders under multiple-award contracts was effectively barred because of provisions of federal law which generally require that all vendors holding a multiple-award contract have a "fair opportunity to be considered" for orders under the contract. The legislation enacted by the 111 th Congress vitiates this argument by expressly permitting set-asides of orders "notwithstanding the fair opportunity requirements," as well as other set-asides and reservations of parts of multiple-award contracts. This legislation also defines multiple award contract in a way that apparently encompasses Federal Supply Schedules contracts. Previously, questions had been raised about the applicability of set-asides to Schedules contracts. Several measures introduced by Members of the 113 th Congress would have similarly affected the ability of all types of small businesses to obtain set-aside contracts. For example, one measure would have provided that "timely offers" from Federal Prison Industries (FPI)—a government-owned corporation that sells products manufactured by federal prisoners to federal agencies—are not to be considered if the contract has been set-aside for small businesses under "section 15(a) of the Small Business Act ... and its implementing regulations." Federal law currently requires that "timely offers" from FPI be considered whenever agencies use "competitive procedures" in procuring products for which FPI has a "significant market share," and the GAO has found that small business set-asides constitute "competitive procedures" for purposes of this provision. The proposed legislation would have effectively overturned this GAO decision as to contracts awarded under the authority of Section 15(a) of the Small Business Act, ensuring that contracts set-aside for small businesses generally (i.e., not of a particular type) cannot be awarded to FPI. Other measures introduced in the 113 th Congress would exempt contracts awarded under the authority of the Small Business Act from restrictions that would be imposed by the proposed legislation. Congress amended Section 8(a) of the Small Business Act in 1978 to expressly authorize agencies to award contracts on a set-aside or sole-source basis to small businesses owned and controlled by socially and economically disadvantaged individuals participating in the SBA's 8(a) Program. Section 8(a) and related provisions of the act broadly define social disadvantage and designate certain racial and ethnic groups as socially disadvantaged, although they also grant the SBA authority to recognize additional groups as such. Section 8(a) also defines economic disadvantage , but it does not establish any specific monetary thresholds for determining whether individuals are economically disadvantaged. Instead, the SBA promulgated the current "net worth" standards—of not more than $250,000 for initial entry into the program, and $750,000 for continuing eligibility—through notice-and-comment rulemaking in 1989. The act further limits participation in the 8(a) Program to a single term of no more than nine years for firms and individual owners. However, it, along with other provisions of federal law, permits certain owner-groups—namely, Alaska Native Corporations (ANCs), Community Development Corporations (CDCs), Indian tribes, and Native Hawaiian Organizations (NHOs)—to participate in the 8(a) Program on somewhat different terms than individual owners. No significant amendments to Section 8(a) have been enacted in recent years, despite the introduction of multiple bills on the topic. Members of the 113 th Congress also proposed several amendments to Section 8(a). Some bills would have increased the SBA's "net worth" standard to $1.5 million for initial and continuing eligibility, and codified this standard. These measures would have also permitted firms to participate in the 8(a) Program for more than nine years if they have not "completed" a contract awarded under the authority of Section 8(a). These changes were apparently in response to concerns that the current net-worth thresholds are too low and have not been adjusted for inflation. There have also been concerns that the percentage of contract dollars awarded to individual 8(a) firms has decreased as the number of firms participating in the program has increased. Another measure would have amended Section 8(a) to provide that, if an NHO establishes it is economically disadvantaged in connection with the application to the 8(a) Program of one firm it owns, it generally need not reestablish economic disadvantage when additional firms it owns apply to the program. Currently, Section 8(a) has two separate provisions regarding determinations of economic disadvantage, one addressing tribally owned firms, and the other addressing all other firms. Based, in part, on these provisions, the SBA has promulgated regulations which provide that Indian tribes generally need only demonstrate economic disadvantage one time to qualify firms for the 8(a) Program. In contrast, the regulations as to NHO-owned firms provide that: For the first 8(a) applicant owned by a particular NHO, individual NHO members must meet the same initial eligibility economic disadvantage thresholds as individually-owned 8(a) applicants [i.e., $250,000]. For any additional 8(a) applicant owned by the NHO, individual NHO members must meet the economic disadvantage thresholds for continued 8(a) eligibility [i.e., $750,000]. By providing that NHOs generally need only establish economic disadvantage one time, the proposed legislation would have effectively required that the SBA treat NHO-owned firms in the same way it currently treats tribally owned firms. Yet another measure introduced in the 113 th Congress would apparently have permitted 8(a) firms to "self-certify" as to their eligibility for federal contracting preferences, instead of having their eligibility certified by SBA, as is currently the case. Congress added Section 8(m) to the Small Business Act in 2000 in order to authorize set-asides for women-owned small businesses. The SBA has construed Section 8(m) as authorizing agencies to set aside contracts for women-owned small businesses in industries where such firms are "substantially underrepresented," and for economically disadvantaged women-owned small businesses in industries where such firms are "underrepresented." However, due in part to difficulties in determining the industries in which women-owned small businesses are underrepresented, set-asides for women-owned small businesses were not actually implemented until 2011. Nonetheless, despite its relatively recent implementation, Section 8(m) has already been subject to two significant amendments. First, the 112 th Congress removed caps on the maximum value of contracts that could be set aside for women-owned small businesses, thereby making set-asides for women-owned small businesses more like those for other types of small businesses (e.g., HUBZone, service-disabled veteran-owned), as illustrated in Table 1 . As initially enacted, Section 8(m) only permitted set-asides of contracts whose value was below $3 million, or $5 million for manufacturing contracts (later adjusted to $4 million ($6.5 million for manufacturing contracts)). However, legislation enacted by the 112 th Congress removed these caps, permitting "larger" contracts to be set aside for women-owned small businesses. Then, the 113 th Congress went a step further by authorizing agencies to award sole-source contracts valued at up to $4 million ($6.5 million for manufacturing contracts) to women-owned small businesses. The legislation permits sole-source awards to women-owned small businesses like those permitted to other types of small businesses. See Table 1 . The 113 th Congress also accelerated the deadline for the Executive to report on the industries in which women-owned small businesses are underrepresented, something which has been of concern to Congress ever since the Executive initially proposed regulations that identified only four such industries. Another measure proposed in the 113 th Congress, but not enacted, would have provided for women-owned small businesses to be certified by SBA. Currently, only certain entities—not including SBA—certify women-owned small businesses. Firms may also self-certify. Congress added Section 31 to the Small Business Act in 1997 to permit agencies to set aside contracts for HUBZone small businesses, make sole-source awards to such firms, and grant them "price evaluation adjustments" in unrestricted competitions. To be eligible for these preferences, firms must meet certain criteria, which include having their principal office in a HUBZone. At least 35% of their employees must also reside in a HUBZone. Section 3 of the Small Business Act, in turn, defines a HUBZone to include "qualified census tracts" and "qualified nonmetropolitan counties," the latter of which includes counties in which "the median household income is less than 80 percent of the nonmetropolitan State median income, based on the most recent data available from the Bureau of the Census," among other things. Also included within the definition of HUBZone are "redesignated areas," or areas that ceased to qualify as census tracts or nonmetropolitan counties, but were allowed to remain HUBZones until the later of (1) the date on which the Census Bureau publicly released the first results from the 2010 decennial census, or (2) three years after the date on which the census tract or nonmetropolitan county ceased to qualify. Section 31 and the provisions of Section 3 pertaining to HUBZones have been periodically amended over the years, often in response to the release of decennial census data. Release of 2010 census data, in particular, affected the grounds upon which a number of firms qualified as HUBZone small businesses, and prompted the 112 th Congress to enact legislation permitting certain "base closure areas" (i.e., military bases that have been closed) to continue to be treated as HUBZones for an additional period. Specifically, the legislation in the 112 th Congress permitted areas that were treated as HUBZones pursuant to Section 152(a)(2) of the Small Business Reauthorization and Manufacturing Assistance Act of 2004 to be treated as HUBZones for up to five years, provided that no area may be treated as a HUBZone for more than five years under the authority of this legislation and/or the 2004 act. Section 152(a)(2), in turn, had provided for "base closure areas" that had undergone final closure to be treated as HUBZones for five years, and defined base closure area to include military installations closed pursuant to the Defense Base Closure and Realignment Act of 1990 and other authorities. Similar legislation was introduced in the 113 th Congress to amend the definition of base closure area so that it includes the municipalities, counties, and census tracts where the military base was located that have a total population of not more than 50,000. Census tracts that are "contiguous" to such census tracts would have also been included. Other legislation introduced in the 113 th Congress would have amended the definition of HUBZone small business concern in Section 3(p) of the Small Business Act to include small businesses owned and controlled by NHOs. Currently, small businesses owned and controlled by ANCs, Indian tribes, and CDCs are among those listed here, but small businesses owned and controlled by NHOs are not. ANCs, CDCs, Indian tribes, and NHOs are generally (although not universally) treated the same for purposes of other provisions of federal procurement law, which would appear to have been the rationale for including NHO's in Section 3(p)'s definition of HUBZone small business concern. Congress added Section 36 to the Small Business Act in 2003 to permit agencies to set aside contracts for service-disabled veteran-owned small businesses, and to make sole-source awards of contracts valued at up to $4 million ($6.5 million for manufacturing contracts) to such firms. Section 36 has not been substantively amended since then. However, Congress enacted additional legislation pertaining to set-asides and sole-source awards by the Department of Veterans Affairs to service-disabled veteran-owned small businesses and other veteran-owned small businesses in 2006. The latter authority is part of the Veterans Benefits Act; it is separate and distinct from the authority provided under the Small Business Act. There is some overlap between the programs under these two acts, in that the Small Business Act relies upon the definitions of veteran and service-disabled veteran given in the Veterans Benefits Act. However, there are also a number of differences between the two programs. Perhaps most notably, firms and their owners must have their eligibility verified by the VA to be eligible for contracting preferences under the Veterans Benefits Act, while they may "self-certify" as to their eligibility for preferences under the Small Business Act. In addition, the Veterans Benefits Act permits firms owned by the surviving spouses of certain veterans to participate in the program for up to 10 years, while the Small Business Act does not. The existence of two separate set-aside programs—under different statutory authorities and with different rules—benefitting broadly the same population has prompted some concern and confusion. Legislation introduced in the 113 th Congress would have responded to this situation by standardizing eligibility requirements for the two programs. Specifically, this legislation would have amended the Small Business Act so that it corresponds to the Veterans Benefits Act (1) in its definition of service-disabled veteran-owned small business , and (2) in permitting certain surviving spouses of veterans to participate in the program for a period of time. Currently, businesses that are majority owned by one or more veterans with service-connected disabilities that "are permanent and total" who are unable to manage the daily business operations are included within the definition of service-disabled veteran-owned small business under the Veterans Benefits Act, but not under the Small Business Act. Similarly, certain surviving spouses of veterans may continue participating in the program for a period of time after the veteran's death under the Veterans Benefits Act, but not the Small Business Act. The proposed legislation would have amended the Small Business Act so that its treatment of both these issues corresponds to that in the Veterans Benefits Act. At least one proposed bill would have also required that service-disabled veteran-owned small businesses have their eligibility, and that of their owners, verified in order for them to be eligible for awards under the Small Business Act, as is currently required under the Veterans Benefits Act. Other bills would not. The proposed legislation would have also required the SBA and the VA to enter into an agreement whereby the SBA would take over "control and administration" of VA's "Veterans First" contracting program, discussed below. The legislation would not, however, appear to completely merge the two programs, since it would not amend the provisions in Section 36 of the Small Business Act that authorize agencies other than the VA to make set-aside and sole-source awards to service-disabled veteran-owned small businesses. Other agencies would, for example, have continued to lack authority to make set-aside and sole-source awards to small businesses owned by veterans who are not service-disabled. They would also not have been required to set aside contracts for veteran-owned businesses, as the VA has generally been found to be under the Veterans Benefits Act. In addition, the Small Business Act would only permit sole-source awards of contracts that do not involve manufacturing whose value is at or below $4 million, while the Veterans Benefits Act would permit sole-source awards of contracts that do not involve manufacturing whose value is at or below $5 million. As previously noted, there are currently set-aside programs for HUBZone small businesses, women-owned small businesses, service-disabled veteran-owned small businesses, certain small disadvantaged businesses, and small businesses not belonging to any of the foregoing types under the authority of the Small Business Act. The most recent of these programs were not created until 2003, in the case of the program for service-disabled veteran-owned small businesses, and not implemented until 2011, in the case of the program for women-owned small businesses. However, some have called for the establishment of additional set-aside programs that would benefit certain small businesses and, potentially, others. At least one measure introduced in the 113 th Congress would, for example, have authorized a set-aside program for businesses "owned or controlled by historically disadvantaged individuals," a category which would be defined by reference to the Department of Commerce's Minority Business Development Agency's (MBDA's) definition of socially or economically disadvantaged groups . Small businesses meeting specified criteria (e.g., owners' net worth no greater than $2 million; principal place of business in the United States) would have been eligible for set-asides through this program. However, eligibility would not have been limited to small businesses, as it would have been under similar measures introduced in the 112 th Congress. Other measures proposed, but not enacted, in the 113 th Congress similarly called for particular types of small businesses to be given "preference" in the award of federal contracts. One such measure would have created a new category of "emerging business enterprises," which agencies would have been authorized to give "preference" in the award of agency contracts. Another measure would generally have barred the use of funds appropriated under the act to award a contract "using procedures that do not give to small business concerns owned and controlled by veterans ... any preference available with respect to such contract." Various provisions of federal law require government contractors—including small businesses—to post performance and payment bonds. These and other types of bonds may also be required in conjunction with state, local, and private contracts. However, small businesses have historically had difficulty posting such bonds because of their limited access to capital. Thus, Congress amended Section 411 of the Small Business Investment Act in 1970 to authorize the SBA to guarantee certain bonds posted by small businesses that cannot obtain bonding on "reasonable terms and conditions" through regular commercial channels without the SBA's guarantee. Initially, Section 411 only permitted the SBA to guarantee bonds for contracts valued at $500,000 or less. However, Congress has increased the maximum contract value over the years, including to $2 million in 2000. The recession of 2007-2009 prompted a further increase, to $5 million ($10 million if the contracting officer certified that a larger guarantee is "necessary"), although this increase was a temporary one, lasting only from February 17, 2009, through September 30, 2010. Subsequently, though, the 112 th Congress increased the maximum contract value to $6.5 million, and provided for the cap to be adjusted for inflation every five years pursuant to Section 807 of the Ronald W. Reagan National Defense Authorization Act for FY2005. Legislation introduced in the 113 th Congress would have built on these changes by increasing the maximum percentage of the surety's loss that the SBA may pay in the event of a default by the contractor. At that time, Section 411 provided for a maximum guarantee of 70%, in the case of sureties authorized to issue bonds subject to the SBA's guarantee (90% in the case of sureties requiring the SBA's specific approval for the issuance of a bond). However, bills introduced in the 113 th Congress would have amended Section 411 to permit the SBA to pay up to 90% of losses paid by sureties authorized to issue bonds subject to the SBA's guarantee, regardless of whether the SBA had to specifically approve the issuance of the bond. (Such legislation was subsequently enacted in the 114 th Congress. ) The term reverse auction generally connotes a bidding procedure wherein sellers compete to determine who is willing to offer their supplies or services at the lowest price. Federal law does not expressly authorize—or directly regulate—the use of reverse auctions by federal agencies. However, the GAO has found that the use of reverse auctions is permissible pursuant to FAR provisions that authorize the use of procurement practices and procedures that are not "prohibited by law." The use of reverse auctions by federal agencies has reportedly increased recently, prompting some concern that such auctions could be detrimental to small businesses, which are generally less able to compete on price than larger firms. The 113 th Congress responded to these concerns, at least as they pertain to Department of Defense (DOD) contracts, by requiring that DOD regulations be "clarified" to ensure that (1) any "single bid" contracts entered into as the result of a reverse auction are compliant with existing regulations and DOD guidance regarding "single bid" contracts; (2) all reverse auctions provide offerors with the ability to submit revised bids throughout the course of the auction; (3) third parties conducting reverse auctions do not perform, or permit the performance, by private contractors of "inherently governmental functions," and make available to prospective vendors any "past performance" or "financial responsibility" information created by the third party; and (4) reverse auctions resulting in certain "design-build military construction contracts" are prohibited. Non-defense agencies are not subject to these requirements. Other legislation introduced, but not enacted, in the 113 th Congress also responded to these concerns, as well as related concerns that agencies may use reverse auctions in inappropriate circumstances (e.g., with supplies or services that cannot be evaluated strictly on price). Among other things, this legislation would have added a new section to the Small Business Act prohibiting the use of "reverse auction methods" for certain contracts "suitable" for award to a small business, or that are to be awarded pursuant to those sections of the Small Business Act that require or permit set-asides and sole-source awards to small businesses (i.e., Sections 8(a), 8(m), 15(a), 15(j), 31, and 36). One bill would have prohibited the use of reverse auctions only with contracts for design and construction services , which the bill would have defined to include site planning and landscaping design; architectural and interior design; engineering system design; delivery and supply of construction materials; and construction, alteration, or repair. Another bill would have prohibited the use of reverse auctions with any contract for "services, including design and construction services," as well as with contracts for supplies in which the offeror's technical qualifications constitute "part of the basis" for the award. The latter bill would have also extended these limitations to the use of reverse auctions to contracts awarded to service-disabled veteran-owned small businesses and other veteran-owned small businesses by the VA under the authority of the Veterans Benefits Act. The former would not. Section 4105 of the Federal Acquisition Reform Act (FARA) of 1996 generally requires agencies to use "two-phase selection procedures" when contracting for the design and construction of public buildings or works, provided certain conditions are met. In the first phase, the agency solicits information about offerors' technical approaches and qualifications, without considering cost or price. Based on these submissions, the agency then selects the "most highly qualified" offerors from the first phase and invites them to submit proposals for a second phase of the competition that considers cost or price, among other things. Section 4105 further provides that the first-phase solicitation must state the maximum number of offerors who will be selected for consideration in the second phase, and that this number cannot exceed five unless the contracting agency determines, on a case-by-case basis, that a "specified number greater than 5 is in the Federal Government's interest and is consistent with the purposes and objectives of the two-phase selection process." However, concerns have been raised that agencies select more than five offerors in too many cases, thereby imposing the costs of competing on firms—particularly small businesses—that are progressively less likely to be selected as the number of competitors increases. At least one measure introduced in the 113 th Congress would have responded to these concerns by amending the codification of Section 4105 (i.e., 41 U.S.C. §3309) to require that (1) contracting officers document how selecting more than five firms is consistent with the purposes of the two-phase selection process, and (2) agency heads approve these justifications before a procurement contemplating more than five finalists proceeds. Currently, contracting officers must determine that selection of more than five firms is consistent with the purposes of the two-phase selection process, but they are not required by statute to document this determination in writing. Nor is the approval of the agency head presently required. The proposed legislation would also have generally required the use of two-phase selection procedures in contracts whose value exceeds $750,000, with the apparent intent of foreclosing the use of design-bid-build or certain other procedures with such contracts. Agencies would have also been required to provide public notice of all cases in which they select more than five finalists, or do not use two-phase selection procedures with contracts valued in excess of $750,000. While the amendments that would have been made by this legislation did not involve the Small Business Act or expressly refer to small businesses, its drafters indicated, through the bill's title, that it was intended to benefit small businesses. Federal law currently distinguishes between (1) purchases whose value is below the micro-purchase threshold (generally $3,500); (2) those whose value is above the micro-purchase threshold, but below the simplified acquisition threshold (generally $150,000); and (3) other purchases. In particular, Section 15(j) of the Small Business Act and its implementing regulations have long provided that those acquisitions whose value falls between the micro-purchase threshold and the simplified acquisition threshold are "exclusively reserved" for small businesses. However, there have been periodic reports of contracts whose value suggests that they should have been awarded to small businesses going to contractors that do not qualify as "small" under the criteria of the Small Business Act. The 111 th Congress responded, in part, to these reports by requiring the OMB, in consultation with the GSA, to issue guidelines regarding one of the most commonly used simplified acquisition methods: government-wide commercial purchase cards. The OMB issued this guidance on December 19, 2011, reminding agencies that those holding government-wide commercial purchase cards should consider small businesses "to the maximum extent practicable" when making micro-purchases. Notwithstanding the issuance of this guidance, legislation was introduced during the 113 th Congress that would have increased the value of the "small purchases" that are reserved for small businesses. Among other things, this legislation would have generally required agencies "to the extent practicable" to award contracts whose value exceeds $3,000, but is below $500,000, to small businesses. The legislation would have also granted contracting officers additional authority to award contracts whose value is within this range to small businesses on a sole-source basis. Specifically, it would have authorized agencies to make sole-source awards of contracts valued at between $150,000 and $500,000 to women-owned small businesses, or other small businesses that are not 8(a), HUBZone, or service-disabled veteran-owned small businesses. At the time of introduction, the Small Business Act did not authorize sole-source awards to firms other than HUBZone small businesses; service-disabled veteran-owned small businesses; and small disadvantaged businesses participating in the 8(a) Program. Rather, it only authorized agencies to set aside contracts for such small businesses. Section 3 of the Small Business Act currently prescribes criteria that entities must meet to qualify as "small businesses" for purposes of the act. Specifically, it requires that businesses be (1) independently owned and operated; (2) not dominant in their fields of operation; and (3) meet any "size standards" that the SBA may establish based on the number of employees, dollar volume of business, net worth, net income, or "other appropriate factors." These basic criteria have not changed significantly since the act's enactment in 1958, although the 112 th Congress imposed certain requirements upon the SBA's promulgation of regulations revising, modifying, or establishing size standards. Legislation introduced during the 113 th Congress would have amended the definition of small business to exclude "publicly traded" firms, "foreign-owned" firms, and their subsidiaries. These entities are not expressly disqualified from recognition as small businesses under the Small Business Act at present, although existing restrictions on firm size and the citizenship of firm owners may effectively exclude at least some of them. The proposed legislation would have also imposed related requirements to ensure that agencies and contractors were aware of these changes and of the penalties for misrepresentation of business size and status. It also would have permitted interested parties to file complaints with the SBA and the procuring agencies regarding firms' size or status, and require these complaints to be resolved in a "timely manner." Entities found to have fraudulently misrepresented their size or status would have been debarred from government contracts for five years. The existing laws and proposed legislation discussed thus far generally have government-wide applicability. However, there are other measures that pertain only to an individual agency and, as a general matter, impose more stringent requirements upon that agency than apply to other agencies. Perhaps the most notable example is the Veterans Benefits, Health Care, and Information Technology Act (VBHCITA) of 2006. Sections 502 and 503 of VBHCITA have been construed as requiring (with certain exceptions) the VA to set aside contracts for service-disabled veteran-owned small businesses and other veteran-owned small businesses whenever the "Rule of Two" is satisfied. Other agencies are also subject to similar agency-specific requirements as to small business contracting. Implemented under the authority of Sections 502 and 503 of VBHCITA, the VA's "Veterans First" contracting program gives small businesses owned by veterans (and certain surviving spouses of veterans) that meet eligibility requirements "preference" in the award of VA contracts. Under Section 502, in particular, the Veterans First program is subject to its own requirements as to (1) goals for contracting with veteran-owned small businesses; (2) set-asides and sole-source awards to service-disabled veteran-owned small businesses and other veteran-owned small businesses; (3) priority in awards among different types of small businesses; (4) eligibility criteria for firms and owners; and (5) sanctions for misrepresentation of size or status. Many of these requirements were part of VBHCITA, as originally enacted. However, the 111 th Congress substantially amended VBHCITA's eligibility requirements by barring the inclusion of persons whose status had not been verified by the VA in the VA's database of eligible firms and owners. The 112 th Congress further amended VBHCITA's penalty provisions by changing the type of actionable conduct from "misrepresentations" of status, to "willful and intentional misrepresentations" of status. The 112 th Congress also prescribed a five-year term of debarment from VA contracts for such misrepresentations, instead of leaving the term of any debarment to the VA's discretion. Debarment proceedings must also be commenced and completed within specified timeframes. Members of the 113 th Congress proposed additional changes to the Veterans First program, including moving responsibility for verifying the status of firms and owners from the VA to the SBA. This legislation would have required the SBA to (1) enter into an agreement with the VA transferring "control and administration" of VA's "Veterans First" contracting program to the SBA, subject to certain conditions; (2) assume responsibility for the database that the VA uses in verifying the eligibility of firms and owners; and (3) hear appeals of denials of verifications. The VA, in turn, would also have been required to reimburse the SBA for the functions that the SBA performs. Several other measures introduced in the 113 th Congress would have expanded the circumstances in which family members of veterans may participate in the Veterans First program. Currently, only surviving spouses of veterans with service-connected disabilities rated as 100% disabling, or of veterans who die as the result of a service-connected disability, may participate in the program for a limited period of time. However, under legislation proposed in the 113 th Congress, surviving spouses of veterans who have service-connected disabilities rated at less than 100% disabling who do not die from a service-connected disability could have participated for a period of time. Surviving spouses or dependents of members of the armed services killed in the line of duty would also have been eligible to participate for a period of time. Other legislation would have modified the procedures for making awards under the Veterans First program. One measure would, for example, generally have required consideration of whether veteran-owned firms are local contractors —a term which would have been defined to mean contractors who have principal offices or "locations" within a 60-mile radius of a VA facility—in the award of contracts for the construction or maintenance of VA facilities. The measure would have also restated the order of priority for the award of contracts under the Veterans First program. Currently, this order is (1) service-disabled veteran-owned small businesses; (2) veteran-owned small businesses; (3) small disadvantaged businesses and HUBZone small businesses awarded contracts under the authority of Sections 8(a) or 31 of the Small Business Act; and (4) small businesses awarded contracts under other authority (e.g., women-owned small businesses awarded contracts under the authority of Section 8(m) of the Small Business Act). However, the measure proposed in the 113 th Congress would have changed this order of priority to give local small businesses a preference over other small businesses within the same category (i.e., local service-disabled veteran-owned small businesses would have priority other service-disabled veteran-owned small businesses, which would, in turn, have priority over local veteran-owned small businesses, etc.). Another measure would have required the application of "limitations on subcontracting"—or restrictions on the amount of work that prime contractors may subcontract to other entities, rather than perform themselves—to contracts awarded under the authority of VBHCITA. Currently, these limitations are required by statute to apply only to contracts awarded under the authority of the Small Business Act. The Small Business Act grants the SBA's Administrator the discretion to impose similar limitations on contracts awarded to small businesses under other authority, but the Administrator does not appear to have done so to date. Other measures enacted or introduced in the 113 th Congress similarly addressed contracting and subcontracting with small businesses by individual agencies. Among the notable measures enacted are ones permitting the DOE to count first-tier subcontracts awarded by contractors managing and operating national laboratories toward the DOE and government-wide goals for prime contracts ; extending the DOD comprehensive subcontracting plan test program through the end of 2017, and requiring participating contractors to report "on a semi-annual basis" the amount of first-tier subcontract dollars awarded to covered small businesses, among other things; authorizing certain incumbent contractors who are other-than-small businesses to compete for contracts for the operation of Job Corps centers that are awarded via a set-aside for small businesses; requiring DOD to incorporate into larger value contracts terms which require the contractor to acknowledge that acceptance of the contract may cause the business to exceed the small business size standards for the applicable industry, thereby ceasing to qualify as a small business; exempting certain DOD and U.S. Agency for International Development contracts from otherwise applicable requirements when contracting with small businesses. Additional measures that were not enacted would generally have required additional reporting regarding an agency's performance in contracting with small businesses, or tasked specific agency officials with certain responsibilities as to contracting with small businesses. However, one measure would have also repealed the provision permitting the DOE to count certain subcontracts toward the DOE and government-wide prime contract goals, previously noted. | Congress has generally broad authority to impose requirements upon the federal procurement process (i.e., the process whereby agencies acquire supplies and services from other entities for the agency's direct benefit or use). One of the many ways in which Congress has exercised this authority is by enacting measures that encourage agencies to contract and subcontract with "small businesses." For purposes of federal procurement law, the term small business generally denotes a business that (1) is independently owned and operated, (2) is not dominant in its field of operations, and (3) has fewer employees or annual receipts than the standards that the Small Business Administration (SBA) has established for the industries in which the business operates. In exercising its authority over procurement, Congress has declared a policy of ensuring that a "fair proportion" of federal contract and subcontract dollars is awarded to small businesses. It has also required the executive branch to establish government-wide and agency-specific goals for the percentage of contract and/or subcontract dollars awarded to small businesses that equal or exceed specified percentages of federal procurement spending (e.g., 3% for Historically Underutilized Business Zone (HUBZone) small businesses). Congress has similarly required or authorized agencies to conduct set-asides, or competitions in which only small businesses may compete, as well as to make noncompetitive or "sole-source" awards to small businesses in circumstances when such awards could not be made to other businesses. In addition, the SBA and officers of the procuring agencies are tasked with reviewing and restructuring proposed procurements to maximize opportunities for small business participation. Congress periodically amends the statutes governing contracting and subcontracting with small businesses to further its declared policy of ensuring that small businesses receive a "fair proportion" of federal procurement spending. The 111th and 112th Congresses, in particular, made numerous changes to such statutes. These Congresses enacted legislation (P.L. 111-240, P.L. 112-239) that addresses, among other things, (1) the standards under which business size is determined; (2) goals for contracting and subcontracting with small businesses; (3) prime contractors' obligations in subcontracting with small businesses; (4) SBA guarantees of small businesses' performance and payment bonds; (5) "bundling" and "consolidation" of agency requirements into contracts unsuitable for performance by small businesses; (6) set-asides for women-owned small businesses; and (7) mentor-protégé programs for small business contractors. Compared to the 111th and 112th Congresses, the 113th Congress enacted relatively few measures addressing small business contracting, perhaps because the amendments made by its predecessors were still being implemented and assessed. Among other things, the primary measures enacted by the 113th Congress (P.L. 113-66, P.L. 113-291) made certain modifications to the legal requirements regarding the use of reverse auctions; sole-source awards to women-owned small businesses; reporting on "bundled" or "consolidated" contracts; reporting on goals for contracting and subcontracting with small businesses; and prime contractors' obligations as to subcontracting with small businesses. Other measures introduced or, in a few cases, enacted in the 113th Congress addressed other topics. |
Since 1989, the federal government has spent over $96.1 billion for disaster assistance provided by the Federal Emergency Management Agency (FEMA). Because of the unforeseeable nature of disasters, predicting the level of federal disaster assistance presents a fiscal management challenge. In June 1998, the Director of FEMA at that time, James Lee Witt, noted the challenge of forecasting the costs of federal disaster assistance. Over the past ten years, FEMA has received $2.9 billion in regular (non-emergency) appropriations for Disaster Relief. In contrast, $21.9 billion have been provided in supplemental appropriations. Congress continues to be challenged with finding ways to manage the costs of disasters. Hazard mitigation can potentially reduce federal costs by decreasing the level of damage from future disasters. Of the $96.1 billion expended for disaster assistance since 1989, FEMA allocated $4.4 billion for hazard mitigation activities to prevent or ease the impact of natural disasters. This report provides an overview and discussion of federal hazard mitigation assistance. Historically, Congress has taken an ad hoc approach to enacting legislation for the provision of disaster relief. From 1803 to 1938, Congress passed 128 separate acts providing disaster assistance. Each legislative action occurred after the disaster for which federal assistance was provided. In 1950, Congress recognized that there was a need to prepare in advance for disasters. During debates concerning enactment of the Federal Disaster Relief Act (Disaster Relief Act of 1950), Members indicated a desire to authorize federal assistance before an event without the need for ad hoc legislation. What we are dealing with here is emergencies that are bound to happen from time to time and without warning. The right thing to do is to make preparations in advance, as this bill does, so that the disasters, wherever they may arise, can be handled promptly in an intelligent and well-thought-out way, rather than wait until the last moment and then try to figure out some sort of improvised relief which is usually too little and too late. The Disaster Relief Act of 1950 was significant because it shifted the primary decision-making for federal disaster assistance from the Congress to the President. Subsequent legislation and amendments continue to influence the role of the President and the states in federal disaster assistance. Once the President approves a disaster declaration, states may have access to federal funds for hazard mitigation. Hazard mitigation provisions in federal disaster assistance provide a basis for an analysis of the fiscal challenges and shifting federal role in disasters. This report discusses aspects of the Hazard Mitigation Grant Program (HMGP) that present challenges to federal fiscal management and raise questions regarding the federal role in hazard mitigation. Efforts to mitigate the impact of natural hazards have been undertaken for decades. In the earliest history of community planning, leaders would consider the possible risks from flooding when deciding where to locate buildings along a body of water. Earthquakes, mud slides, hurricanes, wildfires, and other extreme weather events also pose a hazard to communities. Today, the challenges of mitigating the impacts of hazards are more complicated. Communities are increasingly confronted with natural disasters that are devastating and costly, and public officials are being challenged with providing for the safety of established communities. Mitigation is an activity designed to reduce the impacts from such hazards or events. The Federal Emergency Management Agency (FEMA) defines mitigation as follows: Mitigation is defined as any sustained action taken to reduce or eliminate long-term risk to life and property from a hazard event. Mitigation, also known as prevention (when done before a disaster), encourages long-term reduction of hazard vulnerability. The goal of mitigation is to decrease the need for response as opposed to simply increasing the response capability. Mitigation can save lives and reduce property damage, and should be cost-effective and environmentally sound. This, in turn, can reduce the enormous cost of disasters to property owners and all levels of government. In addition, mitigation can protect critical community facilities, reduce exposure to liability, and minimize community disruption. Mitigation activities are generally categorized as structural and nonstructural. Structural mitigation activities may include physical changes to a structure or development of standards such as building codes and material specifications. Physical changes to a structure could include retro-fitting a building to be more resistant to wind-hazards or earthquakes, or elevating a structure to reduce flood damage. Nonstructural activities may include community planning initiatives such as developing land-use zoning plans, disaster mitigation plans, and flood plans. Other nonstructural community activities may include participating in insurance programs and developing warning systems. Federal disaster mitigation assistance provides funding for both structural and nonstructural mitigation activities. A primary source of federal disaster mitigation assistance is the Hazard Mitigation Grant Program (HMGP), authorized by Section 404 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). Major disasters have often driven federal disaster assistance legislation. Early legislation provided federal disaster assistance on a case by case basis in reaction to a disaster event. As disasters increased in frequency, scope, and cost, Congress reconsidered this approach and passed legislation that would pro-actively establish guidelines for federal disaster assistance. The Disaster Relief Act of 1974 (Disaster Relief Act), and subsequent amendments, established the basis for current federal disaster assistance. Most of the amendments to the Disaster Relief Act were enacted in response to a series of major disasters: Hurricane Carla in 1962, Hurricane Betsy in 1965, Hurricane Agnes in 1972, and a devastating earthquake in Alaska in 1964. These disasters caused considerable loss of life and property. The Disaster Relief Act of 1950 reduced the need to pass legislation each time a disaster occurred. While there was no longer a need to address each disaster individually, Congress was still concerned with the loss of life and increasing federal costs attributed to disasters. Hazard mitigation legislation provided a mechanism to enable Congress to address the impacts of disasters. While the Disaster Relief Act was intended to reduce the need for case by case disaster legislation, Congress continued to amend legislation to ease the impact of disasters. Congress took the first step in easing the impact from disasters after a series of hurricanes and flood events in the 1960s and 1970s that resulted in a significant increase in federal disaster spending. These events prompted Congress to introduce legislation to encourage hazard mitigation activities. In an effort to alleviate the costs of future disasters through mitigation, Congress amended the 1974 Disaster Relief Act in 1988. The amendment renamed the Disaster Relief Act as the Stafford Act and established the HMGP. The amendment provided federal funds at a 50 percent cost-share and established the maximum federal funding available based on 10 percent of the estimated grants made under Section 406 of the Stafford Act. The purpose of the HMGP is to reduce the loss of life and damage to property in future disasters. The HMGP provides grants for long-term hazard mitigation projects after a major disaster declaration. A major disaster declaration is issued by the President under the authority of the Stafford Act. Once a Presidential declaration has been made, hazard mitigation assistance is available and project applications can be submitted. Long-term mitigation projects may include elevating properties, acquiring properties and converting them to open space, retrofitting buildings, and constructing floodwall systems to protect critical facilities. Additional mitigation projects may be eligible. While the 1988 amendment established the foundation of hazard mitigation, the devastating disasters of the 1980s and 1990s led Congress to reassess the role of HMGP. Federal spending for disaster assistance under the Stafford Act continued to increase from 1989 to 1993, with total spending exceeding $7.6 billion. During this time, federal disaster assistance was largely attributed to hurricanes, earthquakes, and flood events. Hurricanes Hugo, Andrew, and Iniki, and widespread flooding in the Midwest, shifted the national focus on the need to reduce the risks related to disasters. After the Midwest floods in 1993, Congress once again evaluated hazard mitigation. The Hazard Mitigation and Relocation Assistance Act of 1993 (Mitigation Act of 1993) resulted in a significant change in the HMGP. While the program authorized funds for hazard mitigation, many cash-strapped states were unable to provide the 50% match necessary to implement an HMGP project. As a way to encourage states to utilize hazard mitigation funding, the federal cost-share for the HMGP was increased. The Mitigation Act of 1993 increased the federal cost-share from 50 percent to 75 percent and increased the amount of HMGP funding by changing the formula. The statute also raised the ceiling of the program. The formula percentage used to determine the level of funding for HMGP was increased to 15 percent and the basis for funding was extended from just public assistance grant expenditures to all grant expenditures under Title IV of the Stafford Act, excepting administrative costs. The Mitigation Act of 1993 also added property acquisition and relocation assistance provisions to the Stafford Act to encourage the purchase of properties and conversion to open space in areas affected by the Midwest floods in 1993 and subsequent floods. This was a landmark shift in the prioritization of hazard mitigation as part of the total federal disaster assistance package and it is discussed in greater detail in the "Funding Formula" section of this report. In January 1994, a devastating earthquake in Northridge, California killed sixty people, injured over 7,000 people, and damaged over 40,000 buildings. This disaster, in addition to significant flooding and a series of hurricanes in other states, generated renewed interest in hazard mitigation. The FEMA administration wanted to see an increase in mitigation activities while the appropriators were looking for cost-saving measures. In response to these needs, Congress increased, once again, the ceiling on federal assistance under Section 404. The Disaster Mitigation Act of 2000 (DMA 2000) increased the percentage cap by adding a provision that a state may be eligible for up to 20 percent of the total of public and individual assistance funds authorized for the disaster if the state has a FEMA-approved enhanced mitigation plan in place prior to the disaster. This provision encouraged states to develop mitigation plans and to implement mitigation projects designed to reduce future federal disaster assistance costs. The 15 percent cap for hazard mitigation under Section 404 of the Stafford Act was decreased to 7.5 percent in 2003 for states without an approved enhanced mitigation plan. This was, in part, a recognition of authorization of the Pre-Disaster Mitigation program. However, the catalyst for this amendment is unknown. The Post-Katrina Emergency Management Reform Act of 2006 changed the percentage again to establish caps based upon the level of disaster assistance provided under the Stafford Act. As amended by the 2006 statute, the statutory determination of HMGP awards reads as follows. The total contributions under this section for a major disaster shall not exceed 15 percent for amounts not more than $2,000,000,000, 10 percent for amounts of more than $2,000,000,000 and not more than $10,000,000,000, and 7.5 percent on amounts of more than $10,000,000,000 and not more than $35,333,000,000 of the estimated aggregate amount of grants to be made (less any associated administrative costs) under this Act with respect to the major disaster. The current statutory provisions do not address what percentage would be used to determine hazard mitigation funding for disasters that exceed $35.333 billion. It would appear that special legislation would need to be enacted to provide mitigation funding for any disaster in excess of that amount. This is arguably consistent with the authority provided to the President. The Stafford Act has always provided the President with the discretion to change the percentage and the maximum funding available for hazard mitigation. President George W. Bush exercised this discretion when he reduced the percentage of the HMGP formula to 5 percent instead of 15 percent after the terrorist attacks of September 11, 2001. The authority for presidential discretion is contained within the language of the legislation. Use of the terms "shall not exceed 15 percent" and "not more than" are open to presidential interpretation and reinforces the role of the President in determining federal disaster assistance. While the amount of federal assistance is determined by the President, the use HMGP funds is clarified in the regulatory provisions, subject to statutory restrictions. Legislation introduced in the 110 th Congress would have expanded allowances for the use of HMGP funds administered by the Federal Emergency Management Agency (FEMA) in the Gulf Coast. These bills included the following: S. 825 , a bill to provide additional funds for the Road Home Program; S. 1541 , providing for Commonsense Rebuilding Act of 2007; S. 1668 , Gulf Coast Housing Recovery Act of 2007; S. 1897 , a bill to allow for expanded use of funding allocated to Louisiana under the hazard mitigation program; S. 2445 , SMART RESPONSE Act; and, H.R. 1227 , Gulf Coast Hurricane Housing Recovery Act of 2007. Several of the proposed bills were seeking flexibility in the use of HMGP funds for use in the Louisiana Road Home Program by removing restrictions imposed by FEMA related to Road Home Program requirements. The two most commonly referenced program requirements were whether homeowners remained in Louisiana and the waiver of certain program requirements for senior citizens. None of the above bills became law. Legislation introduced in the 111 th Congress include provisions that could expand hazard mitigation activities through financial assistance, a tax incentive, and a hurricane research initiative. These bills include the following: H.R. 1239 , a bill that would establish a homeowner mitigation loan program; H.R. 308 , a bill that would provide a tax credit for mitigation expenditures; and, H.R. 327 , a bill that would create a National Hurricane Research Initiative to improve hurricane preparedness. The HMGP regulations provide guidance on common definitions, amounts of assistance, state responsibility, eligibility, project criteria, the application process, and the appeals process. The regulations are used as the basis for the grant guidance developed by FEMA to administer the HMGP; applications submitted by state and local governments for HMGP projects must comply with requirements concerning conformance with state and local plans cost-effectiveness, and other standards, discussed below. All mitigation projects are reviewed by FEMA to determine whether they meet statutory and regulatory guidelines. This section outlines these guidelines. Section 404 does not identify eligible applicants; eligibility has been established through regulations. Eligible applicants can be: state and local governments; private non-profit organizations (PNP); or, Indian tribes or tribal organizations. PNP organizations must meet specific criteria in order to be eligible: Private nonprofit facility means any private nonprofit educational, utility, emergency, medical or custodial care facility, including a facility for the aged or disabled, and other facility providing essential governmental type services to the general public, and such facilities on Indian reservations. Eligible facilities that fall within the above definition may include water and sewage treatment facilities, fire and police stations, assisted living facilities, museums, zoos, and homeless shelters. Projects eligible for funding under the HMGP include mitigation activities that reduce the effects of future disasters, such as the following: acquisition of high-risk properties for open space conversion; elevation of properties; retrofitting existing buildings; vegetative management such as soil stabilization; stormwater management; structural flood control projects; and, post-disaster code enforcement activities. A single project may include more than one of the above project types. Additional projects may be considered if they provide a cost-effective hazard mitigation benefit to the community. Determinations on project cost-effectiveness can be made by conducting a Benefit-Cost Analysis (BCA). Policy analysts generally distinguish between cost-effectiveness and BCA. FEMA appears to use these concepts interchangeably since they have interpreted statutory cost-effectiveness requirements to mean that a BCA should be conducted. The Stafford Act provides that all hazard mitigation measures must be cost-effective. The President may contribute up to 75 percent of the cost of hazard mitigation measures which the President has determined are cost-effective and which substantially reduce the risk of future damage, hardship, loss, or suffering in any area affected by a major disaster. Regulations stipulate that eligible mitigation projects must be cost-effective and substantially reduce the risk of future damage and loss from a major disaster. The determination of cost-effectiveness is based on documentation that the project addresses a repetitive or significant public health and safety risk, that the benefits are greater than the cost, that the project is the best alternative, and that the project provides a long-term solution. FEMA "recommends that a BCA is included with all HMGP project applications." The BCA can be conducted by the applicant or by the state utilizing the BCA software tool developed by FEMA. It may be difficult to estimate the benefits and costs of some hazard mitigation projects. A portion of HMGP funds has been set aside to fund projects that cannot be assessed with a BCA but that provide a strong hazard mitigation benefit to a community. Five percent of the total HMGP funds available under a major disaster declaration can be used for approved mitigation projects where a BCA cannot be successfully conducted. The BCA may not be feasible because it may be too administratively burdensome, or because the variables may be too difficult to quantify. Projects that may be funded under this provision include the following. The use, evaluation, and application of new, unproven mitigation techniques, technologies, methods, procedures, or products that are developmental or research based; equipment and systems for the purpose of warning residents and officials of impending hazard events; hazard identification or mapping and related equipment that are tied to the implementation of mitigation measures; Geographical Information System software, hardware, and data acquisition whose primary aim is mitigation; public awareness or education campaigns about mitigation; and other activities, clearly falling under the goal of mitigation, for which benefits are unproven or not clearly measurable and which the State has listed as a priority in its Hazard Mitigation Plan. It is difficult to predict which projects might be considered under the 5 Percent Initiative because of a regulatory provision that prohibits use of any HMGP funds to supplant other federal funding that may be available for the project. This is considered a duplication of federal programs. The regulations stipulate that HMGP grant funds cannot be used to replace, or supplant, other federal funds available for the type of project proposed in an application. Section 404 funds cannot be used as a substitute or replacement to fund projects or programs that are available under other Federal authorities, except under limited circumstances in which there are extraordinary threats to lives, public health or safety or improved property. This regulation provides FEMA officials with the discretion to determine whether there are other federal programs that would be more appropriate to fund the proposed HMGP project. FEMA officials may cite the program duplication regulation as justification for denying the mitigation project for funding under HMGP. However, FEMA officials have indicated there is an exception to this provision. FEMA allows HMGP funds to be used for projects that may be eligible for funding under the Community Development Block Grant (CDBG) program, administered by HUD, and the Small Business Administration (SBA) disaster loan program. The DMA 2000 amended the Stafford Act to include a requirement that state and local governments have a FEMA approved hazard mitigation plan in place in order to be eligible for HMGP funds. The regulations set forth the basic criteria necessary for a state or local government to meet the mitigation plan requirement. The standard mitigation plan must include the following components: description of the planning process; risk assessment of natural hazards; mitigation strategy; process for coordination of local mitigation planning; plan maintenance process; plan adoption process; and, compliance assurances. Some communities may be eligible for an exception to the local mitigation plan requirement. At the discretion of the FEMA regional director, a project may be funded in communities without an approved mitigation plan if the community completes the plan within one year of the award of the project grant. This exception is generally only approved for small and impoverished communities or in extraordinary circumstances. For example, many of the communities affected by Hurricanes Katrina and Rita did not have an approved mitigation plan in place at the time of the hurricanes. As noted earlier in this report, the DMA 2000 increased the percentage of funds available under the HMGP. States with an Enhanced State Mitigation Plan (ESMP) are eligible for up to 20 percent of the Title IV disaster assistance provided under the Stafford Act. The ESMP must include all of the components of the standard state mitigation plan, provide documentation showing the integration of the ESMP with other state and regional planning initiatives, and document implementation of the ESMP. The ESMP must have been approved by FEMA within three years prior to the disaster declaration in order to qualify under this provision. Hazard mitigation activities can be financially challenging for state and local governments. The funding provided under the HMGP enables eligible applicants to undertake mitigation projects that they may otherwise not be able to afford. Changing the cost-share by increasing the federal portion and decreasing the state portion provides state and local governments with an opportunity to implement hazard mitigation by reducing the financial burden of the states. The Mitigation Act of 1993 reduced the state cost-share from 50 percent to 25 percent. This made mitigation projects potentially more affordable for states. Prior to the reduction of the state cost-share, many states had unexpended HMGP funds that spanned several years, largely due to the inability to contribute the 50 percent cost-share. Reducing the state cost-share to 25 percent encouraged implementation of mitigation projects but did not completely resolve the issue of unexpended HMGP funds. Additional discussion regarding unexpended HMGP funds is found in the "Congressional Issues" section of this report. HMGP funds are available after the President declares a major disaster. The amount of HMGP funds available to a state is a function of the level of disaster assistance provided. Therefore, it is not possible to predict future HMGP funding needs. Figure 1 and Table 1 provide an overview of past HMGP federal share obligations (in current and constant dollars). Figure 1 is a graphical presentation of the data in Table 1 . Several spikes in obligations can be seen in 1997,1998, 1999, 2003, and 2006. These spikes can be attributed to the 1993 and Midwest Floods, the 1994 Northridge Earthquake, the 1999 Hurricane Floyd, the 2001 terrorist attacks, and the 2004 and 2005 Gulf Coast hurricanes. Most of the spikes occur three to four years after the year of the disaster because of the grants administration process. Once the President declares a major disaster and HMGP funds become available, the state will establish a project application period. The submitted applications will then be reviewed and approved over several months. Once projects are awarded HMGP funding, the project can commence. Some mitigation projects can span several years since many contain structural renovation components. Therefore, the majority of HMGP funds are expended three to four years after funds are obligated. The requirement that states initiate the request for federal assistance under the Stafford Act remains in effect today. Historically, states, localities and non-governmental organizations (NGOs) have undertaken disaster preparedness and response activities. Under the provisions of the Disaster Relief Act of 1950, the federal government deferred to state authority by providing assistance to states while assuming that the ultimate responsibility of disaster assistance remains with the states. That it is the intent of Congress to provide an orderly and continuing means of assistance by the Federal Government to States and local governments in carrying out their responsibilities to alleviate suffering and damage resulting from major disasters. The enactment of the Disaster Relief Act of 1974, like subsequent amendments, did not significantly change the role of the states in the provision of federal disaster assistance. All requests for a determination by the President that an emergency exists shall be made by the Governor of an affected State. Such request shall be based upon the Governor's finding that the situation is of such severity and magnitude that effective response is beyond the capabilities of the State and the affected local governments and that Federal assistance is necessary. In 1988, Congress enacted P.L. 100-707 to reinforce the primary role of the states, localities and voluntary NGOs by continuing the policy first established in 1950 that all requests for federal disaster assistance must be initiated by the governor of an affected state. States continue to have a primary role in coordinating federal disaster assistance funds. However, as federal disaster assistance levels increase, the federal government may seek a more active role in designating and overseeing use of federal funds. Current levels of federal disaster assistance provided under the Stafford Act would have been impossible to predict when disaster assistance legislation was first enacted. FEMA statistics indicate that the top ten highest ranking natural disasters, ranked by FEMA relief costs, occurred between 1989 and 2005. These statistics show that the costs of disasters increased significantly since 1950 when the federal role in disasters began to take shape. The unprecedented levels of federal involvement in disasters, as measured in dollars, has resulted in congressional activity such as changing program cost-shares and considering block granting hazard mitigation programs. These activities highlight the changing federal role since the Disaster Relief Act of 1950. Congress is reconsidering the role of the federal government in disaster-related policy areas, such as catastrophic risk insurance, taxation, public health, and housing issues. Federal oversight of state and local disaster preparedness is also an area where the federal role has grown since catastrophic events such as the September 11, 2001 terrorist attacks and Hurricane Katrina. Specifically, the National Strategy for Homeland Security contained preparedness guidelines for health care providers and first responders. The Departments of Health and Human Services and Homeland Security stated that they plan to continue to evaluate federal, state, and local preparedness plans. More recently, the National Response Framework sets forth the federal role in oversight of federal, state, and local preparedness. Given the changing nature of the role of the federal government in disasters, Congress may wish to consider whether the authorities and responsibilities contained within the Stafford Act still provide the best framework for federal disaster response. One issue that has been raised in appropriation hearings is the lag between the time of the disaster declaration and the allocation of HMGP assistance. Much attention has focused on the issue in light of the delay in the distribution of funds to the Gulf Coast after Hurricane Katrina. Figure 2 details total Stafford Act mitigation disaster assistance expenditures for Hurricanes Katrina, Rita, and Wilma disaster declarations. As of September 1, 2008, over three years after the hurricanes struck, $686 million has been allocated for hazard mitigation under the Hurricane Katrina, Rita and Wilma declarations. Three years after the event, only $119.3 million, approximately 17% of the total allocated, had been expended. Grants administration complications create ineffective program implementation. A strong grants administration system is critical at all levels of government to prevent delays in HMGP expenditures. A lag between the disaster declaration and allocation of hazard mitigation may be attributed to poor grant management systems at all levels of government, project prioritization disputes between local and state government, and state and federal government, or other factors. A lag such as that seen in the Katrina allocations suggests that Congress may wish to take a closer look at the causes of the funding delay. If part of the cause is the complexity of grant administration, one solution Congress may wish to consider is to consolidate federal hazard mitigation grant assistance. This could provide uniform and streamlined grant administration. This option is discussed in greater detail in the "Mitigation Grants Consolidation" section of this report, below. While grants administration plays a key role in effective programs, some complications may be attributed to decision-making disputes rather than management systems. Some of the lag in expending HMGP funds can be attributed to decision-making disputes at the local level, and between local, state, and federal officials, as discussed in the preceding "Federalism" section of this report. When there is political gridlock at the local level, the project selection and application process is impeded. Without a pool of eligible project applications, the state is unable to expend HMGP funds. One factor that contributes to the lengthy spans between allocation and expenditure involves disputes between state and FEMA officials regarding the mitigation benefits of a proposed project. FEMA holds the authority to approve HMGP project applications. In instances where the state believes a proposed project aligns with its mitigation objectives, FEMA officials may withhold project approval because it decides the project provides only an indirect mitigation benefit. For example, there is long-standing debate over the hazard mitigation benefit of responder communication systems. Some perceive communication infrastructure and interoperability a response function rather than a mitigation function since it improves the response time for emergency assistance. Others argue that improvements to responder communication systems integrated into local mitigation plans address a life saving and property protection objective. For example, after Hurricanes Katrina and Rita, the State of Mississippi sought approval for the use of HMGP funds for a wireless communication system enhancement project. After unsuccessful discussions with FEMA officials, state officials sought congressional intervention rather than submit an HMGP application for the project. Congress resolved the dispute when it set aside approximately $20 million of HMGP funds for the State of Mississippi to fund a portion of the communication system project. When the lag between allocation and expenditure of HMGP funds becomes significant, there may be a need for congressional intervention to prevent the withdrawal of approval for HMGP funds. Under program administration provisions of the Stafford Act, the President has the authority to withdraw approval for hazard mitigation assistance if it is determined that the state is not administering the hazard mitigation grant program in a satisfactory manner. To reduce the potential need for presidential intervention and loss of funding, Congress may wish to consider making specific provisions for state administration of the program, providing for expedited dispute resolution, or restructuring the grant administration time frame in order to reduce the lag between grant allocations and expenditures. One method of restructuring the time frame for HMGP grant administration may be to consider ways to expedite HMGP assistance. Many state and local mitigation plans identify mitigation activities even before a disaster occurs. When HMGP funds become available, states may choose to apply for funding for these projects rather than identify new projects. For example, each state has a list of properties that meet the criteria to be designated a repetitive loss property. If the state officials choose to prioritize the buy-out of such properties, they may have a list of properties that they can submit to FEMA to be pre-certified as eligible for HMGP funding should the funding become available at a later date. The benefits of hazard mitigation activities are widely understood. However, unless mitigation activities are undertaken in a timely fashion, communities may continue to face the same level of risk for loss of life and property from future disasters. These losses may be diminished or averted once available hazard mitigation funds are expended. While congressionally directed spending may potentially address some of the complications causing delays in expending HMGP funds, additional solutions may be necessary to resolve management and decision-making issues. Congress may wish to consider whether setting aside a portion of HMGP assistance would expedite projects that may already be contained within local and state hazard mitigation plans and are awaiting funding. While some may argue that hazard mitigation is costly, others suggest that hazard mitigation measures will result in savings by reducing the costs of future disasters. In 2005, the Multihazard Mitigation Council (MMC) conducted a study to assess the costs and benefits of hazard mitigation. The study concluded that for every dollar spent on hazard mitigation, there was an average savings of four dollars. This "spend now and save later" theory was reflected in changes to HMGP percentages both before and after the MMC study. As discussed previously, the Mitigation Act of 1993 increased the basis for determining the HMGP amount by changing the calculation to include all Stafford Act Title IV assistance rather than just Section 406 assistance. The Mitigation Act of 1993 also increased the percentage of that basis from 10 percent to 15 percent. The DMA 2000 increased the percentage to 20 percent for states that undertake mitigation planning. Taken together, the Mitigation Act of 1993 and the DMA 2000 resulted in a significant estimated increase in HMGP federal share obligations. Under the "spend now and save later" theory, hazard mitigation is an effective policy tool in that it has been found to be cost effective and saves lives and property. Given that general understanding, the topic of fiscal management may be raised. One issue is how Congress can adequately estimate the cost of hazard mitigation and better anticipate funding levels. Estimating the impacts of changes to the formula used to determine the amount of funds available under the HMGP presents a fiscal management challenge. The difficulty Congress faces in allocating funds for hazard mitigation is evident in the Congressional Budget Office (CBO) cost estimate of the Mitigation Act of 1993 prior to its enactment. In a House committee report, CBO estimated that the Mitigation Act of 1993 would result in an average annual outlay increase of $18 million in fiscal year 1994. The actual average annual increase resulting from the Mitigation Act of 1993, shown in Table 2 , is approximately $344 million, which varies significantly from the CBO projected impact of $18 million in FY1994. The successful implementation of programs such as HMGP relies heavily on the assumption that the location and scope of disasters can be adequately estimated. In order to successfully mitigate the impact of a disaster, communities must have an accurate estimate of where the hardest impact will be felt. The accuracy of risk assessments and impact predictions provide the foundation for fund prioritization at the local, state, and federal level. Communities have limited resources to commit to activities such as hazard assessment. Community leaders are often faced with choosing between relocating a school that resides in a flood plain or constructing a tornado shelter in the park that hosts a multitude of events for families. Risk assessment tools such as flood maps and computer simulations are used to make project prioritization decisions. An inaccurate risk assessment could adversely impact hazard mitigation project selection and result in an inefficient use of funds. Legislation was introduced in the 111 th Congress that would establish a National Hurricane Research Initiative (NHRI). The NHRI would conduct research to improve hurricane preparedness. Hurricane preparedness research includes evaluating hurricane intensity predictions, understanding ocean-atmosphere interactions, predicting storm surge, rainfall, and wind impacts, improving storm measurements, assessing structural vulnerability, and hurricane related technology and planning. Congress may wish to consider expanding this initiative to include assessing the accuracy of flood insurance rate maps utilized in hazard mitigation. Project selection is also dependent on tools such as the Benefit-Cost Analysis (BCA). Local, state, and federal officials utilize this tool to make project funding decisions. The accuracy of risk assessment tools and a BCA depend on the accuracy of the information that is used. If a local or state government is using outdated flood maps, or relying on default variables in simulation models, the result may not be the best prediction of the location or impact from a disaster. State and local governments are limited in their capacity to evaluate the accuracy of risk assessment tools and to conduct a BCA. Though some federal grant programs provide funding for planning and technical assistance, Congress may wish to consider increasing the funding to provide a greater degree of technical expertise in risk assessment and disaster impact predictions. Congress may also wish to consider enacting an overarching risk analysis mandate to ensure uniformity in regulations and predictive tools used in public safety policy areas. BCA requirements such as those contained within the HMGP are similar to risk analysis requirements for other federal agencies and programs. While there has been some congressional effort to implement an overarching mandate for risk analysis in agencies that develop regulations, no mandate has been enacted. The Environmental Protection Agency (EPA) has had a long-standing mandate to conduct risk analysis when establishing regulatory provisions. Congress may wish to consider implementing an overarching mandate for risk analysis of federal agencies involved in public safety. As discussed previously, in 2005, the MMC conducted a study which concluded that every dollar spent on mitigation saved an average of four dollars. The MMC was established in 1997 as a voluntary, advisory body of the National Institute of Building Sciences. The MMC study provided guidance on utilizing the Benefit-Cost Ratio (BCR). A BCR is the statistical result of a BCA. A BCR of one (1) means that for every dollar spent, there is a dollar benefit. The BCA software for the HMGP assigns a dollar benefit to a wide array of variables so that less quantifiable benefits such as reduction in the risk of loss of life can be estimated. After the MMC study, the most-competitive mitigation projects were considered by FEMA to be those that had a BCR of four (4) or higher. This does not mean that a project with a BCR less than four (4) is not eligible for funding. However, the BCR serves as a tool for prioritizing projects. Projects with a higher BCR are often funded in lieu of projects with a lower BCR. With such emphasis on the BCR, Congress may wish to consider augmenting the technical expertise of the applicants and reviewers at the local and state level. The technical assistance would determine the degree of federal technical assistance that may be necessary to ensure that each potential applicant has an equal chance of attaining funding. Several federal programs provide funding for hazard mitigation activities. Hazard mitigation is an eligible activity under the Pre-Disaster Mitigation grant program, the Flood Mitigation grant program, the Repetitive Flood Claims grant program, and the Severe Repetitive Loss grant program. Some may contend that block granting all hazard mitigation programs could provide more effective grants administration at the state and federal level. Block grants allow for more flexibility in the use of funds and often reduces grant program requirements. Block grants also present more of a challenge for Congressional oversight because of the reduced requirements. Hazard mitigation block grants could also potentially address the decision-making complications for allocating HMGP funds by enhancing state discretion regarding risks and project selection priorities. Congress may wish to consider consolidating all federal hazard mitigation grant programs into one hazard mitigation block grant. Hazard mitigation scholars support the idea that hazard mitigation spending should be linked to disaster declarations because communities may be more likely to implement hazard mitigation activities immediately after a disaster. However, when several years go by without expending available mitigation funds, there is less justification for linking HMGP funds to a disaster declaration. In the FY2003 budget, President George W. Bush attempted to replace HMGP with a competitive consolidated hazard mitigation grant program that would be not be linked to a disaster declaration. While Congress rejected the Bush Administration's budget proposal to eliminate HMGP, they did move resources into the existing Pre-Disaster Mitigation grant program. Given the delays in expending HMGP funds (see Figure 2 of this report), Congress may wish to consider changing the HMGP so that funding authorization is not dependent upon a disaster declaration, but is linked to other mitigation program funding decisions. Under current authorities, private businesses are not eligible to apply for HMGP funding. Traditionally, funds are awarded to a state agency and are then passed down to the local government and/or individuals through state-administered programs and projects. Legislation pending before the 111 th Congress ( H.R. 308 ) would establish a tax credit for business owners, as well as individuals, who undertake specified property improvements that will ameliorate hurricane and tornado damage. However, mitigation activities undertaken after a disaster augment the repair of residential structures and restoration of infrastructure, and mitigate the damage from future disasters. Communities, including private businesses, benefit from these activities. State disaster recovery programs may include funds to repair or develop commercial rental properties as part of a comprehensive housing recovery plan. While the state program as a whole may receive a portion of funding from HMGP, the elements of the program that provide direct assistance to rental properties and developers usually come from other federal funding sources. Small businesses may also benefit from the property acquisition and relocation provision under Section 404. This provision allows a structure that has experienced repetitive flood damage to be purchased with HMGP funds and relocated to a less flood-prone location. Communities and private businesses also benefit from state implemented projects that may be funded under FEMA mitigation grant programs. For example, the State of Massachusetts received HMGP funds for a drainage project. Prior to the drainage project, the community experienced severe repetitive flood damage. The Jericho Road Drainage Project was completed in 2007. According to the Massachusetts Emergency Management Agency, the project was "designed to minimize recurrent flood damage to public and private structures in the area." Since completion of the project, storms resulted in substantially less flood damage to all structures, including private businesses. FEMA mitigation grants also provide funding for disaster planning. Even though the federal funds are awarded to state and local governments to develop disaster mitigation plans, one of the main planning requirements is the inclusion of private businesses in the development of the plans. This provides private businesses an opportunity to participate in prioritizing projects and programs that are eligible for federal mitigation assistance. However, Congress may wish to consider providing additional opportunities for private businesses to undertake hazard mitigation activities by expanding eligibility requirement beyond those currently established in regulations. Hazard mitigation embodies a concept that is widely accepted: such efforts save lives and protect property in disasters. While there is widespread support for hazard mitigation, there are challenges that pose barriers to effective hazard mitigation. Current economic conditions at the federal, state and local level have brought attention to fiscal management challenges in many areas of government. One such area is hazard mitigation. The fiscal management challenges and the role of the federal government in hazard mitigation programs will likely be considered in light of recent catastrophic events and current economic conditions. Hazard mitigation is a concept supported through a multitude of federal agency programs and at all levels of government. Today, the burden for hazard mitigation still lies predominately with individuals and local government. The federal government encourages state and local governments to address hazards through various programs, notably HMGP. Understanding the fiscal management challenges of hazard mitigation programs is critical in evaluating current and future programs. Additionally, consideration of the federal role in hazard mitigation includes areas where complications in implementing hazard mitigation activities have arisen. One area of complication is the lag between a major disaster declaration and expenditure of federal hazard mitigation assistance. Another area is the structure of grants administration at the federal, state, and local level. A decision by Congress to increase federal hazard mitigation assistance would potentially address some problems and challenges; however, that approach may not ensure greater effectiveness. The potential cost savings of hazard mitigation has to be weighed against the fiscal management challenges of estimating the costs. Other approaches may include changing the structure of mitigation grants by consolidating federal programs, modifying grant eligibility criteria, and funding certain project types to provide a higher degree of technical assistance for risk assessment. An evaluation of the risk analysis used in federal programs and public safety regulations may also provide a higher degree of effective hazard mitigation. Now that hazard mitigation has become an established and accepted concept among stakeholders, Congress may wish to consider what additional steps will strengthen the foundation they have built. | Since 1989, the federal government has spent over $96.1 billion for disaster assistance provided by the Federal Emergency Management Agency (FEMA). Over $4.4 billion of the disaster assistance was for hazard mitigation of natural disasters such as floods, wildfires, hurricanes, tornados, and earthquakes. The unpredictable nature of the location and scale of natural disasters poses a significant fiscal management challenge to Congress. To alleviate the federal costs of disasters, Congress amended the Disaster Relief Act of 1974 in 1988 (P.L. 100-707), which was renamed the Robert T. Stafford Disaster Relief and Emergency Assistance Act (commonly known as the "Stafford Act"), to provide federal assistance to mitigate the impacts from future disasters. Hazard mitigation activities are generally categorized as structural and nonstructural. Structural mitigation activities may include physical changes to a facility or development of standards such as building codes and material specifications. Examples of physical changes to a structure are retrofitting a building to be more resistant to wind-hazards or earthquakes, or elevating a structure to reduce flood damage. Nonstructural activities may include community planning initiatives such as developing land-use zoning plans, disaster mitigation plans, and flood plans. Other nonstructural community activities may include participating in property insurance programs and developing warning systems. Federal disaster mitigation assistance provides funding for both structural and nonstructural mitigation activities. A primary source of federal disaster mitigation assistance is the Hazard Mitigation Grant Program (HMGP). Legislation introduced in the 110th Congress would have expanded allowances for the use of HMGP funds administered by FEMA in the Gulf Coast. Legislation introduced in the 111th Congress include provisions that would establish a homeowner mitigation loan program (H.R. 1239), provide a tax credit for mitigation expenditures (H.R. 308), and create a National Hurricane Research Initiative to improve hurricane preparedness (H.R. 327). Issues that Congress may wish to consider, in addition to eligible uses of HMGP funds, include the role of federalism in disasters, the lag between a major disaster declaration and expenditure of HMGP funds, the accuracy of risk assessment and disaster predictions, consolidation of hazard mitigation grant programs under a block grant, and disaster assistance to small businesses. This report will be updated as warranted by events. |
On December 18, 2007, the Federal Communications Commission ("FCC" or "Commission") concluded a review of its broadcast ownership rules by relaxing the ban on cross-ownership of a newspaper and a broadcast station in certain markets. The order adopted that day ended agency proceedings that had been ongoing for five years. In 2003, the FCC had adopted a comprehensive order (in its 2002 Biennial Review) revising many of its cross-ownership rules but, as will be discussed below, the United States Court of Appeals for the Third Circuit found insufficient basis for many of the proposed changes in that order and remanded it to the FCC for reconsideration. This report discusses the 2002 Biennial Review, the decision by the Third Circuit that struck many of those rules down, and the FCC's actions upon remand. The report also addresses the current status of the rules. The Telecommunications Act of 1996 sought to create a "pro-competitive, deregulatory national policy framework designed to accelerate rapidly private sector development of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition." Among other things, the act eliminated limits on national radio ownership, raised the cap on the percentage of the national audience that a single station owner may reach, set new limits for local radio ownership, and directed the Commission to conduct a rulemaking proceeding to determine whether to retain, modify, or eliminate the local television ownership limitations. The act also directed the Commission to review its broadcast ownership rules every two years to "determine whether any of such rules are necessary in the public interest as the result of competition." The Commission initiated its 2002 Biennial Review in September of 2002 with a Notice of Proposed Rulemaking announcing that it would review four of its broadcast ownership rules: the national audience reach limit; the local television rule; the radio/television cross-ownership ("one-to-a-market") rule; and the dual network ownership rule. The Commission had previously initiated proceedings regarding the local radio ownership rule and the newspaper/broadcast cross-ownership rule. Those proceedings were incorporated into the Biennial Review. On June 2, 2003, the Commission adopted a Report and Order modifying its ownership rules. In the Order, the Commission concluded that "neither an absolute prohibition on common ownership of daily newspapers and broadcast outlets in the same market (the 'newspaper/broadcast cross-ownership rule') nor a cross-service restriction on common ownership of radio and television outlets in the same market (the 'radio-television cross-ownership rule') [remained] necessary in the public interest." The Commission found that "the ends sought can be achieved with more precision and with greater deference to First Amendment interests through [its] modified Cross Media Limits ('CML')." The Commission also revised the market definition and the way it counted stations for purposes of the local radio rule, revised the local television multiple ownership rule to permit the common ownership of up to three stations in large markets, modified the national television ownership cap to raise the national audience reach limit to 45%, and retained the dual network rule. Following the publication of the Commission's Order, several organizations filed petitions for review of the new rules. The petitions for review were consolidated and heard by the United States Court of Appeals for the Third Circuit. After an initial hearing on September 3, 2003, the court entered a stay for the effective date of the proposed rules, preventing their enforcement, and ordered that the prior ownership rules remain in effect pending resolution of the proceedings. On February 14, 2004, the court heard oral arguments and issued its opinion on June 24, 2004. As noted above, on June 2, 2003, the Commission approved a Report and Order modifying its media ownership rules to provide a "new, comprehensive framework for broadcast ownership regulation." The Commission determined that new technologies necessitated new rules and that the prior rules "inadequately [accounted] for the competitive presence of cable, [ignored] the diversity-enhancing value of the Internet, and [lacked] any sound basis for a national audience reach cap." According to the Commission, the newly adopted rules were "not blind to the world around them, but reflective of it," and "necessary in the public interest." With respect to the ownership of broadcast stations on a nationwide level, the Commission determined that while "a national TV ownership limit is necessary to promote localism by preserving the bargaining power of affiliates and ensuring their ability to select programming responsive to tastes and needs of their local communities," the evidence demonstrated that a 35% cap was not necessary to "preserve that balance" and raised the limit to 45%. Under the new rule, a single entity was prohibited from owning stations that would allow it to reach more than 45% of the national audience. The Commission also elected to retain the "UHF discount," which attributes UHF stations with only 50% of the households in their DMA, despite many cable operators now carrying UHF stations. While it modified the national television ownership cap, the Commission determined that its dual network rule, which prohibits common ownership of the top four television networks, remained necessary in the public interest and did not attempt to repeal or modify it. In the 2002 Biennial Review, the Commission either modified or repealed its local ownership rules. The cross-ownership rules prohibiting the common ownership of a full-service broadcast television station and a daily newspaper in the same community and limiting the ownership of television and radio combinations by a single entity in a given market were both repealed. The Commission determined that neither rule remained necessary in the public interest and replaced both rules with a single set of cross-media limits based on market size. In large markets, defined as those with more than eight television stations, cross-ownership was unrestricted. The Commission combined an earlier remand from the D.C. Circuit Court of Appeals of its modified "duopoly rule" with the 2002 Biennial Review and adopted a new rule that would permit common ownership of two commercial television stations in markets that have seventeen or fewer full-power commercial and noncommercial stations, and common ownership of three commercial stations in markets that have eighteen or more stations. These limitations are subject to a further restriction on the common ownership of stations that are ranked among the market's largest four stations based on audience share. The Commission also elected to repeal the "Failed Station Solicitation Rule" related to the sale of failed, failing, or unbuilt stations, which required notice of the sale to be provided to out-of-market buyers. With respect to local radio ownership, the FCC modified its prior rule by adopting a new method for determining the size of a local market, but retaining the rule's prior numerical limits on station ownership. The Commission's prior regulations defined the local market by using the "contour-overlap methodology," which the Commission abandoned in favor of the "geography-based market definition used by Arbitron, a private entity that measures local radio audiences for its customer stations." The Arbitron markets include both commercial and noncommercial stations. While it changed the definition of local market, the Commission retained its numerical limits, which allow a single entity to own as many as eight radio stations in markets of 45 or more commercial stations. An additional modification to the local radio ownership rule created a new system for the attribution of joint sales agreements (JSAs). Generally, a JSA authorizes a broker to sell advertising time for the brokered station in return for a fee paid to the licensee. The Commission noted that because the broker station normally assumes much of the market risk with respect to the station it brokers, it typically has the authority to make decisions with respect to the sale of advertising time on the station. Under the prior rules, JSAs were not attributable to the brokering entity and were not counted toward the number of stations the brokering licensee may own in a local market. The new rules made the JSAs attributable to the brokering entity for the purpose of determining the brokering entity's compliance with the local ownership limits if the brokering entity owns or has an attributable interest in one or more stations in the local market, and the joint advertising sales amount to more than 15% of the brokered station's advertising time per week. Several organizations filed petitions for review of the new rules upon their publication. The numerous petitions for review were consolidated and the case was heard by the United States Court of Appeals for the Third Circuit in Philadelphia. As noted above, after an initial hearing, the court entered a stay for the effective date of the proposed rules. On February 14, 2004, the court heard oral arguments and issued its opinion on June 24, 2004. With respect to the national ownership rules, the court did not address the Commission's decision to raise the national audience reach cap from 35% to 45% citing Congress's modification of the rule in the 2004 Consolidated Appropriations Act. Section 629 of the act directed the Commission to modify the rule by setting a 39% cap on national audience reach. The court determined that because the Commission was under "a statutory directive to modify the national television ownership cap to 39%, challenges to the Commission's decision to raise the cap to 45 were moot." Additional challenges to the UHF discount provisions in the rule were also deemed moot even though the UHF discount rules were not mentioned in the 2004 Consolidated Appropriations Act. The court determined that the UHF discount was intrinsically linked to the 39% national audience reach cap because "reducing or eliminating the discount for UHF stations audiences would effectively raise the audience reach limit." The court also noted with respect to the UHF discount that the 2004 Consolidated Appropriations Act specifically provided that the periodic review provisions set forth in the amendment did not apply to "any rules relating to the 39% national audience limitation," and as a rule "relating to" the national audience limitation, Congress intended to insulate the UHF discount from review. None of the parties bringing the Prometheus case challenged the retention of the dual network rule, so this was not addressed by the court. With respect to the Commission's local ownership rules, the court agreed with the Commission's decision to modify these rules in many respects. However, the court found fault with the numerical limits set by the FCC in each of the local ownership rules. The court stated that "[t]he Commission's derivation of new Cross-Media Limits, and its modification of the numerical limits on both television and radio station ownership in local markets, all have the same essential flaw: an unjustified assumption that media outlets of the same type make an equal contribution to diversity and competition in local markets." The court determined that the Commission's decision to repeal the ban on broadcast/newspaper cross-ownership was justified and supported by evidence in the record and found that the Commission's decision to retain some limits on common ownership was constitutional and not in violation of the Communications Act. However, the court found that the FCC failed to provide reasoned analysis to support the specific limits that it chose with respect to the new "cross-media" rules, stating that the limits "employ several irrational assumptions and inconsistencies." The court rejected the Commission's use of a "diversity index," because of what the court saw as the fallacies upon which it was based and because the Commission failed to provide adequate notice of the new methodology in the rulemaking proceedings leading up to the 2002 Order. The court remanded the cross-media limits and advised the Commission to make any "new metric for measuring diversity and competition in a market ... subject to public notice and comment before it is incorporated into a final rule." The court in Prometheus upheld the restriction on common ownership of the market's top four broadcast television stations, but remanded the numerical limits "for the Commission to harmonize certain inconsistencies and better support its assumptions and rationale." In making its decision, the court found that the Commission had presented evidence in the record to adequately support the "top-four restriction," while failing to justify the market share assumptions used as the basis for the numerical limits. The court stated that "[n]o evidence supports the Commission's equal market share assumption, and no reasonable explanation underlies its decision to disregard actual market share." The court also remanded the Commission's repeal of the Failed Station Solicitation Rule, finding that the Commission failed to consider "the effect of its decision on minority television station ownership," and thus failed "'to consider an important aspect of the problem' [amounting] to arbitrary and capricious rulemaking." In addition to upholding the Commission's restriction on common ownership of a market's top four broadcast television stations, the court upheld the Commission's new definition of local markets with respect to radio finding that the Commission's decision was "in the public interest" and that it was a "rational exercise of rulemaking authority." The court also found that the Commission justified the inclusion of noncommercial stations in the new definition. However, with respect to the numerical limits retained by the Commission, the court concluded that while the numerical limits approach was rational and in the public interest, the Commission failed to support its decision to retain these particular limits with "reasoned analysis." The court rejected the Commission's contention that five equal-sized competitors would ensure that local markets are competitive, and found that even if it were to justify the "five equal-sized competitors" benchmark, that it failed to sufficiently demonstrate that under the existing numerical limits five equal-sized competitors would actually emerge. The court remanded the numerical limits to the Commission "to develop numerical limits that are supported by a rational analysis." With respect to the new rules providing for the attribution of joint sales agreements, the court affirmed the Commission's decision, finding that the Commission changed its rules as the result of "reasoned decisionmaking," and that such a change was "necessary in the public interest" due to "the potential for brokering entities to influence the brokered stations." On September 3, 2004, the Third Circuit granted the Commission's motion requesting a partial lifting of the stay to allow those parts of the rules approved by the court in its June 24 decision to go into effect. Specifically, the stay was lifted with respect to the use of Arbitron metro markets to define local markets, the inclusion of noncommercial stations in determining the size of a market, the attribution of stations whose advertising is brokered under a Joint Sales Agreement to a brokering station's permissible ownership totals, and the imposition of a transfer restriction. The stay remained in place pending FCC action on remand with respect to all other aspects of the Biennial Review Order. On January 27, 2005, the United States Solicitor General and the FCC decided not to appeal the Third Circuit's decision. However, several media companies filed a formal appeal with the Supreme Court asking for a review of the Third Circuit's decision. On June 13, 2005, the Supreme Court denied certiorari in all relevant appeals. On July 24, 2006, the FCC issued a Further Notice of Proposed Rulemaking (FNPR) in the Broadcast Media Ownership proceedings that had been remanded to the Commission in 2003. The FNPR sought comment for new ownership rules that would comport with the Third Circuit's decision in Prometheus . Specifically, the FCC sought comment suggesting new rules that would foster "localism;" increase opportunities for ownership among minorities and women; revise the numerical limits placed on cross ownership of local television stations and local radio stations; revise the Diversity Index used to calculate the availability of outlets that contribute to diversity of viewpoints in local media markets; and other suggestions for improvement of existing and proposed rules. The FCC also commissioned multiple studies on media ownership and sought comment on these studies to determine whether and to what extent to take the studies into account in the final ownership rules. The reply comment period on the ownership studies closed November 1, 2007. On August 1, 2007, the FCC issued a Second Further Notice of Proposed Rulemaking (SFNPR) in its ongoing review of the broadcast ownership rules. The SFNPR sought comments on new initiatives specifically related to encouraging minority and female ownership of broadcast stations proposed by the Minority Media and Telecommunications Council (MMTC), as well as potential constitutional issues related to race specific classifications. Reply comments were due for the SFNPR on October 16, 2007. On November 13, 2007, following the close of all comment and reply comment periods, FCC Chairman Martin proposed that the review of broadcast ownership rules should conclude by adopting a relaxation of the ban on newspaper and broadcast cross-ownership. The proposal also indicated that no changes would be made in the local television "duopoly" rule, the local radio ownership rule, or the local radio-television cross-ownership rule already in force. The FCC adopted a revised version of Chairman Martin's proposal to ease the ban on newspaper/broadcast cross-ownership on December 18, 2007. The Report and Order in the proceeding was released on February 4, 2008. The new rule establishes the presumption that newspaper/radio broadcast station cross-ownership in the top 20 largest DMAs is in the public interest, and that newspaper/television broadcast station cross-ownership in the top 20 largest DMAs is in the public interest when the television station is not among the top four ranked stations in the market and at least eight "major media voices" would remain in the DMA post-merger. For all other DMAs, the new rule establishes the presumption that newspaper/broadcast station cross-ownership is not in the public interest, except in two circumstances (discussed below). Applicants attempting to overcome a presumption that the proposed combination is not in the public interest will have to demonstrate, through clear and convincing evidence, that the merged entity will increase the diversity of independent news outlets and increase competition among independent news sources in the relevant market. The FCC also has laid out four factors to help inform its evaluation of these proposed combinations. The new rules identify two circumstances in which the presumption that cross-ownership is not in the public interest will be reversed. The first circumstance adapts the FCC's failed or failing station waivers to newspaper/broadcast combinations. Therefore, when either the broadcast station or the newspaper involved in a proposed combination is "failed" or "failing," the FCC will presume that the proposed combination is in the public interest. The presumption that a combination is not in the public interest also will be reversed when the proposed combination will result in a new source of local news in a market, specifically defined as a combination that would initiate at least seven hours of new local news programming per week on a broadcast station that previously has not aired local news. All other cross-ownership rules and restrictions will remain unchanged. The FCC also adopted rules in December 2007 to promote diversification of broadcast ownership in a separate order from the newspaper/broadcast station cross-ownership rule. The new rules are intended to allow "eligible entities" to more easily access financing and spectrum by, for example, modifying the distress sale policy to allow a licensee whose licenses were designated for a revocation hearing to sell its station to an eligible entity prior to the commencement of the hearing, revising the FCC's equity/debt plus attribution standard to facilitate investment in eligible entities, and giving priority to any entity financing an eligible entity in certain duopoly situations. "Eligible entities" are defined as "entities that would qualify as a small business consistent with Small Business Administration standards, based on revenue." The FCC is seeking further comment on whether it can expand the definition of "eligible entity" to include other business. The relaxation of the newspaper/broadcast cross-ownership rule as well as the other ownership rules promulgated by the FCC in December 2007 have yet to go into effect. Pursuant to the Third Circuit's final order in the Prometheus case, the FCC's newest rules may not go into effect until the Third Circuit lifts its stay. On June 12, 2009, the Third Circuit decided to keep the stay in place until further order of the court and ordered the parties to file status reports regarding whether the stay should remain in place later in the year. On October 1, 2009, the FCC filed its status report with the Third Circuit. The FCC argued that the stay should remain in place, because the 2008 order no longer incorporates the views of a majority of the Commissioners and the agency is set to begin a new review of the media ownership rules that should be completed in 2010. On December 18, 2009, the Third Circuit ordered the FCC to show cause as to why the court's stay on the newspaper/broadcast cross-ownership rule changes should not be lifted. The FCC filed its brief on the issue with the court on January 7. The parties await the court's decision. | In December 2007, the Federal Communications Commission relaxed its newspaper/broadcast ownership ban (order released February 2008). The decision raised concerns in Congress about increasing media consolidation that have long been at the forefront of the debate over ownership restrictions. The Commission's order served to rekindle the discussion of media consolidation and the perceived need to take action to preserve a diversity of voices in the marketplace of ideas. The FCC rule, as this report illustrates, has a history dating back to a previous failed attempt to relax a greater number of broadcast cross-ownership restrictions, and it is worthwhile to examine this previous proceeding in order to understand the current status of the rules. On June 2, 2003, the FCC adopted a set of comprehensive rules addressing six different aspects of media ownership, including cross-ownership of broadcast and print media, local television and radio ownership, and national television ownership. On June 24, 2004, the United States Court of Appeals for the Third Circuit, in Prometheus Radio v. FCC, remanded several of these rules to the Commission for further consideration finding that the Commission failed to adequately justify the numerical limitations used in the rules. This report provides an overview of the Commission's 2002 Biennial Review from which the 2003 rules originated and the Prometheus case. The report also addresses current issues facing the actions taken by the FCC in response to the Third Circuit Court of Appeals' decision in Prometheus. On December 18, 2007, the FCC concluded its review of broadcast ownership rules by relaxing the newspaper/broadcast station cross-ownership restrictions in certain markets. All other broadcast ownership rules, however, remain unchanged. The relaxation of the newspaper/broadcast cross-ownership rule as well as the other ownership rules passed by the FCC in December 2007 have yet to go into effect. Pursuant to the Third Circuit's final order in the Prometheus case, the FCC's newest rules may not take effect until the Third Circuit lifts its stay. On June 12, 2009, the Third Circuit decided to keep the stay in place until further order of the court. On October 1, 2009, the FCC filed a status report with the Third Circuit. The FCC argued that the stay should remain in place, because the 2008 order no longer incorporates the views of a majority of the Commissioners and the agency is set to begin a new review of the media ownership rules that should be completed in 2010. |
Since the mid-1980s, many decision makers and others have demonstrated serious interest in deploying ballistic missile defense (BMD) systems capable of defending the United States from ballistic missile attack. Events over the past two decades contributed to strengthen these views. The collapse of the Soviet Union in the early 1990s heightened concerns about the possibility of an accidental or unauthorized launch of ballistic missiles from the remnants of that nation. The Persian Gulf War in 1991, with Iraq's use of Scud missiles, proved to many that the growing threat posed by ballistic missiles had to be addressed. The proliferation of ballistic missile technologies, including sales from nations such as China, Russia, and North Korea to nations such as Iran, Syria, and Pakistan became more worrisome to many. Finally, many also argue that some U.S. adversaries, such as North Korea and Iran, are developing longer-range missiles that might reach the United States, or threaten U.S. military forces deployed abroad, as well as U.S. friends and allies. But interest in missile defense stretches back much further than the 1980s. In fact, efforts to counter ballistic missiles have been underway since the dawn of the missile age at the close of World War II. Numerous programs were begun, and only a very few saw completion to deployment. Technical obstacles have proven to be tenacious, and systems integration challenges have been more the norm, rather than the exception. Since 1985, the United States has spent more than $120 billion on a range of BMD efforts. In 2004, the United States deployed a small-scale national-level missile defense, which is still being tested but considered by most military leaders to be operationally effective. This short report provides a brief overview of the history of the BMD efforts undertaken to defend the United States. It begins with a brief summary of the provisions of the 1972 ABM Treaty, which shaped most of the history of the U.S. BMD effort, and includes a short review of U.S. programs leading to the current program. Negotiations with the Soviet Union on the Anti-ballistic Missile (ABM) Treaty began in November 1969. Early on the United States proposed that the treaty limit Russia to one deployment site around Moscow (which it was building) and permit the United States to deploy four sites around ICBM fields, which was the U.S. program at the time (construction had begun on a site near Grand Forks, ND). The Soviets rejected this proposal, insisting any agreement include equal limits on each nation. They had the same reaction when the United States proposed that the treaty permit either nation to deploy one site at its capital or two sites at ICBM fields. Eventually, the Nixon Administration agreed to accept parity in ABM deployments; each nation could deploy two sites, one around its capital and one around an ICBM field. This permitted the continued construction of each nation's existing ABM site. Signed in May 1972, the Anti-Ballistic Missile (ABM) Treaty prohibited the deployment of ABM systems for the defense of the nations' entire territory. It permitted each side to deploy limited ABM systems at two locations, one centered on the nation's capital and one at a location around ICBM silo launchers. When it became clear that neither nation would complete a second site, the two sides agreed in a 1974 Protocol that each would have only one ABM site, located either at the nation's capital or around an ICBM deployment area. Each ABM site could contain no more than 100 ABM launchers and 100 ABM interceptor missiles. The Treaty also specified that in the future any radars that provided early warning of strategic ballistic missile attack had to be located on the periphery of the national territory and oriented outward. The Treaty banned the development, testing, and deployment of sea-based, air-based, space-based, or mobile land-based ABM systems and ABM system components (these included interceptor missiles, launchers, and radars or other sensors that can substitute for radars). The Treaty placed no restrictions on the development, testing, or deployment of defenses against shorter range missiles. Although the United States withdrew from the ABM Treaty in 2002, the treaty profoundly shaped U.S. BMD efforts up to that point. The United States has pursued research and development in anti-ballistic missile (ABM) systems since the late 1940s. In the mid-1960s it developed the Nike-X system, which would have used ground-based, nuclear-armed interceptor missiles deployed around a number of major urban areas to protect against Soviet missile attack. Many analysts recognized that such protection would be limited, in part because the Soviet Union could probably saturate the system with offensive warheads and just a few warheads could achieve massive damage against a "soft" target like a city. In response, supporters argued that the system could provide a "thin" defense of U.S. cities against an attack by an anticipated Chinese intercontinental ballistic missile (ICBM) force. Consequently, in 1967 Defense Secretary McNamara announced the deployment of the Sentinel ABM system, based on the Nike-X system, as a defense against a future Chinese ICBM threat. In 1969, the Nixon Administration renamed the system "Safeguard," and changed its focus to defend strategic offensive (i.e., nuclear-tipped ICBMs) missile fields, rather than cities, to ensure that these missiles could survive a first strike and ensure retaliation against the Soviet Union. Many in Congress objected to the program, citing its costs, technical uncertainties, and the risk of accelerating the arms race. Congress almost stopped the program's deployment in 1969, when the Senate voted 50-50 to approve an amendment halting construction. Safeguard continued, however, when Vice President Agnew broke the tie with a vote for the program. Nevertheless, sentiment against ABM deployments and in favor of negotiated limits on ABM systems was growing. The United States completed its nuclear interceptor ABM site near Grand Forks, North Dakota. It operated from October 1975 to February 1976, then was shut down at the direction of Congress because it was viewed to be not cost-effective and had major technical problems. The facilities at that location, however, continued to count under the ABM Treaty because it had not been dismantled according to a classified post-Treaty agreement reached with the Soviet Union. Russia continues to this day to operate its ABM site around Moscow. U.S. research and development into ABM systems, especially for ICBM protection, continued, albeit at lower budget levels through the late 1970s. By the time of the Carter Administration, however, spending on BMD programs had began to rise again, primarily as a means to defend the newest generation of U.S. ICBMsâthe MX missile system. The Reagan Administration continued to increase funding for defenses against ICBMs begun under the Carter Administration. But, in March 1983, President Reagan announced an expansive, new effort to develop non-nuclear BMD to protect the United States against a full-scale attack from the Soviet Union. Although the Strategic Defense Initiative (SDI) remained a research and development effort, with little testing and no immediate deployments, President Reagan and the program's supporters envisioned a global defensive system with thousands of land-, sea-, air-, and space-based sensors and interceptors. This defensive "shield" would employ both non-nuclear interceptor missiles and more exotic laser or x-ray devices in space designed to destroy incoming missiles. With these technologies, the United States would replace deterrence with defense in its effort to protect itself from Soviet attack. However, as cost estimates and technical challenges increased, the Reagan Administration scaled back its objectives for SDI. It announced that it would begin with a "Phase I" deployment of land-based and space-based sensors and interceptors. This system would not provide complete protection from Soviet attack, but would, instead, seek to disrupt the attack enough to call into question the attack's effectiveness. Phase I of SDI would, therefore, according to their arguments, enhance deterrence, while the United States continued to seek a way to replace deterrence with defense. Although Congress largely supported BMD research and development, it generally opposed plans for significant BMD deployments at that time. The Reagan Administration and the program's supporters recognized that many of the technologies pursued under SDI would not be allowed by the ABM Treaty when they entered the testing or deployment phases. Therefore, the Reagan Administration outlined a new interpretation of the ABM Treaty that it hoped would allow for the testing of space-based and exotic missile defense technologies. Many in Congress at that time objected to this re-interpretation of the ABM Treaty, with Senator Sam Nunn mounting a particularly comprehensive defense of the traditional interpretation of the Treaty. Throughout this period, Congress tendered strong support for the ABM Treaty. The Reagan Administration also opened new negotiations with the Russians, known as the Defense and Space talks, in an effort to reach agreement on modifications to or a replacement for the ABM Treaty. The first Bush Administration responded to the costs and technical challenges of Phase I and the changing international political environment with a further contraction of the goals for SDI. Instead of seeking to protect the United States against a large-scale attack, the United States would seek to deploy a defensive system that could provide Global Protection Against Limited Strikes (GPALS); a more modest version of the original SDI vision. This new focus recognized that the demise of the Soviet Union had reduced the likelihood of a large-scale attack, but also the increased likelihood of a small accidental or unauthorized attack. In addition, this type of ballistic missile defense would have sought to protect the United States, its forces, and allies against an attack by other nations who had acquired relatively small numbers of ballistic missiles. The Bush Administration envisioned a GPALS system that would have included up to 1,000 land-based interceptors and perhaps another 1,000 space-based interceptors, along with space-based sensors. The Administration recognized that this system would have exceeded the limits in the ABM Treaty. It therefore held negotiations with the Russian government in 1992 in an effort to identify a more cooperative and flexible regime to replace the ABM Treaty. The Clinton Administration suspended these negotiations in 1993, when it also scaled back U.S. objectives for a national missile defense program. Meanwhile, some in Congress, notably Senator Nunn, had argued since the late 1980s for the deployment of a more limited NMD system, that would comply with the ABM Treaty, to protect against limited or accidental attacks. The Clinton Administration restructured BMD programs to reflect the results of the 1993 Bottom Up Review, a major DOD-wide review of U.S. military plans and programs. At the time, it decided to emphasize missile defense deployment geared toward short-range missile threats, and focus national level efforts on technology development. Secretary of Defense Aspin noted at the time that these program changes reflected an assessment that the regional ballistic missile threat already existed, while a ballistic missile threat to the United States per se might emerge only in the future. This raised questions about the need for an NMD system in the near- to mid-term, particularly as compared with the need for robust theater missile defense efforts. The Department of Defense also determined that these programs would still be conducted in compliance with the 1972 ABM Treaty. Key legislation was passed during this time. The Missile Defense Act of 1995 (in P.L. 104-106 âNational Defense Authorization Act for Fiscal Year 1996) declared it the policy of the United States to: (1) develop as soon as possible affordable and operationally effective theater missile defenses; (2) develop for deployment a multiple-site national missile defense system that is affordable and operationally effective against limited, accidental, and unauthorized ballistic missile attacks on the United States, and which can be augmented over time as the threat changes to provide a layered defense against limited, accidental, or unauthorized ballistic missile threats; (3) initiate negotiations with Russia as necessary to provide for the national defense systems envisioned by the act; and (4) consider, if those negotiations fail, the option of withdrawing from the ABM Treaty. The Clinton Administration adjusted its efforts and adopted a new NMD strategy. In 1996, the Clinton Administration adopted a 3+3 strategy, to guide development and potential deployment. Under this strategy, the United States would develop a national missile defense system to defend the United States against attacks from small numbers of long-range ballistic missiles launched by hostile nations, or, perhaps, from an accidental or unauthorized launch of Russian or Chinese missiles. The strategy envisioned continued development of NMD technologies during the first three years (1997-2000), followed by a deployment decision (in 2000) if the system were technologically feasible and warranted by prospective threats. If a decision to deploy an NMD system were made, the plan then was to deploy it within the second three year period (2000-2003). Development and deployment was to be conducted within the limits of the ABM Treaty. This approach was later modified to allow a longer lead time for possible deployment (possibly 2005), and according to the Pentagon at that time, to reduce the amount of program risk. Ultimately, in September 2000, President Clinton decided not to authorize deployment of an NMD system at that time. He stated that he could not conclude "that we have enough confidence in the technology, and the operational effectiveness of the entire NMD system, to move forward to deployment." President George W. Bush entered office prepared to advance long-range BMD deployment as a key national security objective. The Bush Administration substantially increased funding for BMD programs and laid the foundation for withdrawal from the 1972 ABM Treaty, which was announced in June 2002. Much of the Bush Administration's argument centered around a different strategic environment from 1972: Soviet forces no longer threatened the United States and the greater threat came from the proliferation of ballistic missiles and weapons of mass destruction from other countries, especially rogue states, and terrorists. The Russian government gave little opposition to the Administration's decision to withdraw from the treaty, and potential allied criticism in Europe was notably muted. Also in 2002, the President announced his decision to deploy a limited BMD capability against long-range missiles by the fall of 2004. A handful of ground-based interceptors was deployed in Alaska by this date. To most observers, on-going testing is demonstrating the capabilities of that deployed system. More than 20 interceptors are now deployed in Alaska and California. The Bush Administration wants to expand this capability to a third site in Europe to defend against Iranian ballistic missile threats, but Congress has put this effort on hold pending further testing of the interceptors and final agreement on deployment with Poland and the Czech Republic. Russian opposition has been strong, and European support is mixed. U.S. efforts to develop effective defenses against shorter range ballistic missile threats to U.S. forces deployed overseas grew out of the Army's formal requirement for a theater ABM system in 1949 and produced a succession of systems, including the development and maturity of the Patriot air defense system from the 1960s to the present. As Patriot developed further in the 1980s, some argued for its potential also as a theater missile defense (TMD) capability. Although the Pentagon, Army, and the SDI Organization initially were not supportive of the effort at first, Congress increasingly argued successfully for Patriot's development of an anti-tactical missile (ATM) defense. By the time of the 1991 Persian Gulf War, the Patriot ATM had experienced a remarkably successful test record. Acquisition of Patriot missiles for Desert Storm was accelerated after Iraq invaded Kuwait. On the battlefield, however, Patriot's success, or lack of it in Desert Storm, remains a subject of controversy despite most public perceptions of unequivocal success. Nonetheless, Congress and the Department of Defense determined subsequently that the Patriot concept to defend against shorter range ballistic missile threats to U.S. forces overseas warranted further support. The Patriot system had been upgraded several times by the time of the recent war against Iraq. On the battlefield, Patriot was considered more successful than in 1991, but with mixed results. Congress and the Pentagon continue to support development of other highly effective TMD systems, especially a maritime capability built around existing naval systems and infrastructure that have been deployed or in development for decades. In terms of program and testing success, most observers agree that the U.S. effort to develop and deploy effective BMD against short-range missiles has been more successful relative to the U.S. effort to develop and deploy effective BMD against long-range or strategic ballistic missiles. | For some time now, ballistic missile defense (BMD) has been a key national security priority, even though such interest has been ongoing since the end of World War II. Many current BMD technologies date their start to the 1980s, and even earlier. This effort has been challenging technically and politically controversial. For a 25-year review of the major BMD technology thrust, see CRS Report RL33240, Kinetic Energy Kill for Ballistic Missile Defense: A Status Overview , by [author name scrubbed]. More than $120 billion has been spent on a range of BMD programs since the mid-1980s; Congress appropriated $9.4 billion for FY2007 and $9.9 billion for FY2008. This report provides a brief overview of U.S. BMD efforts to date. It may be updated periodically. |
T he Trade Adjustment Assistance (TAA) programs were first authorized by Congress in the Trade Expansion Act of 1962, as amended, to help workers and firms adjust to import competition and dislocation caused by trade liberalization. Although overall economic welfare can be increased by trade liberalization, TAA has long been justified on grounds that the government has an obligation to help the "losers" of policy-driven trade openings that may cause adjustment problems for firms and workers adversely affected by import competition. TAA programs that cover workers, firms, and farmers aim to "facilitate efforts by the domestic industry to make a positive adjustment to import competition and provide greater economic and social benefits than costs." Congress continues to monitor TAA program performance and to periodically reauthorize and amend the governing legislation. This report discusses the Trade Adjustment Assistance for Firms (TAAF) program, which is administered by the Economic Development Administration (EDA) of the Department of Commerce. The TAAF program assists eligible American companies that have been harmed by increasing imports; this harm is defined by lower domestic sales and employment because of increased imports of similar goods and services. Through the TAAF program, EDA provides technical assistance, on a cost-sharing basis, to help eligible businesses create and implement business recovery plans that may allow them to remain competitive in a dynamic international economy. The TAAF program provides technical assistance through a partnership with a national network of 11 EDA-funded Trade Adjustment Assistance Centers (TAACs). Congress first authorized TAA in Title III of the Trade Expansion Act of 1962 (P.L. 87-794), but it was little used until it was updated and reauthorized under The Trade Act of 1974 ( P.L. 93-618 ), enacted in January 1975. Congress has amended TAA programs many times over the half-century of its existence. TAA includes a firm and industry assistance program that is administered by the EDA. In 2009, the 111 th Congress expanded TAA through a bipartisan agreement to reauthorize the program. The Trade and Globalization Adjustment Assistance Act of the American Recovery and Reinvestment Act (ARRA) of 2009 ( P.L. 111-5 ) expanded and extended the then-existing programs for workers, firms, and farmers, and added a fourth program for communities (later repealed). In terms of the TAAF program, the TGAAA expanded eligibility to include firms in the services sector to reflect the larger role of services in the U.S. economy; provided greater flexibility for a firm to demonstrate eligibility for assistance through an "extended look-back period," giving firms longer time frames for calculating sales or production declines due to import competition; increased annual authorized funding levels from $16 million to $50 million; established new oversight and evaluation criteria; created a new position of Director of Adjustment Assistance for Firms; and required that EDA submit a detailed annual report to Congress. When the TAA programs were set to expire on January 1, 2011, the House and Senate passed, and the President signed, the Omnibus Trade Act of 2011 ( P.L. 111-344 ) in late December 2010. While the act extended TAA programs for six weeks through mid-February, it eliminated some of the expanded provisions of the TGAAA, including eligibility for services firms and the expanded look-back periods for qualifying firms to meet eligibility requirements. The debate over passage of the proposed free trade agreements (FTAs) with Colombia, Panama, and South Korea offered the 112 th Congress another opportunity to revisit TAA reauthorization as part of the implementing legislation approval process. In October 2011, Congress passed, and the President signed into law, the Trade Adjustment Assistance Extension Act of 2011 (TAAEA) (Title II, P.L. 112-40 ; H.R. 2832 ). The TAAEA authorized the TAAF program through December 31, 2014. The prior 2011 expiration of the expanded provisions of the TAAF program limited the number of firms entering the program (as services firms were no longer eligible to participate), and eliminated the extended look-back period. These factors, combined with an improving economy, made it more difficult for firms to demonstrate their eligibility to participate. The TAAEA retroactively extended the enhanced provisions (inclusion of services firms and the extended "look-back" period) contained in the TGAAA through December 31, 2013. On January 1, 2014, the TAAF again reverted back to the more limited program that had been in effect as of February 13, 2011. Though the TAAF authorization expired on January 1, 2015, the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), extended TAAF appropriations through September 30, 2015, allowing Trade Adjustment Assistance Centers administering the program to continue to serve existing firms and certify new firms. Six months after the TAAF authorization ended in January 2015, Congress passed, and the President signed, the Trade Preferences Extension Act of 2015 ( P.L. 114-27 ), which included Title IV, the Trade Adjustment Assistance Reauthorization Act (TAARA) of 2015. The TAARA reauthorized the TAAF program through June 30, 2021, and added back the enhanced provisions of the TAAEA, effective retroactively to January 1, 2014. TAARA also restored annual authorization levels to $16 million. Appropriations were $12.5 million in FY2015 and $13 million in FY2016 and FY2017. (See Table 1 .) If Congress does not reauthorize the program, on July 1, 2021, the TAAF program will revert to the more limited program as in 2011, and the entire program will expire on June 30, 2022. (See Figure 1 .) If the President submits an implementing bill for a trade agreement, such as the potential renegotiation of the North American Free Trade Agreement (NAFTA), the subsequent legislative debate and package may provide Congress an opportunity to further amend TAARA, whether reforming the TAA programs, changing the management structure or requirements, or adjusting the current funding level or timelines. The TAAF provides technical assistance to help trade-impacted firms make strategic adjustments that may allow them to remain competitive in a global economy. Originally, TAAF also included loans and loan guarantees, but Congress eliminated all direct financial assistance in 1986 because of federal budgetary cutbacks and concern over the program's high default rates and limited effectiveness. TAAF authorizations and appropriations for FY2005-FY2017 appear in Table 1 . Administered by the Department of Commerce Economic Development Agency (EDA), the TAAF program provides technical assistance to firms through 11 regional Trade Adjustment Assistance Centers (TAACs). TAACS, which operate under cooperative agreements with EDA, are available to assist firms in the 50 states, the District of Columbia, and the Commonwealth of Puerto Rico. The following entities may apply to operate a TAAC: (1) universities or affiliated organizations; (2) states or local governments; or (3) nonprofit organizations. They provide or contract for technical assistance to firms from the initial certification process through adjustment proposal (AP) implementation. TAACs are staffed by professionals with broad business expertise who can help firms develop recovery strategies and also identify financial resources. These professionals function as consultants who specialize in business turnaround strategies specifically designed to meet the needs of individual firms that may face adjustments in competing with lower-priced imports. TAACs apply for EDA grants to operate their programs. All appropriated funds are used to support the TAAC process; no funds or direct financial assistance may be provided to firms. There are three phases to successful completion of a trade adjustment assistance project (see Figure 2 ). In phase one , a firm must demonstrate that it is eligible to apply for assistance. The firm submits a petition for certification documenting that it is a "trade-impacted firm" by having met three conditions: 1. "A significant number or proportion of workers" in the firm have become or are threatened to become totally or partially separated; 2. Sales, or production, or both decreased absolutely, or sales, or production, or both of any article that accounted for not less than 25% of total sales or production of the firm during the 12, 24, or 36 months preceding the most recent 12 months for which data are available have decreased absolutely (the "look-back" period); and 3. Increased imports of articles like or directly competitive with articles produced by the firm have "contributed importantly" to both layoffs and the decline in sales and/or production. Certification specialists are available in the TAACs to work with firms (at no cost to the firm) to complete and submit a petition to EDA to be certified as a trade impacted firm. EDA is statutorily required to make a final determination on a petition within 40 days of accepting it. This time period has declined from an average of 45 days in FY 2009 to 16 days in FY2015. In phase two , a firm certified as eligible has two years to develop and submit a business recovery plan or a djustment p roposal ( AP ) . Approval of the AP is contingent on EDA's finding that the AP (1) is reasonably calculated "to materially contribute" to the economic adjustment of the firm; (2) gives adequate consideration to the interests of the firm's workers; and (3) demonstrates that the firm will use its own resources for adjustment. The TAACs also provide detailed assistance for the adjustment proposal, which seeks to identify business planning and practices that can be enhanced to improve firm competitiveness. EDA has another 60 days to accept or reject the adjustment proposal. In FY2015, the average processing time for APs was 12 days. Because technical assistance is provided in the preparation of the petition and adjustment proposal, there is a high formal acceptance rate. TAAC assistance ensures that submissions are completed correctly and that poor candidates are weeded out early in the process. The firm must pay at least 25% of the cost to prepare the adjustment proposal. In FY2015, 128 firms received assistance in developing APs. In phase three , firms have five years to complete project implementation based on an approved AP. EDA may provide financial assistance for project implementation, but firms must pay at least a 25% match where an AP total implementation cost is less than $30,000. For project assistance exceeding $30,000, a firm must cover at least 50% of the total cost, with the federal share capped at $75,000. Adjustment proposals may involve strategic restructuring of various aspects of business operations. Consultants with specific expertise are selected jointly between TAACs and the firm to help with implementation. Because firms must be experiencing falling sales or declining production to be eligible, TAACs often focus first on marketing or sales strategies to identify new markets, new products, promotional initiatives, and export opportunities. The core objective is to increase revenue. Second, production inefficiencies are often targeted to reduce firm costs and improve price competitiveness. Third, TAACs can develop debt restructuring strategies and act as intermediaries in finding new sources of business financing. In FY2015, 729 firms received AP assistance in implementing projects. TAAC assistance to firms to prepare petitions and to develop and implement business recovery plans (APs) amounted to $9.5 million in FY2015 and the financial contribution of firms participating in the program amounted to $5.8 million. In 2015, 39% of adjustment assistance focused on improving marketing-sales, 26% on production, 21% on enhancing management and support systems, and 4% on financial systems (see Table 2 ). Table 3 summarizes select firm trade adjustment data for FY2005-FY2015. The TAAF program targets small- and medium-sized enterprises (SMEs), which is borne out in the firm data. Firms averaged fewer than 100 employees since 2010 with average sales of over $15 million. In 2015, the federal government provided 52% of adjustment costs, for an average $52.8 thousand per firm. In FY2015, 100% of certified firms were in manufacturing. Historically, TAAF program evaluation was limited, with EDA lacking a formal evaluation process. Early efforts to analyze the program included comprehensive outside studies by the Urban Institute in 1998 and Government Accountability Office (GAO) in 2000 that addressed two critical issues: program administration and effectiveness. The 2000 GAO report was not able to conclusively assess the impact of the program on firms because of a lack of systematic data. Both reports identified specific deficiencies with the TAAF program, such as a cumbersome certification process, long approval times, and little oversight and evaluation of projects. As a small program with limited resources, the TAAF had not received the managerial input required to adequately evaluate its efforts. Congress addressed this issue in the 2009 TGAAA, which required the creation of a new Director of Adjustment Assistance for Firms, along with additional support staff. The act also required an annual report to Congress and included specific performance measures to be collected and analyzed. Congress also mandated EDA to certify petitions for assistance and adjustment proposals within specific time frames. As required by Congress, the GAO conducted a comprehensive review of the TAAF program, released in September 2012. It noted important progress in the administrative capabilities of EDA and documents the positive impact of the TAAF program on trade-affected businesses. The GAO report also discussed the positive contribution of the changes initially made by the TGAAA and reinstated by the TAAEA. GAO found that EDA's administration of the TAAF program had improved markedly as a result of changes resulting from the 2009 legislation. EDA reduced processing times, provided new performance reporting measures, and increased firm participation. GAO noted that TGAAA modifications to the TAAF program led to improvements in (1) management and staffing, (2) annual reporting, (3) eligibility for participation of services firms, and (4) expansion of the "look-back" period that permitted more firms to meet certification criteria. The report also pointed to continuing challenges in centralized data management, evaluation reporting, and assessment of the effectiveness of TAAF. One weakness identified by GAO was EDA's funding allocation formula for TAACs to ensure that the distribution of funds across TAACs provide "equivalent benefits" adequate to meet the varying needs of the 11 TAACs. The second area of concern raised by GAO was EDA's analysis of performance measures. The most recent TAAF annual reports (FY2011 through FY2014) emphasize output measures (the type or level of program activities conducted or the direct products or services delivered by a program: number of firms assisted, petitions accepted, processing times) rather than outcome measures (defined as goals and performance measures that assess the results of a program, compared with its intended purpose). In part, this appears to be a result of the measures and indicators that Congress required EDA to collect and analyze. Of the 16 performance indicators, GAO reported that 13 emphasize outputs, or measures, of the goods and services provided by the program. The TAAF annual reports have compared the performance of TAAF participants, which are, by definition, trade-impacted, troubled firms to the average performance of the U.S. manufacturing sector as a whole (using Bureau of Labor Statistics [BLS] data). GAO expressed concerns with EDA's methodology and recommended that "using program evaluation methods to rule out plausible alternative explanations for outcomes that may be influenced by a variety of external factors, such as changes in the economy, can help strengthen evaluations." GAO conducted its own analysis to evaluate the policy impact of the TAAF on firms participating in the program. The GAO report discussed the difficulties inherent in attempting to assess the "apples-to-oranges" effect of comparing TAAF-participating companies with a group of nonparticipating firms (as EDA has done). Even if a control group with characteristics similar to TAAF-participating firms could be identified, GAO noted that such an analysis would also have weaknesses. Given these limitations, GAO analyzed the performance of TAAF-participating firms, but explicitly recognized that such an approach could not determine whether TAAF firms' performance would have improved in the absence of the program. Using its own methodology, GAO found a "small and statistically significant relationship between program participation and sales." GAO estimated that TAAF assistance, on average, resulted in a 5% to 6% increase in sales, which was particularly relevant to smaller firms, and a 4% increase in productivity, albeit also highly correlated with firms operating in industries that were experiencing growth. Employment effects were not found to be statistically significant. GAO also confirmed EDA's assessment that both manufacturing and services firms faced import competition that directly affected their sales, and that these firms, by and large, benefitted from specialized attention provided by TAACs. In addition, GAO conducted a survey of firms participating in the TAAF program. The survey found that 90% of respondent firms reported that they were "very" or "generally" satisfied with the services that they received from the TAACs. The GAO report provided some of the strongest evidence to date of the benefits of the now-lapsed 2009 legislative changes, as well as EDA's much-improved administration and evaluation of the TAAF program compared to years past. Most of the public debate on trade and TAA does not distinguish between the various programs that EDA administers, including the TAAF. Some observers believe that TAA should be eliminated while others say that reform and changes are needed to the programs. Whether changes are needed to TAA programs may depend on their effectiveness in assisting workers, or firms in the case of TAAF, survive and grow despite trade liberalization. For the TAAF program, EDA is required by Congress to submit an annual report that provides findings and specified results (or performance measures). EDA has released six annual reports (FY2010 through FY2015) that identify numerous administrative and operational improvements. In addition, TAACs are now allocated funds in part based on performance measures (number of firm certifications and adjustment proposals generated) and quality measures. As part of the TAAF annual report, EDA is required to provide a comparison of sales, employment, and productivity for each firm at the time it was certified and both one and two years after the recovery plan was completed. EDA does not estimate the specific number of "jobs retained" or "jobs created." In its FY2014 report, EDA notes that, from FY2012 to FY2013, average firm sales had increased by 13.6%, average employment increased by 3.5%, and average productivity increased by 9.7%. EDA also notes that all firms completing the adjustment program were still in operation—suggesting an impressive "survival rate"—particularly given that all these firms have the additional burden of adjusting to import competition. In analyzing earlier EDA reports (FY2010 to FY2012), GAO concluded that these trends provide only a limited understanding of program effectiveness. The data on employment and productivity are derived from annual surveys conducted by the 11 TAACs. The data are then aggregated and presented as part of the congressionally required annual report. Employment effects are referred to as number of "jobs impacted," or number of jobs retained or generated at firms completing at least one technical assistance project. Declines in employment do not necessarily reflect TAAC performance. Employment can fall dramatically for firms that are hit by a surge of foreign import competition or by market disruptions that are not trade-related. In the two reporting years following firms' completion of business recovery programs, firms may continue to experience increased import competition or other negative effects (for instance, a slow economic recovery from the 2008 recession). Under these circumstances, the fact that employment losses continue after an adjustment proposal has been completed is not necessarily an unexpected or negative outcome in terms of trade adjustment assistance effectiveness. Whether the current one- and two-year post-TAAF-exit reporting periods provide enough time and data to assess the effectiveness of recovery programs, it is possible that a number of successful TAAF participants will continue to face increased competition that results in some program participants operating at levels of output or employment that existed prior to TAAC assistance. As noted in the previous section, caution is warranted when drawing conclusions on the basis of limited trend data. EDA figures reflect employment trends that could be attributable to the TAAF program. A more rigorous analysis would be needed to estimate and isolate the effects of the TAAF program from other factors that affect employment trends in TAAF-participating firms. To more accurately assess the effectiveness of the TAAF program in terms of helping firms or "saving jobs," it would be necessary to use more sophisticated methodologies and analyses (such as those employed and recommended by GAO) than Congress currently requires for the TAAF annual report. With respect to the reported high "survival rate" for firms that completed the TAAF program, they represent only about half of all firms that had their adjustment proposals approved for assistance. In FY2015, of the 176 firms that exited the TAAF program, 153 firms (87%) successfully exited the program, and another 107 (61%) completed an achievable number of projects within the five-year limit. The remaining 23 (13%) did not complete the program for various reasons, including that the firm was acquired or sold, went out of business, failed to submit the AP within two years after TAA certification or failed to implement the AP, or suffered bankruptcy. Given that TAAF focuses primarily on small- and medium-size firms that face multiple challenges, it is not entirely surprising that many firms that receive TAAF certifications are unable to complete the program. It is difficult to compare firms because they enter and exit the TAAF program in different years, and some firms participate in more than one TAAF adjustment program at the same time. Yet, reporting indicates that the TAAF program is successful in assisting a significant percentage of firms through a recovery process that can last from two to seven years, which can lead to the conclusion that the limited amount of funds available to trade-impacted firms through the TAAF program may amount to a relatively efficient policy tool. In a final section, the FY2012 through FY2015 TAAF annual reports offer anecdotes collected from the TAACs that provide success stories about participating firms from all parts of the country and in various industries that used TAAF assistance. Although these examples may identify TAAC-provided assistance to select firms, they do not demonstrate the extent to which TAAF or the TAACs provided the assistance that may have been critical to the success of any one particular firm to succeed where others do not. Whether some firms might have been able to adjust on their own cannot be determined. Economists tend to agree that in defining the rules of exchange among countries, freer trade is preferable to protectionism. Insights from trade theory point to the mutual gains for countries trading on their differences, producing those goods at which they are relatively more efficient, while trading for those at which they are relatively less so. Additional gains are realized from intra-industry trade based on efficiencies from segmented and specialized production. Firm-level evidence supports this theory. Trade appears to "enable efficient producers within an industry, and efficient industries within an economy, to expand," leading to a reallocation of resources that increases a country's productivity, output, and income. Consumers (both firms and households) also gain from a wider variety of goods and lower prices. However, increased competition from trade liberalization also creates "winners and losers," presenting adjustment problems for all countries. Some firms may grow as they expand into new overseas markets, while others may contract, merge, or fail when faced with greater foreign competition. While the adjustment process may be healthy from a macroeconomic perspective, much like market-driven adjustments that occur for reasons other than trade (e.g., technological changes, weather-related disasters), the transition can be hard on some firms and their workers. Critics of free trade agreements often highlight the adjustment costs of reducing trade barriers. To avoid business closures and layoffs, firms likely to be affected by increased trade may seek to weaken, if not defeat, trade liberalizing legislation. This makes economic sense from the perspective of the affected industries, firms, and workers, but economists argue that in the long run it can be more costly for the country as a whole. The costs of protection arise because competition is suppressed, reducing pressure on firms to innovate, operate more efficiently, and become lower-cost producers. The brunt of these costs falls to consumers, both individuals and businesses, who must pay higher prices, but the national economy is also denied forgone productivity gains. One way to balance the large and broad-based gains from freer trade with the smaller and more highly concentrated costs is to address the needs of firms negatively affected, such as through the TAA programs, including the one for firms. Supporters justify TAA policy on grounds that (1) it helps those who are hurt by trade liberalization; (2) the economic costs are lower than protectionism and can be borne by society as a whole; and (3) given rigidities in the adjustment process, it may help redeploy economic resources more quickly, thereby reducing productivity losses and related public sector costs (e.g., unemployment compensation). Others dispute these claims and have raised concerns over the effectiveness and costs of the program, arguing that it should be limited or discontinued. In debates over trade liberalization, some observers may not appreciate the full impact that globalization and digitization trends are having on trade. While trade liberalization may present greater import competition for SMEs domestically, globalization and digitization also present opportunities for growth. The emergence of global value chains (GVCs) and the Internet revolution provide possible growth opportunities for firms as foreign markets are opened through trade liberalization. TAAF programs offer one way to help SMEs to gain the knowledge and skills needed to take advantage of these global shifts. The programs can help SMEs to improve their position by integrating into a GVC or using digital platforms to reach new markets, thus offsetting losses that may occur as a result of trade liberalization. GVCs are mainly organized and coordinated by large multinational companies (MNCs) and account for more than 70% of global trade in goods and services and in capital goods. A large share of global trade takes place within GVCs in the form of imports and exports of intermediate (or unfinished) goods and services that move within, between, and among countries. According to one study, in many countries, a domestically manufactured good contains over 20% of foreign value added, and that may rise to over 50% in some countries and industries. This system of production depends on the willingness of many countries to import in order to export. The WTO's "Made in the World" initiative finds that the increased use of GVCs has led industries globally to demand greater trade liberalization and lower protectionism as these firms depend on other links in the value chain, both domestic and foreign. At the domestic level, the U.S. small- and medium-sized domestic producers that sell goods and services to multinational exporters are not counted as exporters—even though they may contribute a substantial amount of the value added in U.S. exports. The statistical data needed to measure the contribution of domestic and foreign value added at each stage of GVC production are under development, and a complete picture of the impact of GVCs may not be possible until such data become available. In one study, the Organization for Economic Co-operation and Development (OECD) states that the participation of smaller firms in GVCs is often underestimated. Smaller firms "often supply intermediates to exporting firms in their country and are as such relatively more integrated in the domestic value chains." Unlike most other major industrialized, emerging, and developing economies, the United States is less dependent on imports of foreign intermediate goods for its exports. Instead, small- and medium-size domestic firms are, in the aggregate, major suppliers of goods (parts, components, and finished products) and services to large U.S. exporters. The OECD cites studies by Matthew Slaughter and the U.S. International Trade Commission (USITC) showing that the typical U.S. MNC buys more than $3 billion in inputs [goods and services] from more than 6,000 U.S. small and medium-sized enterprises (SMEs)—or almost 25% of the total input purchased by these firms. These domestic supplies are not reflected in international trade statistics, which only count direct exports; estimates for the United States show that in 2007 the export share of SMEs increased from approximately 28% (in gross exports) to 41% (in value-added exports), when such indirect exports are taken into account. The USITC calculated that in 2007 total direct exports by U.S. SMEs amounted to $382 billion and indirect exports of SMEs amounted to $98 billion. The USITC translated these figures into an estimated 4.0 million U.S. jobs, with 1.7 million U.S. jobs supported by direct SME exporters and an additional 2.1 million jobs created by SME indirect exporters that sell intermediate inputs to direct exporters. Of the 10 million U.S. jobs that were supported by U.S. exports of goods and services, SME exports accounted for approximately 40% of all export-supported jobs in the United States. Significantly, the USITC report found that "much of the indirect value-added exports by SMEs—the intermediate goods and services produced by SMEs that are eventually shipped abroad as components embedded in other products—is concentrated in the manufacturing sector." Given that the main focus of TAAF is on troubled SMEs, the magnitude of U.S. SME-produced goods that are exported by GVCs suggests that the TAAF program could assist and encourage linkages between these troubled enterprises and the multinationals that are major exporters of their inputs. Although many SMEs have built strong ties to large U.S. exporters and MNCs, liberalized trade policies adopted by the United States or other countries, new technologies, or macroeconomic conditions could potentially erode the incumbent position and domestic advantages of U.S. SMEs. A potential question is whether the EDA, through the TAAF program and the TAACs, could assist trade-impacted firms in developing more relationships with MNCs, as well as analyzing the necessary conditions that would allow TAAF-participating firms to have a realistic chance of doing so. The high volume of trade that flows through GVCs and the predominant position of the United States as a major hub and headquarters nations (with the highest level of domestic value-added export content [89%] of any OECD country and the third highest in the Group of Twenty [G20] after Russia and Brazil) suggests the possibility that such chains could be a source of opportunity for U.S. trade-impacted firms. EDA produces an annual report for Congress on the operations of the TAAF program, but among the data requirements established by Congress in the TGAAA, as amended, there are no performance measures that document or report on TAAF-participating firms that sell goods or services to U.S. exporters (in terms of number of firms assisted and value of goods sold), or that provide data on direct exports by firms receiving TAAF assistance. Another opportunity related to GVCs is the growing demand for a skilled workforce to operate and support supply chains. A report by the U.S. Departments of Transportation, Education, and Labor titled "Strengthening Skills Training and Career Pathways across the Transportation Industry" identified high-paying, high-skilled, high-demand transportation jobs. As global trade and GVCs grow, these shortages could become more acute. Pairing a TAAF-qualified firm with MNCs or companies focused on supply chain may provide opportunities for EDA to help firms through TAAF meet growing demand. A second fundamental shift in global trade that is opening new markets for SMEs is occurring with the Internet-driven digital revolution. Digital platforms, including online communication tools and e-commerce websites, can minimize costs and enable SMEs to grow through extended reach to new customers and markets or by integrating into a GVC. As a result, many such firms that in the past might not export or seek new markets abroad are more easily able and willing to conduct business in global markets. In addition, increased digitization of customs and border control mechanisms helps simplify and speed delivery of imported goods to customers, making them more attractive to foreign buyers. As a result, digitization can enable SMEs to serve the new markets abroad that are opened by trade liberalization. For example, a study of U.S. SMEs on the e-commerce platform eBay found that 97% export; among the 50 states, the range was from 93 to 98%. According to eBay, 59% of its U.S. SMEs export to 10 or more markets. In countries as diverse as Peru and the Ukraine, a full 100% of eBay SMEs export. TAAF programs provide one channel for helping trade-impacted SMEs make the necessary shifts and gain the skills to succeed in online marketplaces and keep up with technological changes. As Congress considers trade liberalization agreements and ongoing trade negotiations, it may wish to further examine the TAAF in light of the current debate of its effectiveness and the impact of international trade on the U.S. economy. An implementing bill for a new trade agreement, such as a renegotiated NAFTA, may provide Congress an opportunity to reexamine and potentially revise the TAA programs. In addition to adjusting appropriations levels, Congress could examine changing the current program or EDA's administration of it. Potential options for Congress to consider on TAAF may include determining if current funding levels are appropriate; further refining the performance metrics to measure the employment or economic impact of TAAF programs; placing a stronger emphasis on assisting SMEs utilize technology to improve operational efficiency, expand into new markets, including through e-commerce, and take fuller advantage of an increasingly digitally-driven economy; facilitating partnerships with large multinational companies to support SME integration into GVCs; or consolidating or streamlining TAAF with other federal programs that assist troubled SMEs such as those operated by the Small Business Administration (SBA). While TAAF has traditionally focused on firms who can demonstrate they have been harmed by import competition, Congress could also explore the feasibility and possible steps that could or should be taken before firms are harmed. Congress might consider requiring EDA to conduct outreach and education on pending trade liberalization agreements. The analysis of each proposed trade agreement by the USITC may help identify industries or regions as potentially vulnerable or likely to experience a negative impact as a result of proposed trade liberalizing measures. For example, the USITC economic impact assessment report for the potential Trans-Pacific Partnership (TPP) contended that U.S. demand for business services would outstrip supply, presenting opportunities for growth, while employment could decline in certain manufacturing and transport sectors. Congress could, for example, consider requiring EDA to prepare a capacity building plan to assist those industries or regions USITC identified as potentially vulnerable or likely to experience a negative impact from implementation of a proposed trade agreement. Appendix A. Acronyms | As Congress considers potential legislation related to trade agreements, the potential impact on U.S. workers and firms is part of the debate. The Trade Adjustment Assistance (TAA) programs were first authorized by Congress in the Trade Expansion Act of 1962 to help workers and firms adapt to import competition and dislocation caused by trade liberalization. While trade liberalization may increase the overall economic welfare of all the affected trade partners, it can also cause adjustment problems for firms and workers facing import competition, and adjustment assistance has long been justified on the grounds that it is the least disruptive option for offsetting policy-driven trade liberalization. The TAA programs for workers, firms, and farmers represent an alternative to policies that would restrict imports, providing assistance while bolstering freer trade and diminishing prospects for potentially costly tension (retaliation) among trade partners. This report discusses the Trade Adjustment Assistance for Firms (TAAF) program, which is administered by the U.S. Department of Commerce Economic Development Administration (EDA), and related policy issues. Most recently, reauthorization of TAA was linked to renewal of Trade Promotion Authority (TPA). Both TPA (P.L. 114-26 ) and TAA (P.L. 114-27) were signed into law in June 2015. The renewed TAA not only extended TAAF but reinstated certain expanded provisions and authorized annual funding. TAAF provides technical assistance to help trade-impacted firms make strategic adjustments to improve their global competitiveness. Under TAAF, a firm first submits a petition to demonstrate its eligibility, then works with TAAF professionals to develop and submit, and finally implement, a business recovery plan. As required by the Trade and Globalization Adjustment Assistance Act of 2009 (TGAAA) (Title II of P.L. 111-5), EDA publishes annual reports on the performance of the TAAF program. The reports have generally shown that two years after completion of the program, on average, participating firms have increased sales, employment, and productivity. The high success rate for firms that "completed" the TAAF program represents only about half of all firms certified as eligible for assistance. The rest left the program without completing an adjustment plan and were no longer monitored. The Government Accountability Office (GAO) completed a comprehensive evaluation of the TAAF program in 2012 and found marked improvement in EDA's administration and evaluation efforts and also confirmed EDA's assessment that trade-impacted firms benefitted from the specialized attention provided by TAAF assistance. GAO also found a "small and statistically significant relationship between program participation and sales," which was particularly relevant to smaller firms, albeit also highly correlated with firms operating in high-growth industries. Employment effects were not found to be statistically significant. Since the 1990s, debates over trade liberalization have increasingly focused on the changing nature of trade in an era of globalization—especially the emergence of global value chains (GVCs) and the evolving digital economy. GVCs are organized and coordinated by multinational companies (MNCs) and now account for about 70% of global trade in goods and services and capital goods. GVCs offer the potential for small- and medium-size firms to become more integrated into international trade and produce higher-value-added products. One question is whether EDA, through the TAAF program, can help trade-impacted firms in developing stronger relationships with MNCs and GVCs. Another is how EDA can help small and medium enterprises take advantage of the digital economy to reach new markets, including those opened up by trade agreements. Congress may consider these questions as well as further reforms or amendments to TAAF as part of ongoing discussions on potential trade agreements. |
Current U.S. space policy is based on a set of fundamental factors which, according to an Eisenhower presidential committee, "give importance, urgency, and inevitability to the advancement of space technology." These factors were developed fifty years ago as a direct result of the Soviet Union's (USSR) launch of the first artificial satellite, Sputnik. This launch began the "space age" and a "space race" between the United States and USSR. The four factors are the compelling need to explore and discover; national defense; prestige and confidence in the U.S. scientific, technological, industrial, and military systems; and scientific observation and experimentation to add to our knowledge and understanding of the Earth, solar system, and universe. They are still part of current policy discussions and influence the nation's civilian space policy priorities—both in terms of what actions NASA is authorized to undertake and the appropriations each activity within NASA receives. NASA has active programs that address all four factors, but many believe that it is being asked to accomplish too much for the available resources. An understanding of how policy decisions made during the Sputnik era influence U.S. space policy today may be useful as Congress considers changing that policy. The response of Congress to the fundamental question, "Why go to space?," may influence NASA's programs, such as its earth-observing satellites, human exploration of the Moon and Mars, and robotic investigation of the solar system and wider universe as well as its policies on related activities, including spinoff technological development, science and mathematics education, international relations, and commercial space transportation. This report describes Sputnik and its influence on today's U.S. civilian space policy, the actions other nations and commercial organizations are taking in space exploration, and why the nation invests in space exploration and the public's attitude toward it. The report concludes with a discussion of possible options for future U.S. civilian space policy priorities and the implication of those priorities. On October 4, 1957, the USSR launched Sputnik, the world's first artificial satellite. Sputnik (Russian for "traveling companion") was the size of a basketball and weighed 183 pounds (see Figure 1 ). Sputnik's launch and orbit still influences policy decisions 50 years later. The USSR's ability to launch a satellite ahead of the United States led to a national concern that the United States was falling behind the USSR in its science and technology capabilities and thus might be vulnerable to a nuclear missile attack. The resulting competition for scientific and technological superiority came to represent a competition between capitalism and communism. Both the 85 th Congress and President Eisenhower undertook an immediate set of policy actions in response to the launch of Sputnik. Congress established the Senate Special Committee on Space and Astronautics on February 6, 1958, and the House Select Committee on Science and Astronautics on March 5, 1958—the first time since 1892 that both the House and Senate took action to create standing committees on an entirely new subject. Each committee was chaired by the Majority Leader. The Preparedness Investigating Subcommittee of the Senate Armed Services Committee was also active in analyzing the nation's satellite and missile programs. Multiple congressional hearings were held in the three months following Sputnik, and President Eisenhower addressed the nation to assure the public that the United States was scientifically strong and able to compete in space. Within 10 months after Sputnik's launch, the Eisenhower Administration and Congress took actions that established the National Aeronautics and Space Administration (NASA) through the National Aeronautics and Space Act (P.L. 85-568), established the Defense Advanced Research Projects Agency (DARPA) within the Department of Defense through DOD Directive 5105.15 and National Security - Military Installations and Facilities (P.L. 85-325), increased its appropriation for the National Science Foundation to $134 million, nearly $100 million higher than the previous year, and reformed elementary, secondary, and postsecondary science and mathematics education (including gifted education) and provided incentives for American students to pursue science, technology, engineering, and mathematics postsecondary degrees via fellowships and loans through the National Defense Education Act (P.L. 85-864). Figure 2 provides a timeline of the some of the major policy events in the year following the Sputnik launch. When people today speak of a "Sputnik moment," they often refer to a rapid national response that quickly mobilizes major policy change as opposed to a response of inaction or incremental policy change. The term is also used to question inaction—as in whether or not the nation is prepared to respond to a challenge without an initiating Sputnik moment. The Sputnik launch captured the public's attention at a time of heightened U.S. tension regarding the threat posed by the USSR and communism. Societal focus on civil defense, including "duck and cover" drills and the establishment of some personal bomb shelters, predisposed the nation towards identifying the potential threat posed by the Sputnik launch. In this climate, many Americans became concerned that if the USSR could launch a satellite into space, it could also launch a nuclear missile capable of reaching the United States. The Sputnik launch was immediately viewed as a challenge to U.S. scientific and technological prowess. The Soviet Union launched both Sputnik and Sputnik 2 before the United States was able to attempt a satellite launch. Additionally, the Soviet launch was of a far heavier satellite than the U.S. had planned. The net result of the Sputnik launch was called a "Pearl Harbor for American Science"—a sign that the United States was falling behind the USSR in science and technology. The ensuing competition in scientific and technological skills came to represent a competition to determine the political superiority of capitalism versus communism. The Senate Majority Leader at the time, future President Lyndon B. Johnson, illustrated the concern of many Americans in his own observations of the night sky: "Now, somehow, in some new way, the sky seemed almost alien. I also remember the profound shock of realizing that it might be possible for another nation to achieve technological superiority over this great country of ours." The Sputnik launch prompted rapid development of new federal policies and programs. In particular, federal investment in NASA is still influenced by the Sputnik-era principles as illustrated in the Space Act, both in terms of what actions NASA is authorized to undertake and the extent to which each activity is funded. In 2008, NASA was reauthorized for FY2009. As Congress considers future reauthorization of NASA, the status of the nation's space policy, and the relative importance of the various objectives underlying this policy may become topics of debate. The United States faces a far different world today than 50 years ago. No Sputnik moment, Cold War, or space race exists to help policymakers clarify the goals of the nation's civilian space program. The Hubble telescope, Challenger and Columbia space shuttle disasters, and Mars exploration rovers frame the experience of current generations, in contrast to the Sputnik launch and the U.S. Moon landings that form the experience of older generations. According to an analysis conducted by the Space Foundation, the global space industry in 2007 generated $251.16 billion in revenues. (See Figure 3 .) The United States faces a possible new set of competitors or collaborators in civilian space exploration. China, India, Japan, Russia, and Europe are taking an active role in space exploration as are commercial companies. If China is the first to land humans on the Moon and establish a Moon base in the 21 st century or the European Space Agency is the first to land humans on Mars, will policymakers and the public view these activities as a loss in United States status and leadership? If so, what are the policy implications? Would such activities become this century's "Sputnik moment" that would spur further investment in U.S. space exploration activities? If not, how might this affect U.S. space policy priorities? Future spacecraft are being developed. For example, the X-Prize Foundation Google Lunar X Prize ($30 million) invites private teams from around the world to build a robotic rover capable of landing on the Moon. Virgin Galactic, currently based in California with a spaceport under construction in New Mexico, has plans for SpaceShipTwo, a six-passenger spaceliner. In Europe, EADS-Astrium is developing a four-person spacecraft to make suborbital trips. According to press reports, a number of venture capitalists are also planning to build spaceships or develop private space programs. Should these efforts prove successful, what implications might this have for U.S. space policy priorities? The Obama Administration has stated the following regarding its proposed civilian space policy: The United States must maintain and take full advantage of its technical and strategic superiority in space, which can simultaneously enhance our national security and provide crucial information about environmental and climatologic trends. The administration and OSTP will develop policies that will: • Close the gap between retirement of the Space Shuttle and launch of the next generation of space vehicles to minimize any interruption in access to low-earth orbit, and take full advantage of the research opportunities provided by the International Space Station. • Strengthen NASA's missions in space science, weather, climate research, and aeronautical research. • Help establish a robust and balanced civilian space program, and engage international partners and the private sector to amplify NASA's reach. • Re-establish the National Aeronautics and Space Council, which will report to the President and oversee and coordinate civilian, military, commercial and national security space activities. • Ensure Freedom of Space by assessing possible threats to U.S. space assets and identifying the best options, military and diplomatic, for countering them; accelerating programs to harden U.S. satellites against attack; and establishing contingency plans to ensure that U.S. forces can maintain or duplicate access to information from space assets if necessary. On May 7, 2009, John Holdren, Director of the President's Office of Science and Technology Policy (OSTP), sent a letter to the Acting NASA Administrator requesting that an independent review of planned U.S. human space flight activities. The blue-ribbon panel, chaired by Norman Augustine, the former CEO of Lockheed Martin, is to work closely with NASA and seek input from Congress, the White House, the public, industry, and international partners. According to OSTP, The review panel will assess a number of architecture options, taking into account such objectives as: 1) expediting a new U.S. capability to support use of the International Space Station; 2) supporting missions to the Moon and other destinations beyond low Earth orbit; 3) stimulating commercial space flight capabilities; and 4) fitting within the current budget profile for NASA exploration activities. Among the parameters to be considered in the course of its review are crew and mission safety, life-cycle costs, development time, national space industrial base impacts, potential to spur innovation and encourage competition, and the implications and impacts of transitioning from current human space flight systems. The review will consider the appropriate amounts of R&D and complementary robotic activity necessary to support various human space flight activities, as well as the capabilities that are likely to be enabled by each of the potential architectures under consideration. It will also explore options for extending International Space Station operations beyond 2016. The results of the review are to be completed in sufficient time so that the Administration decision may consider the results of the panel's deliberations in deciding what action to take regarding human space flight by August 2009. On May 23, 2009, President Obama nominated General Charles Bolden to be NASA Administrator and Lori Garver to be Deputy Administrator. Both positions require Senate confirmation. During the Bush Administration, a U.S. National Space Policy defined the key objectives of defense and civilian space policy. This policy incorporated key elements of the Vision for Space Exploration ("Vision"), often referred to as the Moon/Mars program. In the Vision, the President directed NASA to focus its efforts on returning humans to the Moon by 2020 and eventually sending them to Mars and "worlds beyond." The President further directed NASA to fulfill commitments made to the 13 countries that are its partners in the International Space Station (ISS). In the 2005 NASA authorization act ( P.L. 109 - 155 ), Congress directed NASA to establish a program to accomplish the goals outlined in the Vision, which are that the United States Implement a sustained and affordable human and robotic program to explore the solar system and beyond; Extend human presence across the solar system, starting with a human return to the Moon by the year 2020, in preparation for human exploration of Mars and other destinations; Develop the innovative technologies, knowledge, and infrastructures both to explore and to support decisions about the destinations for human exploration; and Promote international and commercial participation in exploration to further U.S. scientific, security, and economic interests. More specifically, the Vision included plans, via a strategy based on "long-term affordability," to return the Space Shuttle safely to flight (which has been accomplished), complete the International Space Station (ISS) by 2010 but discontinue its use by 2017, phase out the Space Shuttle when the ISS is complete by 2010, send a robotic orbiter and lander to the Moon, send a human expedition to the Moon (sometime between 2015-2020), send a robotic mission to Mars in preparation for a future human expedition, and conduct robotic exploration across the solar system. NASA is developing a new spacecraft called Orion (formerly the Crew Exploration Vehicle) and a new launch vehicle for it called Ares I (formerly the Crew Launch Vehicle). An Earth-orbit capability is planned by 2014 (although NASA now considers early 2015 more likely) with the ability to take astronauts to and from the Moon following no later than 2020. The Vision had broad implications for NASA, especially since almost all the funds to implement the initiative are expected to come from other NASA activities. Among the issues Congress is debating are the balance between NASA's exploration activities and its other programs, such as science and aeronautics research; the impact of the Vision on NASA's workforce needs; whether the space shuttle program might be ended in 2010; and if the United States might discontinue using the International Space Station. During the Bush Administration, NASA stated that its strategy is to "go as we can afford to pay," with the pace of the program set, in part, by the available funding. Affording such a program is challenging, however, with a 2006 National Research Council report finding "NASA is being asked to accomplish too much with too little." The report recommended that "both the executive and the legislative branches of the federal government need to seriously examine the mismatch between the tasks assigned to NASA and the resources that the agency has been provided to accomplish them and should identify actions that will make the agency's portfolio of responsibilities sustainable." The Table A-1 compares The National Aeronautics and Space Act of 1958 as amended ("Space Act"), the oldest and most recent Presidential commission reports (Killian and Aldridge ), the U.S. National Space Policy ("Space Policy"), and the National Aeronautics and Space Administration Authorization Act of 2008 ( P.L. 110-422 ). The analyses identify the following reasons why the United States might explore space: knowledge and understanding, discovery, economic growth—job creation and new markets, national prestige, and defense. Some also include the following reasons: international relations, and education and workforce development. Although there is broad agreement on the reasons for space exploration, there is a great deal of variation in the details. Among the chief differences in these documents are the degree to which discovery is the major reason for space exploration as opposed to meeting needs here on Earth; creation of jobs and new markets should be a major focus of NASA activities as opposed to a side effect; science and mathematics education and workforce development should be a goal of NASA in addition to other federal agencies; and relationships with other countries should be competitive or cooperative regarding space exploration. Comparing the Aldridge Commission themes, the Space Policy goals, and the Space Act objectives on the issue of the relationship of the space program to economic growth provides some insights. While the Aldridge committee has a much broader view of the industries related to space exploration, focusing on the potential role of space exploration in job generation and new market development, the Space Act and Space Policy focus on only one sector, the aeronautical and space vehicle industry. The two Presidential commissions have two key differences. One is the first theme outlined in the Sputnik-era Killian Committee report: "the compelling urge of man to explore and discover." This is quite different from the recent Aldridge Commission report, which, although indicating exploration and discovery should be among NASA goals, states that "exploration and discovery will perhaps not be sufficient drivers to sustain what will be a long, and at times risky, journey." The implication is that, today, solely responding to the challenge of going to the Moon or Mars is not sufficient to energize public support for space exploration. The second key difference is the focus of the Aldridge Commission on economic growth as a proposed space exploration theme. The Aldridge Commission identifies the ability of investments in civilian space programs to generate new jobs within current industries and spawn new markets. The contribution that federal space investments make to the nation's economy was not a key factor identified by the Killian Committee. As a result of its focus on economic growth as a key theme of space exploration, the Aldridge Commission recommended that "NASA's relationship to the private sector, its organizational structure, business culture, and management processes—all largely inherited from the Apollo era—must be decisively transformed to implement the new, multi-decadal space exploration vision." Two of its specific recommendations were that NASA recognize and implement a far larger private industry presence in space operations, with the specific goal of allowing private industry to assume the primary role of providing services to NASA, and that NASA's centers be reconfigured as Federally Funded Research and Development Centers (FFRDCs) to enable innovation, work effectively with the private sector, and stimulate economic development. FFRDCs are not-for-profit organizations which are financed on a sole-source basis, exclusively or substantially by an agency of the federal government, and not subject to Office of Personnel Management regulations. They operate as private non-profit corporations, although they are subject to certain personnel and budgetary controls imposed by Congress and/or their sponsoring agency. Each FFRDC is administered by either an industrial firm, a university, or a nonprofit institution through a contract with the sponsoring federal agency. FFRDC personnel are not considered federal employees, but rather employees of the organization that manages and operates the center. NASA has not fully adopted the Aldridge Commission recommendations. NASA has 10 centers (see Table 1 ). One, the Jet Propulsion Laboratory (JPL), is already an FFRDC and is managed by the California Institute of Technology. Some editorialists question whether investing in space exploration is relevant today. Others question if NASA has the right priorities. Would the public care if the country's investment in space exploration ended? Does the public believe it would be better to invest in social needs here on Earth rather than space exploration? Does the public support the current prioritization of the nation's space exploration activities? According to poll data, Americans do not rank space exploration as a high priority for federal government spending. For example, in an April 10, 2007 Harris poll, respondents were given a list of twelve federal government programs and asked to pick two which should be cut "if spending had to be cut." Space programs led the list (51%), followed by welfare programs (28%), defense spending (28%), and farm subsidies (24%). Space exploration was also near the bottom of a University of Chicago National Opinion Research Center survey reported in January 2007 that asked Americans about how they would prioritize federal spending. On the other hand, Americans are interested in space exploration. According to a May 2008 Gallup Poll, sponsored by the Coalition for Space Exploration, most Americans (69%) believe that the space program benefits the nation's economy by inspiring young people to consider STEM education, and believe that the benefits of space exploration outweigh the risks of human space flight (68%). The poll also found that most Americans (67%) indicated that they would not be concerned if the United States loses its leadership in space exploration to China, while almost half (47%) of the public surveyed expressed concern regarding the five-year gap between the end of the space shuttle program and the first scheduled launch of the Constellation program. Just over half (52%) of those surveyed in the Gallup Poll said they would support increasing NASA's budget from 0.6% to 1.0% of the federal budget; however, when the public was asked how willing they would be to support an increase in taxes if the money was to go to NASA to help close the budget deficit, more than half (57%) reported they would not be willing. NASA's Office of Strategic Communication funded several analyses of the public's attitude toward space exploration based on focus groups and a survey, the results of which were presented in June 2007. According to an analysis conducted for NASA, the focus group participants were ambivalent about going to the Moon and Mars and wanted to know why these missions were important. Reasons such as leadership, legacy, and public inspiration were found to be less persuasive, especially for future Moon exploration, than NASA-influenced technologies. Most participants agreed that partnership with other countries would be beneficial, but doubted whether it can be achieved realistically. In addition, one of the analysis conducted for NASA found that most survey respondents rated NASA-influenced technologies as somewhat or extremely relevant to them. Over 52% of participants said such technologies were a "very strong" reason to go to space. In contrast, the public's response to a mission to send humans to the Moon by the year 2020 was less strong with 15% of respondents very excited and 31% somewhat excited. Results for a mission to send humans to the Mars were similar to those for the Moon. The public opinion analysis has found that there are generational differences in regard to NASA's proposed activities. For example, NASA's base support came from those who encompass "The Apollo Generation" (45-64 year olds), the majority (79%) of whom support NASA's new space exploration mission, particularly the return to the Moon. By contrast, the majority (64%) of those between 18-24 years of age are uninterested or neutral about a human Moon mission. Those between 25 and 44 years of age are approximately evenly split between those who are interested/excited and those who are either uninterested or neutral. Those over 65 were more likely to be neutral or disinterested in a Moon mission, with those over 75 years of age the least interested of all age groups. Current U.S. civilian space policy is based on a set of fundamental objectives in the Space Act, based on policy discussions that occurred following the launch of Sputnik over 50 years ago. Those objectives are still part of current policy discussions and influence the nation's civilian space policy priorities—both in terms of what actions NASA is authorized to undertake and the degree of appropriations each activity within NASA receives. NASA has active programs that address all its objectives, but many believe that it is being asked to accomplish too much for the available resources. NASA was last reauthorized in 2008 for FY2009. Thus, the reauthorization of NASA for FY2010 and beyond, along with a new Presidential Administration, may provide an opportunity for Congress to rethink the nation's space policy. The goals of the nation's investment in space exploration may be a key factor in determining the focus of NASA's activities and the degree of funding appropriated for its programs. Congress and outside experts have concerns as to whether the United States can afford to implement President Bush's Vision for Space Exploration without adversely influencing NASA's other programs. Congress may need to make challenging decisions to determine how to reap the most benefit from the nation's civilian space program investment. These decisions might answer questions such as What are the priorities among the many reasons for U.S. space exploration? For example, what might be the priority ranking among the previously identified reasons as to why the United States might explore space—knowledge and understanding, discovery, economic growth, national prestige, defense, international relations, and education and workforce development? What implications would this prioritization have for NASA's current and future budgets and the balance among its programs? For example, what is the proper balance between human and robotic space activities? What influence might the timing of other countries' space exploration activities have on U.S. policy? For example, what would be the impact of the United States, China, or another country, or a commercial organization, establishing the first Moon base or landing on Mars? New objectives and priorities might help determine NASA's goals. This, in turn, might potentially help Congress determine the most appropriate balance of funding available among NASA's programs during its authorization and appropriation process. For example, if Congress believes that national prestige should be the highest priority, they may choose to emphasize NASA's human exploration activities, such as establishing a Moon base and landing a human on Mars. If they consider scientific knowledge the highest priority, Congress may emphasize unmanned missions and other science-related activities as NASA's major goal. If international relations are a high priority, Congress might encourage other nations to become equal partners in actions related to the International Space Station. If spinoff effects, including the creation of new jobs and markets and its catalytic effect on math and science education, are Congress' priorities, then they may focus NASA's activities on technological development and linking to the needs of business and industry, and expanding its role in science and mathematics education. On October 15, 2008, the NASA Authorization Act of 2008 ( P.L. 110-422 ) was signed into law. This act authorized appropriations for FY2009, and prohibited NASA from taking any steps prior to April 30, 2009, that would preclude the President and Congress from being able to continue to fly the Space Shuttle past 2010. When the law was passed, the Chair of the House Science and Technology Committee stated The [Space Shuttle] provision should not be construed as a congressional endorsement of extending the life of the Shuttle program beyond the additional flight added by this bill to deliver the AMS [Alpha Magnetic Spectrometer] to the International Space Station. Rather, it reflects our common belief that the decision of whether or not to extend the Shuttle past its planned 2010 retirement date should be left to the next President and Congress, especially since both of the Presidential candidates have asked for the flexibility to make that decision. During the 111 th Congress, policymakers may discuss another authorization bill for future years, and identify new priorities for civil space exploration. | The "space age" began on October 4, 1957, when the Soviet Union (USSR) launched Sputnik, the world's first artificial satellite. Some U.S. policymakers, concerned about the USSR's ability to launch a satellite, thought Sputnik might be an indication that the United States was trailing behind the USSR in science and technology. The Cold War also led some U.S. policymakers to perceive the Sputnik launch as a possible precursor to nuclear attack. In response to this "Sputnik moment," the U.S. government undertook several policy actions, including the establishment of the National Aeronautics and Space Administration (NASA) and the Defense Advanced Research Projects Agency (DARPA), enhancement of research funding, and reformation of science, technology, engineering and mathematics (STEM) education policy. Following the "Sputnik moment," a set of fundamental factors gave "importance, urgency, and inevitability to the advancement of space technology," according to an Eisenhower presidential committee. These four factors include the compelling need to explore and discover; national defense; prestige and confidence in the U.S. scientific, technological, industrial, and military systems; and scientific observation and experimentation to add to our knowledge and understanding of the Earth, solar system, and universe. They are still part of current policy discussions and influence the nation's civilian space policy priorities—both in terms of what actions NASA is authorized to undertake and the appropriations each activity within NASA receives. The United States faces a far different world today. No Sputnik moment, Cold War, or space race exists to help policymakers clarify the goals of the nation's civilian space program. The Hubble telescope, Challenger and Columbia space shuttle disasters, and Mars exploration rovers frame the experience of current generations, in contrast to the Sputnik launch and the U.S. Moon landings. As a result, some experts have called for new 21st century space policy objectives and priorities to replace those developed 50 years ago. The Obama Administration has stated that the U.S. must maintain and take full advantage of its technical and strategic superiority in space. Among its proposed actions are closing the gap between retirement of the Space Shuttle and launch of the next generation of space vehicles; strengthening NASA's missions in space science, weather, climate research, and aeronautical research; helping establish a robust and balanced civilian space program, and engaging international partners and the private sector to amplify NASA's reach; re-establishing the National Aeronautics and Space Council, which will report to the President and oversee and coordinate civilian, military, commercial and national security space activities; and ensuring freedom of space. In addition, the administration has decided to conduct an independent review of planned U.S. human space flight activities. The panel's report is to be completed in sufficient time so it will serve as input for Obama Administration's decisionmaking scheduled for August 2009. During the 111th Congress, policymakers may discuss a NASA authorization bill including identifying priorities for U.S. civil space exploration. This might help Congress determine the most appropriate balance of funding for NASA's programs during its authorization and appropriation process. For example, if Congress believes that national prestige should be the highest priority, they may choose to emphasize NASA's human exploration activities. If scientific knowledge is the highest priority, Congress may emphasize unmanned missions and other science-related activities. If international relations are a high priority, Congress might encourage other nations to become equal partners in actions related to the International Space Station. If spinoff effects are of interest, they may focus on technological development and linking to the needs of business and industry, and expanding its role in science and mathematics education. |
In March 2011, AT&T, the largest telecommunications company in the United States by market capitalization, announced an agreement to acquire T-Mobile USA (T-Mobile) from Deutsche Telekom on a debt-free basis for $25 billion in cash and $14 billion in AT&T stock, subject to the approval of the Department of Justice (DOJ) and the Federal Communications Commission (FCC). Post-merger, Deutsche Telekom would own approximately 8% of AT&T's stock. AT&T is the second-largest mobile wireless service provider in the United States; T-Mobile is the fourth-largest. The combined company would be the largest mobile wireless service provider in terms of revenues and number of subscribers. Under the terms of the agreement, if the merger is not consummated AT&T would have to pay Deutsche Telekom and T-Mobile a breakup fee of $3 billion in cash plus access to roaming and spectrum valued at an additional $3 billion. Section 7 of the Clayton Act prohibits mergers if "in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." The burden of proof is on the government to demonstrate that the proposed merger may substantially lessen competition. DOJ collected data and other relevant documents from AT&T, Deutsche Telekom, T-Mobile, and companies that compete with them, which provided the empirical basis for its competition analysis. On August 31, 2011, DOJ filed a complaint with the United States District Court for the District of Columbia seeking to permanently enjoin (block) the merger. DOJ alleged that the proposed transaction "would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products...." AT&T responded that it would "vigorously contest" the complaint. Section 310(d) of the Communications Act requires the FCC to make a finding that any proposed assignment or transfer of control of a radio spectrum license from a licensee to another party would be in the public interest. The burden lies with the applicants to prove the transfer would be in the public interest. AT&T and Deutsche Telekom filed their applications and supporting documentation on April 21, 2011. The FCC's Wireless Telecommunications Bureau (Bureau) put the applications (with business sensitive data redacted) out for public comment on April 28, 2011. Thousands of parties filed public comments in support of or in opposition to the transfer, and more than 50 parties filed petitions to deny the transfer. The FCC also required AT&T, Deutsche Telekom, T-Mobile, and many companies that compete against AT&T and T-Mobile in various markets—and, in particular, Sprint—to provide data and documents with empirical information needed to analyze the competitive and public interest impact of the proposed merger. On November 22, 2011, at the direction of Chairman Genachowski, the Bureau announced publicly that it had circulated for consideration by the full Commission a draft order designating the proposed transaction for an administrative hearing, based on staff analysis concluding that the overall record did not support a positive public interest determination and that material questions of fact remained unresolved. On November 23, 2011, AT&T and Deutsche Telekom filed a letter at the FCC withdrawing the pending applications and, a day later, AT&T issued a press release stating it was withdrawing its applications to facilitate consideration of all options, including re-filing the same applications at a later date. AT&T executives indicated they were likely to re-file the applications once the DOJ lawsuit had been resolved. On November 29, 2011, the FCC issued an order granting the request to withdraw the applications "without prejudice"—allowing the parties to re-file applications at a later date—and concurrently released the staff report that concluded that the merger would result in significant harm to competition and that AT&T and T-Mobile had failed to demonstrate countervailing efficiencies and benefits that would result in the merger, on net, being in the public interest. The DOJ lawsuit was scheduled to go to trial in February 2012. But on December 12, 2011, in response to a request from AT&T and Deutsche Telekom that was agreed to by DOJ, the judge overseeing the lawsuit stayed the lawsuit, thereby delaying the proceedings and giving AT&T and T-Mobile time to sort out their options. The judge required the two companies to file a report to the court on January 12, 2012, "describing the status of their proposed transaction, including discussion of whether they intend to proceed with the transaction at issue in this litigation, whether they intend to proceed with another transaction, the status of any related proceedings at the Federal Communications Commission, and their anticipated plans and timetable for seeking any necessary approval from the Federal Communications Commission." On December 19, 2011, AT&T announced that it had agreed with Deutsche Telekom to end its bid to acquire T-Mobile. Supporters of the proposed merger claim it would create a virtuous cycle: by allowing the combined firm to use its spectrum and network more efficiently, AT&T would expand output, improve service offerings, reduce prices, and spur innovation both on its own part and on the part of competitors. Opponents claim that the merger would create a vicious cycle: by allowing AT&T to consolidate its share of customers and of available spectrum, it would place competitors other than Verizon Wireless in an untenable situation as they could not compete in scale and scope and would not have the same access to innovative handsets from suppliers, who would be motivated to make exclusive or otherwise favorable arrangements with the two giant companies. In recent years, AT&T has been gaining subscribers; it even gained 62,000 subscribers in the first quarter of 2011 when it lost its exclusivity for the Apple iPhone and was expected to lose customers to Verizon Wireless. At the same time, T-Mobile has been losing subscribers. This is in part because AT&T has successfully positioned itself in the submarket that focuses on high-end customers who seek advanced data services and who use advanced smartphones not available from all providers. T-Mobile, in contrast, has focused more on "value customers" who are sensitive to price and who have been very receptive to the low price pre-paid services offered by companies like MetroPCS and Leap. AT&T and T-Mobile have compatible networks that are hybrids of the same older generations of wireless technology—the 2G GSM standard and the 3G UMTS/HSPA standard—and therefore their customers have devices that can be readily modified to work on both networks. AT&T has significant spectrum holdings in four frequency bands. It has large holdings in the lower frequency 700 MHz and Cellular (800 MHz) bands, which are considered "beachfront" property because lower frequency bands "possess more favorable intrinsic propagation characteristics ... [and] can provide superior coverage over larger geographic areas, through adverse climate and terrain, and inside buildings and vehicles." It also has substantial holdings in the PCS (1.9GHz) and AWS (1.7/2.1 GHz) frequency bands. T-Mobile has substantial holdings in the PCS and AWS frequency bands; its spectrum is contiguous to AT&T's spectrum in those bands. In addition, as a major wireline telecommunications carrier, AT&T is a major provider of backhaul facilities that link mobile providers' cell sites to wireline networks in order to carry wireless voice and data traffic for routing and onward transmission. Thus, AT&T provides an essential input to its mobile wireless competitors. Also, AT&T is a major wireline broadband provider at a time of market convergence, as both customers and applications providers are beginning to consider wireline and wireless alternatives as substitutes in an increasing number of situations that require broadband capabilities. In a joint submission to the FCC, AT&T and T-Mobile state that combining their spectrum holdings and networks represents the most efficient way to alleviate each company's largest strategic challenge—AT&T's "network spectrum and capacity constraints" and T-Mobile's lack of a "clear path" to deployment of 4G Long Term Evolution (LTE) network technology, "the gold standard for advanced mobile broadband services"—and that this is the primary motivation for the merger. LTE, which also is being deployed by Verizon Wireless, is viewed by many as the technology of choice for mobile wireless networks seeking to offer advanced broadband services and, in part because Verizon Wireless and AT&T have chosen to deploy it, is the technology that has attracted the most activity by network equipment manufacturers. AT&T and T-Mobile claim that the merger would not lessen competition because, while there are many other strong competitors, T-Mobile already "is not a significant competitive constraint on AT&T" and would be an even less effective competitor in the future since it lacks the ability to effectively and economically deploy 4G LTE on its own. They assert that the merger would turn two companies that currently are capacity-constrained into one "efficient capacity-enhancing combination" that would have the incentive to increase output, improve quality, and lower prices. Most notably, AT&T claims the merger "will enable it to deploy LTE to more than 97% of Americans—approximately 55 million more Americans than under AT&T's current plans" to build out its LTE network to just 80% of Americans. While AT&T has not made the claim, others argue that the proposed merger manifests AT&T's conclusion that the federal government is unable to adopt in a timely fashion the spectrum policy changes needed to make additional spectrum available for mobile wireless services. DOJ claims the merger likely would lessen competition for consumer mobile wireless telecommunications services—from the perspective of consumers, in 97 local markets, and from the perspective of suppliers, in the national market—and also would lessen competition in the national market for enterprise and government wireless telecommunications services. It claims actual and potential competition between AT&T and T-Mobile would be eliminated; competition in general likely would be lessened; prices likely would be higher than otherwise; the quality and quantity of services likely would be lower than otherwise due to reduced incentives to invest in capacity and technology improvements; and innovation and product variation likely would be reduced. DOJ asserts that the merging parties cannot demonstrate merger-specific, cognizable efficiencies sufficient to reverse the acquisition's anticompetitive effects. More specifically, DOJ claims that T-Mobile has positioned itself, both historically and currently, as the value option for wireless service, focusing on aggressive pricing, value leadership, and innovation, describing itself as "the No. 1 value challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market." DOJ asserts that an internal T-Mobile document identifies its numerous "firsts" in the U.S. mobile wireless industry as an innovator in terms of network development and deployment. DOJ also claims internal AT&T documents identify competitive pressure from T-Mobile's innovation. It states that T-Mobile has brought in new management that seeks to reposition the company as the carrier to "make smart phones affordable for the average US consumer." DOJ contends that the elimination of T-Mobile as a competitor would result in a significant loss of competition in 97 cellular market areas in the United States and some loss of competition in the other local cellular market areas. DOJ adds that although consumers make choices within their local markets, suppliers make choices at a national level and thus it also is necessary to review the competitive impact on the consumer market at the national level. It further claims that as part of its 2011 business plan, T-Mobile re-dedicated itself to becoming a bigger player in the enterprise market and contends that the removal of one of only four national firms capable of competing for large enterprise and government projects would reduce the incentive for any of the three remaining companies to submit low competitive bids. The FCC's public interest standard for reviewing the proposed merger is much broader than DOJ's standard and is not limited to competition analysis. For example, Congress instructed the FCC to construct a national broadband plan to "seek to ensure that all people of the United States have access to broadband capability." Thus, to the extent that the FCC finds that the proposed merger would in fact allow AT&T to deploy its broadband 4G LTE network more widely than otherwise, that finding could counter projected anticompetitive effects of the proposed merger in the FCC's public interest determination. Similarly, the FCC has identified the goal of increasing broadband adoption, especially by rural, minority, and low income households that have had low adoption rates for wireline broadband services. To the extent that these households are more likely to purchase wireless broadband services than wireline services, and the proposed merger would increase the availability of wireless broadband, the FCC can be expected to explicitly consider that in its public interest analysis. A number of merger opponents have filed Petitions to Deny the merger at the FCC. The most extensive petition was filed by Sprint, which provided detailed arguments, data, and economic studies in support of its contention that the proposed merger would not be in the public interest. In addition, Sprint and Cellular South have brought private antitrust suits, seeking to enjoin the merger. AT&T and T-Mobile moved for dismissal of those suits, but the court ruled that both companies can make claims of possible business damages caused by the proposed merger. Judge Huvelle concluded that "where private plaintiffs have successfully pleaded antitrust injury, the fact that they are defendants' competitors is no bar" and thus have standing. The various petitioners argue that the merger would result in two firms—AT&T and Verizon Wireless—sharing more than 70% of the market as well as the lion's share of the spectrum that provides the highest quality mobile wireless service, which the former Bell companies would be able to leverage in their dealings with device suppliers to place other mobile wireless service providers at a competitive disadvantage. These opponents claim that allowing AT&T to own such a large portion of mobile wireless spectrum—especially in conjunction with AT&T's pending acquisition of mobile wireless spectrum from Qualcomm—"would further empower an already dominant wireless carrier to leverage its control over devices, backhaul, and consumers in ways that stifle competition." They further argue that any market challenges AT&T and T-Mobile face are the result of their own strategic decisions and, in particular, the result of anticompetitive AT&T strategies intended to weaken T-Mobile by denying it (and other providers) access to the iPhone and to data roaming at reasonable rates. They argue that a combined entity would be in an even stronger position to weaken its competitors, especially if it obtained T-Mobile's valuable spectrum holdings. According to one estimate, AT&T, T-Mobile, and Verizon Wireless combined have 72% of U.S. mobile wireless subscribers and 76.4% of mobile wireless revenues. Their share of those customers who purchase service using post-paid contracts (typically of one to two years) is greater, perhaps 79%. Tycoon Research, an investment research firm, confirms that AT&T and Verizon generate more revenues per subscriber than most industry providers, as shown in Table 1 . Interestingly, the companies that target price-sensitive customers and have lower revenues per user also tend to experience higher churn rates—the percentage of customers who leave the carrier in a month. This is not surprising as these companies compete on price more than on product features and thus there tends to be less customer loyalty to a specific product or provider. In this section, AT&T's arguments in support of the proposed merger are presented without discussion. Unfortunately, most of the data that AT&T uses to support its arguments are redacted from the documentation that is publicly available or available to CRS and therefore, to a great extent, it is not possible for CRS to verify that the empirical evidence provided in fact supports the claims. AT&T claims that it faces a unique spectrum shortage not shared by its competitors. Because it has been a leader in the mobile wireless industry and in wireless innovation—and has a larger portion of customers who use spectrum-hungry data applications on smartphones—it is "on the leading edge of the mobile traffic growth curve." AT&T's mobile data volumes increased by 8000% from 2007 to 2010. Further, unlike its competitors, AT&T has deployed three different generations of technology in its network and must continue to dedicate a significant portion of its spectrum to maintaining all three during its transition to state of the art LTE technology, which severely limits its flexibility to use its spectrum with optimum efficiency. In contrast, while its competitors may eventually face similar spectrum constraints, AT&T claims that they currently have access to sufficient spectrum and the FCC is likely to have reallocated additional spectrum to mobile wireless use before the spectrum shortage becomes a problem for them. AT&T has attempted to address its network-capacity challenges by adding thousands of cell sites to extend and deepen its network and by deploying indoor and outdoor distributed antenna systems and Wi-Fi hotspots and hotzones to offload traffic from AT&T's mobile broadband network, but these are "short-term and expensive patches" that do not resolve the fundamental capacity problem. Absent a more robust solution to its spectrum shortage, AT&T's customers would face a greater number of blocked and dropped calls, less reliable and slower data connections, and, in some markets, no access to more advanced technologies, such as LTE. Although T-Mobile does not face an immediate spectrum shortage, it has "no clear path to an effective, economical deployment of LTE," which is a spectrum-efficient technology that is setting a new standard for wireless deployment. It too faces projected growth in customer demand for spectrum-intensive data services that is likely to require all of its existing spectrum and, like AT&T, it currently serves its customers using relatively inefficient GSM technologies and cannot abandon those legacy customers by reassigning the spectrum they use to support a new LTE network. T-Mobile will require additional spectrum to be able to deploy LTE. But its parent company, Deutsche Telekom, has made the business decision to focus on its core business in Europe and will not provide the billions of dollars in investment capital needed to acquire the additional spectrum. The merging companies describe the transaction as providing "the most effective, efficient, and timely solution of the capacity constraints facing AT&T and T-Mobile USA." Their spectrum and networks are "uniquely complementary": they have contiguous and compatible spectrum assets, both use GSM/HSPA technologies, and they have well-matched cell site grids that would yield substantial synergies. This would allow them to push back the date of an expected spectrum crunch in many markets, which would provide the additional time needed to migrate from GSM to LTE technologies. The "combined network will far exceed the sum of its parts," thus allowing for increased overall output, to the benefit of consumers. Neither firm could realize similar efficiencies if acting alone. In particular, the combination would allow for: Network capacity expansion through the integration of AT&T and T-Mobile cell sites. Better use of spectrum through the elimination of redundant control channels. Pooled (and hence more efficient) usage of the radio channels connecting handsets with the network. Tying up less spectrum for the two companies' legacy GSM networks, since their GSM customers could share that otherwise underutilized spectrum. Additional spectrum available for more spectrally efficient LTE services. AT&T claims that these efficiencies would allow the combined company to offer LTE in some markets where neither company could have offered it separately and, more broadly, would provide benefits for consumers by increasing overall output, producing better services, and resulting in more competitive prices than would prevail absent the merger. AT&T customers would experience fewer dropped and blocked calls, better in-building and in-home coverage, and faster and more reliable data services, particularly during peak periods. They also would benefit from T-Mobile's industry-leading customer care practices. AT&T also claims that the merger would allow it to expand its deployment of LTE to reach 97% of the U.S. population versus the 80% it would reach absent the merger. The LTE services would support such applications as telemedicine, video conferencing, and online gaming. According to the submission, T-Mobile customers, who are unlikely to get LTE services absent the merger, would not only enjoy the benefits that would accrue to AT&T customers, but also would gain access to a broader range of current devices, such as the iPhone and iPad, as well as faster access to the next generation of devices. T-Mobile customers also would gain access to the much fuller range of rate plans that AT&T offers. AT&T claims that alternative solutions to the two companies' capacity challenges would be far inferior. They are costly, prone to lengthy delays, and would not provide the benefits and efficiencies of the merger. These alternatives include adding cell sites, deploying distributed antenna systems and Wi-Fi hotspots and hotzones, redeploying existing spectrum, and adding spectrum through purchase or lease. For example, AT&T argues that the spectrum it currently is purchasing from Qualcomm is one-way spectrum that cannot be integrated into two-way wireless technologies to supplement downlink capacity until the technical specifications for doing so in LTE are developed in 2012, after which equipment manufacturers would then need substantial time to design, test, and build the relevant equipment. Thus, the spectrum likely would not be available until 2014 at the earliest. AT&T further claims that the merger would advance U.S. broadband and high tech goals because it "gives the combined company the necessary scale, scope, resources, and spectrum to deploy LTE" more widely, "thereby stimulating economic growth and thousands of jobs." Moreover, this broadband expansion would not require any expenditure of public funds and much of it would be in rural areas that currently have limited access to broadband services. LTE's low latency rate (the time it takes for a signal to travel from one point to another in a network) is especially useful for delay-sensitive online applications such as distance learning, video conferencing, remote medical monitoring, real-time patient examinations by doctors in multiple locations, and complex gaming systems played simultaneously by thousands of users. AT&T claims the merger and LTE deployment also would create a virtuous cycle of investment and innovation in cloud computing, networks, operating systems, and mobile applications, helping to preserve America's global leadership. It further claims that expansion of LTE deployment would help close the digital divide because wireless is the only broadband technology for which minority adoption and usage levels are above the national average. AT&T also states that the merger would enhance public safety by allowing AT&T to build on its experience in disaster management. AT&T argues that the merger would preserve and promote competition because the combined entity would have the ability and incentive to exploit the resulting spectrum and network efficiencies to expand capacity and output and provide strong price competition, while competing firms do not face spectrum constraints and thus would continue to provide the dynamic competition that characterizes the mobile wireless market today. According to AT&T, the mobile wireless market is characterized by accelerating growth in industry output; rapid improvements in the quality of mobile wireless services, devices, mobile broadband applications, and networks; falling prices as market consolidation allows the remaining providers to exploit economies of scale; continued investment in advanced network infrastructure; billions of dollars in advertising expenditures to differentiate products; and fierce competition based on price, service quality, speeds, devices, and operating systems. AT&T argues that the mobile wireless marketplace would remain highly competitive following the merger because three-quarters of Americans live in areas that would still be served by at least four facilities-based providers. They also will have access to mobile virtual network operators (MVNOs), such as TracFone, that do not have their own networks but resell the spectrum of wholesale service providers. In addition, LightSquared, which has announced plans to begin deploying a nationwide 4G LTE network in the second half of 2011, upon resolution of GPS interference issues, already has struck deals with Best Buy and other retailers to be a wholesale service provider. Although it will not be a retail provider, it could be an important source of spectrum for new and growing retail service providers. AT&T also asserts that it is not a close competitor with T-Mobile, and that other providers, notably Sprint, MetroPCS, and Leap are more effective competitors than T-Mobile, so the departure of T-Mobile from the market would have minimal competitive effect. Moreover, it claims that the creation of an efficient capacity-enhancing combination to replace two capacity-constrained providers creates market incentives for the firms to pursue expanded output, higher quality, and lower prices. AT&T explains how DOJ should perform its antitrust analysis. It proposes that the relevant product market that DOJ employ for its antitrust analysis be "the provision of mobile broadband services using more recent and advanced networks (e.g., 3G, 4G) and the provision of mobile and voice and data services over earlier generations of wireless networks as part of a combined mobile telephone/broadband service market" and that the relevant geographic market be local rather than national. It explains that while there are major providers that are regional in the sense that they have networks and recruit customers in only a portion of the country, they have entered into wholesale roaming agreements throughout the country in order to offer nationwide service plans that provide "seamless coverage in most or all population centers throughout the United States, generally without retail roaming fees." These providers, according to AT&T, compete in the same product market as carriers that market nationally, but compete in only some of the local geographic markets. AT&T also provides guidance to the FCC in its public interest analysis. Since the FCC only reviews mergers that involve the transfer of radio spectrum licenses, it has constructed a "spectrum screen" as a tool to determine whether additional scrutiny is needed of a proposed merger in which the spectrum represents an essential input. In past merger reviews involving mobile wireless services, the FCC designed a screen that included spectrum bands designated for cellular, Personal Cellular Service (PCS), Specialized Mobile Radio, and 700 MHz services, as well as AWS-1 and 55.5 MHz of Broadband Radio Services (BRS/EBS) spectrum where available. AT&T argues that the screen, as currently defined, substantially overstates potential threats to competition because it excludes much of the spectrum currently available for mobile telephony and broadband services. It proposes that 90 MHz of mobile satellite service (MSS/ATC) spectrum be included in the screen because MSS/ATC providers soon will provide similar mobile services. It also proposes that all 194 MHz of BRS/EBS spectrum (not just the 55.5 MHz it has considered before) be included because the BRS/EBS transition is complete in most areas of the country and because Clearwire and its partners (including Sprint and Time Warner Cable) are making widespread use of WiMAX service throughout the country, passing more than 100 million people. Using its proposed market definition and spectrum screen, AT&T identifies strong competition from many sources: Verizon Wireless, currently the largest mobile wireless service provider, competes with AT&T in almost every local market, is aggressively deploying 4G LTE, does not face the same spectrum constraints as AT&T, and targets AT&T in its advertising by asserting that its network is superior to AT&T's more congested network. Sprint, currently the third-largest mobile wireless service provider, which AT&T claims has reversed recent negative trends and is increasing the number of subscribers, scores well in customer satisfaction surveys, offers a wide array of popular handsets that use Google's stack of software (operating system, middleware, and key mobile applications), enjoys a strong spectrum position in conjunction with Clearwire (in which it has a majority ownership stake), was the first to market with a 4G product using Clearwire's WiMAX network, and offers "aggressively priced unlimited data plans." MetroPCS and Leap, industry mavericks that "each offer unlimited voice and data plans to value-oriented customers at low rates and on a no-contract basis," and that are now taking away customers from AT&T, Verizon, Sprint, and T-Mobile, the four national providers that generally have focused on offering "postpaid contract" service. MetroPCS has expanded beyond the voice market and now offers LTE services in a number of large markets, seeking to offer what one analyst has characterized as "the best value for data at the high-end." U.S. Cellular, Cellular South, Allied Wireless, Cincinnati Bell, and Cox Communications all market mobile wireless services in portions of the United States. Clearwire, owned by a consortium of Sprint, Comcast, Time Warner Cable, Intel, Google, and Bright House Networks, is the largest holder of spectrum in the United States, and uses its spectrum in the 2.5-2.6 GHz band to offer retail 4G data services and to supply wholesale inputs to 4G WiMAX retail providers such as Sprint, Time Warner Cable, Comcast, and Best Buy. LightSquared intends to use spectrum previously assigned to satellite use to deploy a nationwide 4G LTE network in the second half of 2011, upon resolution of GPS interference issues, with the aim of reaching 100 million people by year-end 2012 and 260 million by year-end 2015. It has entered into a long-term 4G roaming agreement with Leap. LightSquared announced an agreement to lease spectrum to Open Range, a wireless broadband provider in rural communities, and has entered into a wholesale arrangement with Best Buy. AT&T concludes its public interest showing by claiming that the transaction poses no prospect of either anticompetitive coordination among the providers that would remain in the market after the merger takes place or anticompetitive unilateral effects on the part of the combined AT&T/T-Mobile. It argues that anticompetitive coordination is not possible because (1) wireless markets are characterized by many heterogeneous firms with many different service plans and diverse market positions, competing on multiple dimensions—price structures, service quality, operating systems, and devices; (2) wireless markets are characterized by both strong demand and rapid technological flux, which would make coordination among firms very difficult; (3) wireless markets are prone to disruption by maverick firms, such as MetroPCS and Leap, which have effectively distinguished themselves from Verizon and AT&T on the basis of price; and (4) the geographically local nature of wireless markets—different competitors, of different sizes, in each market—would preclude any nationwide coordination arrangement. AT&T argues that there is no basis for concern that the merger would have anticompetitive unilateral effects because (1) the merger, by eliminating the capacity constraints on AT&T and T-Mobile, would result in greater output and lower prices than would exist otherwise; (2) T-Mobile does not currently have the ability to constrain AT&T's behavior and "the two brands serve substantially different groups of subscribers"; and (3) the threat of new entry by LightSquared, Cox, Time Warner Cable, and others minimizes any concerns about unilateral effects. AT&T also indicates that it is instructive to look at markets in Western Europe and Japan, which tend to be dominated by top-two competitors that have combined market shares ranging from 70% to 78%. AT&T claims such large combined market shares reflect foreign regulators' recognition of the consumer benefits from economies of scope and scale. Competitors and other critics of the proposed AT&T/T-Mobile merger have filed with the FCC Petitions to Deny the license transfers. This section presents some of the arguments against the proposed merger without discussion. The critics take exception to AT&T's characterization of T-Mobile as stuck somewhere between the high-end providers (AT&T, Verizon Wireless, and Sprint) and the value-driven providers (MetroPCS, Leap) and unable to carve out its own niche. In fact, T-Mobile is a national provider that offers high-end service, as demonstrated by its television commercials comparing the speed of its network to those of AT&T and Verizon Wireless. Its high-end service at comparatively low prices constrains the ability of AT&T and Verizon Wireless to raise prices to their relatively price inelastic customers. The proposed merger would eliminate this important option for consumers. Critics also contend that the proposed merger would leave Sprint as the only remaining national provider to compete with AT&T and Verizon Wireless. But Sprint would be less than half the size of either of its competitors. In addition to facing significant network scale disadvantages, it would have an increasingly difficult time securing handset arrangements with manufacturers comparable to those of its two dominant rivals. Sprint will be depending on Clearwire's 4G WiMAX network as an alternative to the LTE networks used by AT&T and Verizon Wireless, but with the dominant carriers deploying LTE it will be more difficult to attract the manufacturers and funding needed to develop WiMAX compatible equipment. (Sprint/Clearwire defensively claim it will be possible to migrate from WiMAX to LTE, if necessary, but that is not proven.) Another stated objection to the proposed merger is that smaller competitors will be hard-pressed to compete in the high-end market. AT&T claims that MetroPCS, Leap, and others will be able to migrate from the value-driven to the high-end submarket, where their presence will serve to restrain prices. But these companies will face a myriad of challenges, including access to comparable handset arrangements with manufacturers and access to data roaming, that will be at least influenced by, if not in the control of, AT&T and Verizon Wireless. And they will have to compete using spectrum with inferior propagation characteristics for mobile wireless transmission, for which network equipment manufacturers may have little incentive to develop network equipment. For all of these reasons, critics have voiced concern that if the proposed merger goes through, leaving two wireless behemoths, the remaining providers will be under great pressure to seek partners to provide the scale needed to have any opportunity to compete. And some speculate Verizon Wireless might even try to acquire Sprint in an ongoing vicious cycle. Some commenters also have taken exception to AT&T's argument that the market concentration in overseas mobile wireless markets, where the top two providers have between 70% and 78% of the market, shows that such concentration is not undesirable. Those markets are far smaller than the U.S. market and therefore cannot support as many providers at efficient scale. The large U.S. market, on the other hand, could readily accommodate more providers without the loss of scale economies that benefit consumers. The mobile wireless industry is characterized by economies of scale and scope. In a static market, it would be less costly and/or more efficient to build out and operate a single network instead of multiple networks with partially duplicative facilities; to give a single provider use of a large block of spectrum rather than giving a number of providers use of a subset of that block; and to design and mass-produce a single suite of handsets rather than making handsets for smaller groups of customers using many different standards and network technologies. In a dynamic market with rapidly changing technology, however, the claims of scale economies must be weighed against the possibility that any lessening of competition will lessen pressure for innovation and cost and price restraint. Consolidation that gives one or two providers a dominant share of the market and of the available spectrum may promote static efficiency, but it may undermine dynamic efficiency. Spectrum is an essential input into mobile wireless service. Indeed, AT&T identifies its shortage of spectrum in certain key markets as the primary motivation for the proposed merger. Over time, as it has projected future growth in demand for mobile wireless services, the FCC has made additional spectrum available for that use. It is in the midst of making additional spectrum available due to its expectation that there will be explosive demand growth for mobile wireless data services. While spectrum is an essential input for mobile wireless service, the amount of mobile wireless traffic that can be accommodated by a given amount of spectrum is not fixed. With greater investment in network facilities, such as cell sites, a given amount of spectrum can handle more traffic. It also is possible to innovate around spectrum constraints, again to support a greater amount of traffic with a given amount of spectrum. Thus, throwing spectrum at a perceived shortage might relieve a short-term problem but it also might provide a disincentive for investment in efficient network facilities and for innovation that increases the productivity of existing spectrum and facilities. Of course, if the additional spectrum would otherwise lie fallow, then both the societal costs and the private costs associated with additional network investment in cell sites would be greater than those associated with making use of the spectrum. But if the additional spectrum is obtained by merger, it is unlikely to otherwise lie fallow. In the short run, when the amount of spectrum available is fixed, there may be risks associated with allowing a small number of providers to aggregate a large portion of the available spectrum and thus limiting the amount of spectrum available for other providers to enter and/or grow. One firm's attempt to control a large amount of spectrum, perhaps so that it can save on network capital expenditures, can affect the availability of spectrum to other providers, potentially depriving them of scale economies. It also can exacerbate existing disincentives for handset suppliers to serve smaller service providers as well as they serve the larger ones. After the introduction of spectrum license auctions as the primary method of assigning spectrum rights, the FCC employed a "spectrum cap." Under this cap, no entity could control more than 45 megahertz of the 190 megahertz of Cellular, SMR, and broadband PCS spectrum then available for mobile wireless use. This limit was intended to preserve competitive opportunities, retain incentives for innovation, and promote the efficient use of spectrum. The FCC eliminated the spectrum cap beginning in 2003 and now uses a case-by-case market analysis of proposed mergers. It employs a "spectrum screen" that triggers more intensive review in those markets in which the merged entity would hold more than one-third of the available spectrum. As mentioned earlier, AT&T has proposed that certain spectrum that is now potentially available for mobile wireless use be added to the pool of spectrum that provides the basis for the spectrum screen calculation. Table 2 and Table 3 and Figure 1 reproduce Table 25 and Table 26 and Chart 40 from the FCC's Fourteenth Mobile Wireless Competition Report. They provide information about the mobile wireless spectrum holdings of the various retail and wholesale mobile wireless providers. Three carriers—Verizon Wireless, AT&T, and Sprint Nextel—hold the bulk of the low frequency spectrum available for mobile wireless, but Clearwire has a huge amount of spectrum in the 2.5 GHz band and T-Mobile (as well as AT&T, Verizon Wireless, and Sprint Nextel) has a significant amount of PCS and AWS spectrum in the 1.7-2.1 GHz range. In reviewing the FCC data, it is important to take into account the different capabilities of the different frequency bands. The FCC found that: Low-band spectrum can enable the same level of service, at a lower cost, than higher-frequency bands, such as 1.9 the GHz PCS band, the 1.7/2.1 GHz AWS band, and the 2.5 GHz BRS/EBS band. A licensee that exclusively or primarily holds spectrum in a higher frequency range generally must construct more cell sites (at additional cost) than a licensee with primary holdings at a lower frequency in order to provide equivalent service coverage, particularly in rural areas. The National Institute of Standards and Technology (NIST) developed a propagation model comparing the 700 MHz, 1.9 GHz, and 2.4 GHz spectrum bands. It concluded that the favorable propagation characteristics meant that coverage using the same transmission power differed significantly, translating into the need for less infrastructure: while it required nine cells at 2.4 GHz and four cells at 1.9 GHz to span 100 meters squared, it was projected to require only one cell at 700 MHz. Similarly, an analysis using the Okumura-Hata model shows that rural, suburban, and urban cell sizes at 700 MHz are more than three times larger than cells in the PCS band. [footnotes omitted] In reviewing the available spectrum and its characteristics, the FCC concluded: spectrum resources in different frequency bands have distinguishing features that can make some frequency bands more valuable or better suited for particular purposes. For instance, given the superior propagation characteristics of spectrum under 1 GHz, particularly for providing coverage in rural areas and for penetrating buildings, providers whose spectrum assets include a greater amount of spectrum below 1 GHz spectrum may possess certain competitive advantages for providing robust coverage when compared to licensees whose portfolio is exclusively or primarily comprised of higher frequency spectrum. As discussed above, holding a mix of frequency ranges may be optimal from the perspective of providing the greatest service quality at low cost. Some observers have compared the spectrum holdings and market shares of AT&T and Verizon Wireless and, finding them relatively similar, have wondered why AT&T is complaining of a spectrum shortage and its customers in key cities are experiencing dropped calls and slow data speeds while Verizon Wireless is not having those problems. One critic alleges that "AT&T is today sitting on more spectrum than any other wireless operator in the top 21 markets in the U.S., and about a third of that spectrum is still being unused." AT&T has explained its unique situation: still having to allocate much of its spectrum to customers served by 2G and 3G technologies and thus not having that spectrum available to handle the growth in data traffic, and having borne earlier than others the brunt of the rapid growth in spectrum-hungry data services through its initially exclusive contract with Apple for the iPhone. But, according to one commenter, AT&T began to experience congestion problems when it introduced the iPhone in 2007, yet it increased its wireless capital expenditures by only 1% in 2009 while Verizon Wireless increased its wireless capital expenditures by 10% and, in total, had lower capital expenditures than Verizon Wireless. This has occurred at a time when industry capital expenditures have been a falling portion of revenues. From AT&T's perspective, the proposed merger may be the most efficient way to expand its capacity. But from a public policy perspective, AT&T's private efficiencies may not outweigh the potential consumer harm from concentrating spectrum in a few hands. AT&T states that it experienced 8,000% growth in data traffic between 2007 and 2010 but now projects that mobile data growth in its network in 2015 will be only 8 to 10 times what it was in 2010. With this slower projected growth in data traffic, one of the questions the FCC is likely to consider is whether AT&T should be expected to address its capacity shortage issues through network capital investment rather than through the acquisition of additional spectrum. In its submission, AT&T claims that the FCC understates the total amount of spectrum available for mobile wireless use because it does not take into account in its spectrum count its decisions that will allow 90 MHz of mobile satellite service (MSS/ATC) spectrum and all 194 MHz of the BRS/EBS spectrum to be available for such use. It states that LightSquared is already taking contracts to provide wholesale spectrum from the MSS band (though interference problems involving GPS have not yet been resolved and may well delay mobile wireless use of that spectrum) and that Clearwire and its partners are making widespread use of WiMAX using the BRS/EBS band. Inclusion of this additional spectrum would add columns to Table 2 and Table 3 and Figure 1 and would yield lower market shares for existing firms, such as AT&T and T-Mobile, that do not have holdings in those spectrum bands. But AT&T's proposed change in the spectrum screen does not take into account the challenges and likely delays in making the new spectrum available for use. In its submission, AT&T explains how the 700 MHz spectrum that it is purchasing from Qualcomm (subject to DOJ and FCC approval) "likely will not be available until 2014 at the earliest" because of the need to develop technical specifications and for equipment manufacturers to design, test, and build the relevant equipment. If AT&T projects a long lag before the 700 MHz spectrum will be available for use, then it would seem that an even longer lag is probable before the LightSquared spectrum is available, for the following reasons: The 700 MHz spectrum was auctioned long before the MSS band was made available for mobile wireless use, so there have been standards and other developments made in the 700 MHz band that have not yet been addressed in the MSS band. The MSS spectrum faces potentially daunting interference problems that GPS users (including national security and public safety entities), AT&T, T-Mobile, and others all will have the incentive to ensure are fully resolved before allowing mobile wireless usage of that spectrum. The propagation properties in the 700 MHz band are better than those in the 1.5-2.2 GHz MMS band, so the network capital investment needed for comparable capacity in the latter will be greater than that for the former. Equipment manufacturers will have far less incentive to expeditiously develop handsets and other equipment for firms (such as those using the LightSquared spectrum) with small market shares than for established firms with large market shares. Equipment manufacturers will have less incentive to expeditiously develop equipment for spectrum that has not yet proven itself in the mobile wireless market. Given these market, regulatory, and standards issues, the lag before the newly available high frequency spectrum is available may be far greater than the lag for the Qualcomm spectrum. If this is the case, it may be premature to give full weight to that new spectrum when constructing a spectrum screen for competition analysis. Network infrastructure facilities consist of cellular base stations and towers or other structures on which the base stations are situated. Base stations consist of radio transceivers, antennas, coaxial cable, a regular and a backup power supply, and associated electronics. In addition, switches are needed to connect cell sites, gateways to access other networks, authentication capabilities, and back-office capabilities such as billing and customer service. Often it is most efficient for a new or expanding wireless carrier to co-locate its base station equipment on an existing structure. Many towers are owned by specialist providers rather than by telecommunications companies. The communications tower industry is fairly competitive; new or expanding providers are unlikely to be at a competitive disadvantage except to the extent that the most desirable positions for antennas on towers are already occupied, leaving only sub-optimal positions. The proposed merger is likely to have little impact on the availability of tower space. The merger might allow the combined company to consolidate some antennas currently in sub-optimal positions to better positions. To the extent that AT&T and T-Mobile antennas can be consolidated, that might free better tower placements for competitors. DOJ and especially the FCC, for which a primary goal is universal access to broadband, have demanded and are reviewing detailed information about the LTE network AT&T plans to deploy, including the robustness of the network. One issue facing the FCC is how the proposed merger might affect AT&T's incentives to invest in its network infrastructure. AT&T claims that, if allowed to merge, it would build out its LTE network to "more than an additional million square miles, which equates to more than one-third of the land mass of the contiguous United States." Much of that deployment will be in areas with low population density and therefore relatively high cost per customer. But, if the FCC finds merit in the criticisms that AT&T's purported capacity problems stem in part from its failure to invest sufficiently in its network, the FCC may be especially concerned to evaluate how likely the combined company would be to perform the LTE build out and provide high-quality service throughout its large service area. The FCC and DOJ are likely to explore whether the proposed merger would deplete the cash available for the new entity's proposed LTE deployment. The FCC's Fourteenth Mobile Wireless Competition Report shows that in 2009, the latest year for which data were available, AT&T had capital expenditures of slightly less than $6 billion and T-Mobile had capital expenditures of more than $3.5 billion. Under the terms of the proposed merger, AT&T will have to pay Deutsche Telekom $25 billion in cash. AT&T states that the "the consolidation of these two companies is projected to produce operational savings and other costs synergies exceeding $39 billion, with annual savings of approximately $3 billion starting in year three." Even with the projected savings, it is unclear how AT&T will finance the proposed network buildout. In its submission, AT&T includes as viable competitors carriers (such as MetroPCS, Leap, U.S. Cellular, and Cellular South) whose networks are regional or local, and which market regionally or locally, but which offer nationwide service to subscribers who travel beyond the physical reach of their network. These carriers can only offer such nationwide service if they can purchase roaming services from other carriers that serve the geographic areas beyond their networks. But some carriers have refused to provide such data roaming or have failed to reach agreement with requesting carriers. For example, T-Mobile has publicly complained that AT&T—which is the primary carrier using the same technology and therefore the carrier it must rely upon for roaming arrangements—has refused to agree to reasonable arrangements. In April 2011, the FCC adopted an order requiring facilities-based providers of commercial mobile data services to offer data roaming arrangements to other such providers on commercially reasonable terms and conditions, subject to certain limitations. Both Verizon Wireless and AT&T—and two FCC commissioners who dissented from the order—claim that the FCC does not have the authority to impose these data roaming requirements because data roaming is considered a "mobile service" under the Communications Act, but not a "commercial mobile service or the functional equivalent of a commercial mobile service," and therefore Section 332(c)(2) of the act prohibits the Commission from subjecting the provision of data roaming to common carrier regulation. In May 2011, Verizon Wireless filed a notice of appeal in the U.S. District Court of Appeals for the District of Columbia Circuit. In its opposition to the FCC requirement that it negotiate data roaming arrangements, AT&T has stated that it would not build out its network to unserved areas if the result is that other carriers could simply negotiate roaming arrangements to use that network rather than building out their own networks. This would not be consistent with its stated intention in its merger submission to build out its LTE network to 97% of Americans. If the courts determine that the FCC cannot make data roaming a requirement, AT&T potentially could refuse to reach data roaming arrangements in those rural areas where it builds out its LTE network. Backhaul facilities link mobile providers' cell sites to wireline networks to carry wireless voice and data traffic for routing and onward transmission. The backhaul market is projected to grow to $8 billion-$10 billion in the next few years, primarily due to the growth in wireless data traffic. There are three major technologies for backhaul transmission: copper lines, microwave, and optical fiber. Most backhaul is carried over copper lines, but both microwave and optical fiber are gaining share. The backhaul service providers are incumbent local exchange carriers, independent wireline companies, cable providers, and independent wireless operators. Wireless providers may purchase special access services—that is, services that do not use local switches must instead employ dedicated facilities that run directly between two designated locations—from third parties for backhaul. AT&T and Verizon control most of the special access lines. The FCC has a proceeding that has been open for more than six years on special access prices. Sprint and T-Mobile have been among the parties pushing hardest for the FCC to take action on special access rates, while AT&T and Verizon have been opposed to FCC intervention. It appears that carriers are interested in transitioning to packet based services and existing facilities may be transitioned to IP technology to address increased demand at particular sites. According to the FCC, "Evolving technologies may provide wireless carriers with more alternatives to using special access services, including their own facilities." In the short run, however, AT&T is one of the major providers of essential backhaul facilities to mobile wireless providers. In its Petition to Deny, Sprint states that wireless carriers that are independent of AT&T and Verizon would prefer to obtain their backhaul services from companies other than those two companies with which they compete. The proposed merger would eliminate T-Mobile as a potential purchaser of alternative backhaul service and thus reduce the incentive for backhaul providers or potential new ones other than AT&T and Verizon to invest in backhaul facilities, leaving the independent wireless carriers ever more dependent on the two former Bell companies. Sprint argues that the merger therefore would increase AT&T's and Verizon's incentive and ability to raise special access rates for backhaul and other services. If AT&T and Verizon do not account for most or all of the growth in demand for backhaul services projected by the FCC, however, there might still be incentives for other companies to invest in backhaul facilities. Consumer surveys show that handsets and devices play an increasingly important role in the mobile wireless market. A Consumers Union report states that in 2008 and 2009, 38% of the respondents who had switched providers did so because it was the only way to obtain the handset that they wanted. At the same time, the number of handset manufacturers and number of handset models offered are increasing, as innovative smartphones are taking over an increasing share of the market. Handsets and devices must use technological standards that are compatible with the wireless network used by the consumer, thus most manufacturers make separate suites of handsets for each network technology. In turn, mobile wireless service providers must carry diverse handset portfolios and offer their customers a wide selection of handsets. Two business models have become increasingly important and tie together the handset and services markets. One is the bundling of wireless service subscriptions with the purchase of handsets. The other is exclusive handset arrangements. In a bundling contract, a provider conditions the sale of a handset upon the consumer's agreement to purchase wireless service subscription for a minimum of one or two years. The handset and service plan are sold as a single bundled product, with the price of the handset distributed over the length of the subscription. Service providers enforce these contracts by "locking" subsidized devices so they cannot be easily ported to a competitor's network and by charging early termination fees for subscribers who break the contract early. Although wireless service plans are available without bundled contracts, the subsidized rates for the device generally make the bundled offer more appealing to consumers. As handsets have become more sophisticated and more expensive, and thus if purchased separately would impose a greater upfront cost, this type of bundling and contract has become increasingly attractive to high-end consumers. A stronger distinction seems to be developing between these high-end consumers and value customers who might prefer the additional applications and capabilities provided by smartphones but who remain sensitive to price and increasingly are choosing pre-paid or pay-as-you-go plans. Those latter are likely to provide smaller handset subsidies than prepaid plans, reflecting the fact that prepaid plans tend to have higher churn rates than post-paid plans. With this market bifurcation, the carriers serving the high-end market are relatively protected from the price competition that prevails in the value market. In exclusive handset agreements (EHA), a handset manufacturer agrees to sell a particular handset model to one and only one wireless service provider, usually for a specified period of time. The most famous EHA was the exclusive agreement between Apple and AT&T for the iPhone, which was maintained for four years. (T-Mobile's parent company, Deutsche Telekom, has had a similar exclusive arrangement with Apple for the iPhone in Germany.) iPhones are now available from Verizon Wireless as well and soon will be available from Sprint, but not from other service providers. EHAs often involve sharing financial commitments and market risks, with the manufacturer typically assuming some R&D commitments and the provider some marketing and minimum volume commitments. The FCC found that "handset manufacturers generally employ EHAs with providers that have larger customer bases and extensive network penetration." Manufacturers have far less incentive to undertake risky R&D for a mobile wireless service provider that does not give the manufacturer entree to a significant segment of the market. The smaller rural mobile wireless carriers have complained that the AT&T-iPhone EHA in particular, and other EHAs in general, place them at a distinct competitive disadvantage. Although AT&T and Verizon (along with Qwest) are the sole surviving descendants of the old Bell monopoly, there would be several differences between the post-merger AT&T and the old Bell (AT&T) monopoly that was broken up as part of an antitrust consent decree in 1984: Although the wireline portions of AT&T and Verizon have chosen not to compete against one another (except in very limited geographic areas where the GTE service areas acquired by Verizon happen to be contiguous to old Bell service areas that are now part of AT&T), AT&T and Verizon Wireless do compete directly with one another in the mobile wireless market. The old Bell monopoly was regulated at both the federal and state levels. As evidenced by the Verizon Wireless court challenge to the FCC's authority to regulate data roaming, at least the data portion of the AT&T and Verizon Wireless mobile wireless businesses may not be subject to regulation. The old Bell monopoly also included an equipment manufacturing subsidiary, but the current mobile wireless providers rely on a competitive supplier market. It is useful to note the early history of the mobile wireless industry. When the FCC first made the cellular spectrum available in 1982, the band was divided into two blocks, licensed by Cellular Market Area. At the time of the initial licensing, one of the two cellular blocks in each market was awarded to a local incumbent wireline carrier, while the other block was awarded using a slow process that did not award of majority of licenses until 1991. The Bell Companies served 80% of the population then and thus the Bell Companies received half the spectrum and a multi-year head start in the cellular market for most of the country. The Bell Companies had little incentive to develop a new technology that could threaten their wireline telephone service. Mobile wireless developed much more quickly after the FCC made additional spectrum available and companies without legacy wireline investments entered the market. The AT&T submission makes no mention of the impact of the proposed merger on global competition and barely mentions the enterprise market that serves large (often multinational or even global) businesses. It is noteworthy that (1) the cities where AT&T has faced the greatest capacity challenge, New York and San Francisco, are global business centers and therefore places that have large numbers of international travelers who are likely to use global voice and data communications; and (2) the proposed merger would give Deutsche Telekom an 8% share of AT&T. Both of these facts suggest that the proposed merger might be part of some global market strategy on the part of the two companies. There is nothing in the AT&T submission on how the proposed merger might benefit AT&T in global markets where it may be competing against other global voice and data providers, including Deutsche Telekom. Nor is there any mention of other business relationships or understandings between AT&T and Deutsche Telecom outside the United States. It is at least imaginable that Deutsche Telekom's post-merger 8% interest in AT&T could affect the enterprise market in the U.S. and globally, given that AT&T and Deutsche Telekom are among the world's largest telecommunications carriers. Several international organizations and corporations have filed comments with the FCC, raising "concerns about the possibility of the United States becoming one of a very few markets in the world in which wholesale international roaming services for GSM operators ... are not subject to competition between at least two providers." The proposed merger would leave AT&T the only significant GSM-based wireless carrier in the U.S. GSM is the predominant wireless technology in most parts of the world. International travelers to the United States—and especially business travelers using wireless data services—and their carriers would be dependent on AT&T for roaming services, where today they can seek such services from T-Mobile as well. Thus there are concerns that AT&T would be able to raise its rates to international carriers, increasing costs for international visitors making calls to the United States. | In March 2011, AT&T announced an agreement to acquire T-Mobile USA (T-Mobile) from Deutsche Telekom for $25 billion in cash and $14 billion in AT&T stock, subject to the approval of the Department of Justice (DOJ) and the Federal Communications Commission (FCC). Post-merger, Deutsche Telekom (DT) would own approximately 8% of AT&T's stock. AT&T is the second-largest mobile wireless service provider in the United States; T-Mobile is the fourth-largest. The combined company would be the largest mobile wireless service provider. Under the terms of the agreement, if the merger is not consummated AT&T would have to pay Deutsche Telekom and T-Mobile a breakup fee of $3 billion in cash plus access to roaming and spectrum valued at an additional $3 billion. On August 31, 2011, DOJ filed a complaint with the United States District Court for the District of Columbia seeking to permanently enjoin (block) the merger. On November 22, 2011, the FCC chairman announced that he would seek to designate the proposed merger for an administrative hearing to determine whether it would be in the public interest. On November 23, 2011, AT&T and DT filed a letter withdrawing their applications for a transfer of licenses, and on November 29, 2011, the FCC granted the request to withdraw "without prejudice," allowing the parties to re-file applications at a later date. The FCC concurrently released a staff report that concluded that the merger would result in significant harm to competition and that AT&T and T-Mobile had failed to demonstrate countervailing efficiencies and benefits that would result in the merger, on net, being in the public interest. AT&T and Deutsche Telekom have announced that they still plan to pursue the merger, that they "vigorously contest" the DOJ complaint, and that they plan to resubmit applications for the transfer of licenses from Deutsche Telekom to AT&T at a later date, most likely when the DOJ lawsuit has been resolved. The lawsuit was scheduled to go to trial in February 2012. But on December 12, 2011, in response to a request from AT&T and DT that was agreed to by DOJ, the judge overseeing the lawsuit stayed the lawsuit, thereby delaying the proceedings and giving AT&T and T-Mobile time to sort out their options. On December 19, 2011, AT&T agreed with DT to end its bid to acquire T-Mobile. AT&T and T-Mobile state that combining their spectrum holdings and networks represents the most efficient way to alleviate each company's largest strategic challenge—AT&T's "network spectrum and capacity constraints" and T-Mobile's lack of a "clear path" to deployment of 4G Long Term Evolution (LTE) network technology, "the gold standard for advanced mobile broadband services." They assert that the merger would turn two companies that currently are capacity-constrained into "an efficient capacity-enhancing combination" that would have the incentive to increase output, improve quality, and lower prices. AT&T claims the merger "will enable it to deploy LTE to more than 97% of Americans—approximately 55 million more Americans than under AT&T's current plans" to build out its LTE network to just 80% of Americans. DOJ claims the merger likely would lessen competition for consumer mobile wireless telecommunications services—from the perspective of consumers, in 97 local markets, and from the perspective of suppliers, in the national market—and also would lessen competition in the national market for enterprise and government wireless telecommunications services. It claims actual and potential competition between AT&T and T-Mobile would be eliminated; competition in general likely would be lessened; prices likely would be higher than otherwise; the quality and quantity of services likely would be lower than otherwise due to reduced incentives to invest in capacity and technology improvements; and innovation and product variation likely would be reduced. DOJ asserts that the merging parties cannot demonstrate merger-specific, cognizable efficiencies sufficient to reverse the acquisition's anticompetitive effects. |
Natural disasters can have varying effects on the landscape. For agricultural producers, natural disasters are part of the inherent risk of doing business. The federal role for mitigating weather risk is primarily through federal crop insurance and a suite of agricultural disaster assistance programs to address a producer's crop or livestock production loss. Other, separate U.S. Department of Agriculture (USDA) programs are designed to repair agricultural and forest land following a natural disaster and potentially mitigate future risk. These programs offer financial and technical assistance to producers to repair, restore, and mitigate damage on private land. Agricultural land assistance programs include the Emergency Conservation Program (ECP), the Emergency Forest Restoration Program (EFRP), and the Emergency Watershed Protection (EWP) program. In addition to these programs, USDA also has flexibility in administering other programs that allow for support and repair of damaged cropland in the event of an emergency. This report describes these emergency agricultural land assistance programs. It presents background on the programs—purpose, activities, authority, eligibility requirements, and authorized program funding levels—as well as current congressional issues. Agricultural land assistance programs help producers rehabilitate crop and forest land following natural disasters. These programs are described below. The Emergency Conservation Program (ECP) assists landowners in restoring land used in agricultural production when damaged by a natural disaster. This can include removing debris, restoring fences and conservation structures, and providing water for livestock in drought situations. Restoration practices are authorized by the Farm Service Agency (FSA) county committee, with approval from state FSA committees, and the FSA national office. Payments are made to individual producers based on a share of the cost of completing the practice. This can be up to 75% of the cost, or up to 90% of the cost if the producer is considered to be a limited-resources producer. Payments are made following completion and inspection of the practice. The ECP was created under Title IV of the Agricultural Credit Act of 1978 ( P.L. 95-334 ) and codified at 16 U.S.C. Sections 2201-2205. The program is permanently authorized, subject to appropriations. Authorized funding is for "such funds as may be necessary," and once appropriated, funds are typically available until expended. Land eligibility is determined by the FSA county committee except in the event of a drought, in which case the national FSA office authorizes the use of funds. Following an on-site inspection, the land may be considered eligible if it is determined that the lack of treatment would: impair or endanger the land; materially affect the productive capacity of the land; lead to damage that is unusual in character and, except for wind erosion, is not the type that would recur frequently in the same area; and be so costly to rehabilitate that future federal assistance is or would be required to return the land to productive agricultural use. Land conservation issues that existed prior to the natural disaster are not eligible for assistance. An eligible participant is defined as an agricultural producer with an interest in the land affected by the natural disaster. The applicant must be a landowner or user in the area where the disaster occurred and must be a party who will incur the expense that is the subject of the ECP cost-share application. Participants are limited to $200,000 per natural disaster. Federal agencies and states, including all agencies and political subdivisions of a state, are ineligible to participate in ECP. Funding for ECP varies widely from year to year. Most funding is authorized through supplemental appropriations acts rather than annual appropriations. Table 1 provides a funding history for ECP. Funding is generally appropriated to remain available until expended. In some instances, Congress has required that ECP funding be used for specific disasters, activities, or locations. For example, a portion of funding appropriated in FY2016 is to be used for major disasters declared pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). Since ECP does not typically require a Stafford Act declaration, this requirement limits the use of ECP funds to select locations as well as for future disasters. For further discussion, see the " Issues for Congress " section. Once funding is appropriated, the FSA national office generally allocates ECP funds to the FSA state offices. The local FSA county committees will then obligate the funds on a first-come, first-served basis. The Emergency Forest Restoration Program (EFRP) provides cost-share assistance to private forestland owners to repair and rehabilitate damage caused by natural disasters on nonindustrial private forest land. Natural disasters include wildfires, hurricanes or excessive winds, drought, ice storms or blizzards, floods, or other resource-impacting events, as determined by USDA. The program is administered by FSA. FSA may provide up to 75% of the cost of emergency measures that would restore forest health and forest-related resources following a disaster. Individual or cumulative requests for financial assistance of $50,000 or less per person (or legal entity) per disaster are approved by the FSA county committee. Financial assistance requests from $50,001 to $100,000 are approved by the FSA state committee. Financial assistance over $100,000 must be approved by the FSA national office. The EFRP was created under Section 8203 of the Food, Conservation, and Energy Act of 2008 (2008 farm bill, P.L. 110-246 ), by adding a new Section 407 to Title IV of the Agricultural Credit Act of 1978. It is codified at 16 U.S.C. Section 2206 and is permanently authorized subject to appropriations. Authorized funding is for "such funds as may be necessary," and once appropriated, funds are typically available until expended. For land to be eligible for EFRP, it must be nonindustrial private forest land and must: have existing tree cover or have had tree cover immediately before the natural disaster and be suitable for growing trees; have damage to natural resources caused by a natural disaster, which occurred on or after January 1, 2010, that, if not treated, would impair or endanger the natural resources on the land and would materially affect future use of the land; and be physically located in a county in which EFRP has been implemented. Land is ineligible if it is owned or controlled by the federal government, a state, a state agency, or a political subdivision of a state. Eligible recipients include owners of nonindustrial private forest land, defined as rural land that is owned by any nonindustrial private individual, group, association, corporation, or other private legal entity that has definitive decision making authority over the land. A payment limitation of $500,000 per person or legal entity applies per disaster. The EFRP was created in the 2008 farm bill. Congress initially appropriated $18 million to the program in an FY2010 supplemental appropriations act. Funds were not obligated, however, until FY2011, when final regulations were published. Table 2 provides a funding history for EFRP. The Emergency Watershed Protection (EWP) program assists sponsors, landowners, and operators in implementing emergency recovery measures for runoff retardation and erosion prevention to relieve imminent hazards to life and property created by natural disasters. Eligible activities may include removing debris from stream channels, road culverts, and bridges; reshaping and protecting eroded banks; correcting damaged drainage facilities; establishing cover on critically eroding lands; removing carcasses; and repairing levees and structures. EWP funds cannot be used to perform operation or maintenance for existing structures or to repair, rebuild, or maintain private or public transportation facilities or public utilities. The EWP is administered by both USDA's Natural Resources Conservation Service (NRCS) and the U.S. Forest Service (USFS). The federal contribution toward the implementation of emergency measures may not exceed 75% of the construction cost. This can be raised to 90% if the area is considered to be a limited-resource area. The EWP was created under Title IV of the Agricultural Credit Act of 1978 ( P.L. 95-334 ) and codified at 16 U.S.C. Sections 2203-2205. The program is permanently authorized, subject to appropriations. Authorized funding is for "such funds as may be necessary," and once appropriated, funds are typically available until expended. Private, state, tribal, and federal lands are eligible for EWP. EWP is administered by NRCS on state, tribal, and private lands and by USFS on National Forest System lands. EWP assistance funded by NRCS may not be provided on any federal lands if the assistance would augment the appropriations of another federal agency. All projects under EWP must have a sponsor. Sponsors must be a state or political subdivision, qualified Indian tribe or tribal organization, or unit of local government. Private entities or individuals may receive assistance only through the sponsorship of a governmental entity. Sponsors are responsible for: obtaining necessary land rights and permits to do repair work; providing the nonfederal portion of cost-share assistance; completing the installation of all emergency measures; and carrying out any operation and maintenance responsibilities that may be required. Funding for EWP varies widely from year to year ( Table 3 ). Most funding is authorized through supplemental appropriations acts rather than annual appropriations. NRCS provides assistance based upon a determination by the NRCS state conservationist that the current condition of the land or watershed impairment poses a threat to health, life, or property. Sponsors must submit a formal request to the NRCS state conservationist within 60 days of the natural disaster or 60 days from the date when access to the site becomes available. No later than 60 days from receipt of the request, the state conservationist will investigate the situation and prepare an initial cost estimate to be forwarded to the NRCS national office. Before release of any funds, the project sponsor must sign a cooperative agreement with NRCS that details the responsibilities of the sponsor (e.g., funding, operation, and maintenance). No funding is provided for activities undertaken before the cooperative agreement is signed. Approval of funding is based on the following rank order: exigency situations; sites where there is a serious (but not immediate) threat to human life; and sites where buildings, utilities, or other important infrastructure components are threatened. Floodplain easements under EWP are administered separately from the general EWP program. The easements are meant to safeguard lives and property from future floods, drought, and the consequences of erosion through the restoration and preservation of the land's natural values. USDA holds all EWP floodplain easements in perpetuity. Floodplain easements are purchased as an emergency measure and on a voluntary basis. If a landowner offers to sell a permanent conservation easement, then NRCS has the full authority to restore and enhance the floodplain's functions and values. This includes removing all structures, including buildings, within the easement boundaries and providing up to 100% of restoration costs. In exchange, the landowner receives the smallest of the three following values as an easement payment: 1. a geographic area rate established by the NRCS state conservationist; 2. the fair-market value based on an area-wide market analysis or an appraisal completed according to the Uniform Standards of Professional Appraisal Practices (USPAP); or 3. the landowner's offer. Section 382 of the Federal Agricultural Improvement and Reform Act of 1996 (1996 farm bill, P.L. 104-127 ) amended the EWP authorization to include the purchase of floodplain easements. Prior to this amendment, NRCS had been directed in a 1993 emergency supplemental appropriations act ( P.L. 103-75 ) to use EWP funds for the purchase of floodplain easements under the Wetlands Reserve Program (WRP)—a farm bill program for restoring wetlands through the voluntary purchase of long-term and permanent easements on agricultural land. This became known as the Emergency Wetlands Reserve Program, which purchased floodplain easements on cropland with a history of flooding in the 1993 and 1995 Midwest flooding events. Following the 1996 farm bill amendment, NRCS began an EWP floodplain easement pilot program in 17 states in FY1997. The Agricultural Act of 2014 (2014 farm bill, P.L. 113-79 ) amended the floodplain easement section of the EWP program to allow USDA to modify or terminate floodplain easements when the landowner agrees and the change "addresses a compelling public need for which there is no practical alternative, and is in the public interest." Modification or termination requires a compensatory arrangement determined by USDA. Similar to the general EWP program, EWP floodplain easements are authorized under Title IV of the Agricultural Credit Act of 1978 ( P.L. 95-334 ) and codified at 16 U.S.C. Sections 2203-2205. The authorization of appropriations is for "such funds as may be necessary" and does not expire. Lands are considered eligible for an EWP floodplain easement if they are: floodplain lands that were damaged by flooding at least once within the previous calendar year or have been subject to flood damage at least twice within the previous 10 years; other lands within the floodplain that would contribute to the restoration of the flood storage and flow, erosion control, or would improve the practical management of the easement; or lands that would be inundated or adversely impacted as a result of a dam breach. Land is considered ineligible if: restoration practices would be futile due to "on-site" or "off-site" conditions; the land is subject to an existing easement or deed restriction that provides sufficient protection or restoration of the floodplain's functions and values; or the purchase of an easement would not meet the purposes of the program. EWP participants must have ownership of the land. Unlike the general EWP program, EWP floodplain easements do not require a project sponsor. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) provided $290 million to Watershed and Flood Prevention Operations, of which half ($145 million) was to be used for the purchase and restoration of EWP floodplain easements. Per requirements in ARRA, the funding was obligated by FY2011. Additional funding following Hurricane Sandy resulted in two EWP floodplain easement sign ups, which funded 246 applications on over 1,000 acres of eligible land. Through the end of 2016, NRCS reported enrolling a total of 1,586 easements on 184,911 acres, as well as 1,573 closed and restored easements on 184,423 acres. Emergency disaster (EM) loans are available through the FSA when a county has been declared a disaster area by either the President or the Secretary of Agriculture. Agricultural producers in the declared county and contiguous to the county may become eligible for low-interest EM loans. EM loan funds may be used to help eligible farmers, ranchers, and aquaculture producers recover from production losses (when the producer suffers a significant loss of an annual crop) or from physical losses (such as repairing or replacing damaged or destroyed structures or equipment or replanting permanent crops such as orchards). A qualified applicant can then borrow up to 100% of actual production or physical losses (not to exceed $500,000) at low interest rates. In addition to the authorized land assistance programs, USDA uses a number of existing conservation programs to assist with rehabilitating land following natural disasters. In many cases this assistance comes through the use of waivers and flexibility provided to the Secretary of Agriculture. The following section discusses programs recently used by USDA to offer assistance. The Conservation Reserve Program (CRP) provides annual payments to agricultural producers to take highly erodible and environmentally sensitive land out of production and install resource-conserving practices for 10 or more years. In limited situations, harvesting and grazing may be conducted on CRP land in response to drought or other emergencies (except during primary nesting season for birds). In many cases environmentally sensitive land is ineligible for harvesting and grazing. Emergency harvesting and grazing is authorized by the national FSA office at the request of a county FSA committee. The Environmental Quality Incentives Program (EQIP) is a voluntary program that provides financial and technical assistance to agricultural producers to address natural resource concerns on agricultural and forest land. USDA has recently announced a special EQIP signup for farmers and ranchers in hurricane-affected areas. EQIP may also be used to proactively mitigate potential damage from natural disasters through the use of conservation practices (e.g., residue management to improve the soil's capacity to be more drought-resilient, or vegetative buffer strips along waterways to reduce erosion and crop damage in the event of a flood). Historically, the majority of emergency assistance for agriculture was funded through supplemental appropriations or as an add-on to regular annual appropriations. A supplemental appropriation provides additional budget authority during the current fiscal year either to finance activities not funded in the regular appropriation or to provide funds when the regular appropriation is deemed insufficient. Since most agricultural land assistance programs do not receive the level of attention that triggers a standalone supplemental appropriation bill, annual appropriation bills are increasingly seen as a vehicle for funding these programs. The change in funding mechanism from standalone supplemental appropriations to annual appropriations has presented a challenge for agricultural land assistance programs. The timing of annual appropriations bills may not coincide with natural disasters and the subsequent requests for assistance. This can increase the time between eligible disasters and funding availability. Disaster funds are typically provided to remain available until expended, which has allowed smaller, more localized disasters to be addressed in years without appropriations. However, despite this flexibility, the inconsistent funding has left some agricultural land assistance programs without funding during times of high request volume. Beginning in the 2008 farm bill, and continued in the 2014 farm bill, Congress authorized a series of permanent disaster assistance programs that receive mandatory funding, rather than relying on supplemental appropriations. These programs assist with crop and livestock production loss and are generally authorized at funding amounts that are "such sums as necessary" and by their mandatory nature are not subject to annual appropriations. For the three agricultural land rehabilitation programs discussed in this report, however, funding remains discretionary and is provided on an ad hoc basis. The variability of funding for agricultural land rehabilitation has led some to suggest that these programs have been left behind in favor of providing assistance for crop and livestock production loss rather than for land rehabilitation and natural resources degradation. Some have suggested that the use of permanent mandatory funding could be expanded beyond production to include land rehabilitation assistance. Others point out that permanent mandatory funding would be difficult to achieve in the current fiscal climate. The Budget Control Act of 2011 (BCA, P.L. 112-25 ) limits emergency supplemental funding for disaster relief. Under Section 251(b)(2)(D) of the BCA, funding used for disaster relief must be used for activities carried out pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, P.L. 93-288 ) for FY2012 through FY2021. This means funds appropriated through emergency supplemental acts for disaster relief through FY2021 may apply only to activities with a Stafford Act declaration. In recent years, agricultural land rehabilitation programs have received funding through annual appropriations. However, it is still considered supplemental in nature and, in some cases, classified as disaster relief. When classified as disaster relief, the funds must be used for a major disaster declared pursuant to the Stafford Act. Since emergency agricultural land assistance programs do not normally require a federal disaster declaration from either the President or a state official, the Stafford Act requirement has become a limiting factor in the way agricultural land assistance programs work, potentially assisting fewer natural disaster events. For example, droughts are traditionally not declared as major disaster events under the Stafford Act. However, droughts are one of the eligible natural disasters for land assistance programs—primarily to assist livestock producers to provide water to animals. Since agricultural land assistance program funds are typically available until expended, the Stafford Act requirement also limits what areas may receive future assistance with any remaining funding. For example, the FY2016 appropriated levels classify only a portion of the funding provided as disaster relief and therefore subject to the requirements of the BCA and the Stafford Act. The remaining funds are not considered disaster relief for budget scoring purposes and are therefore appropriated within the regular limitations of the current budget agreement. These funds are not subject to a Stafford Act declaration and may be used according to the authorities of the program. Another contentious issue for federal land assistance programs is mitigation. Mitigation actions are steps taken to reduce risk before a natural disaster occurs. Currently only one mitigation program exists for emergency agricultural land assistance—the EWP floodplain easement program (described above). This program purchases floodplain easements on agricultural land that has a history of flooding (two of the previous 10 years). Under the program, the land is permanently taken out of production and restored to a natural function. This program has been authorized since 1997. However, prohibitions in appropriations acts have limited available funding for the program. Some have questioned the use of federal restoration funds in areas with a high risk of damage by natural disasters, arguing that it encourages poor land use decisions. While the alternative of mitigation can potentially reduce the future cost of federal assistance, the initial cost of the permanent easement and restoration is sometimes viewed as too expensive a federal cost. | The U.S. Department of Agriculture (USDA) administers several permanently authorized programs to help producers recover from natural disasters. Most of these programs offer financial assistance to producers for a loss in the production of crops or livestock. In addition to the production assistance programs, USDA also has several permanent disaster assistance programs that help producers repair damaged crop and forest land following natural disasters. These programs offer financial and technical assistance to producers to repair, restore, and mitigate damage on private land. These emergency agricultural land assistance programs include the Emergency Conservation Program (ECP), the Emergency Forest Restoration Program (EFRP), and the Emergency Watershed Protection (EWP) program. In addition to these programs, USDA also has flexibility in administering other programs that allow for support and repair of damaged cropland in the event of an emergency. Both ECP and EFRP are administered by USDA's Farm Service Agency (FSA). ECP assists landowners in restoring agricultural production damaged by natural disasters. Participants are paid a percentage of the cost to restore the land to a productive state. ECP is available only on private land, and eligibility is determined locally. EFRP was created to assist private forestland owners to address damage caused by a natural disaster on nonindustrial private forest land. The EWP program and the EWP floodplain easement program are administered by USDA's Natural Resources Conservation Service (NRCS) and the U.S. Forest Service (USFS). The EWP program assists sponsors, landowners, and operators in implementing emergency recovery measures for runoff retardation and erosion prevention to relieve imminent hazards to life and property created by a natural disaster. In some cases this can include state and federal land. The EWP floodplain easement program is a mitigation program that pays for permanent easements on private land meant to safeguard lives and property from future floods, drought, and the consequences of erosion. Funding for emergency agricultural land assistance varies greatly from year to year. Since most agricultural land assistance programs do not receive the level of attention that triggers a standalone supplemental bill, annual appropriation bills are increasingly seen as a vehicle for funding these programs. The timing of annual appropriation bills may not coincide with natural disasters, thus leaving some programs without funding during times of high request volume. This irregular funding method has led some to suggest the authorization of permanent mandatory funding similar to what was authorized in the Agricultural Act of 2014 (2014 farm bill, P.L. 113-79) for agricultural disaster assistance programs that support crop and livestock production loss. Restrictions placed on supplemental appropriations for disaster assistance have changed the way the agricultural land assistance programs allocate funding, potentially assisting fewer natural disasters. Language in the Budget Control Act of 2011 (P.L. 112-25) limits to the use of emergency supplemental funding for disaster relief. Specifically, funding used for disaster relief must be used for activities carried out pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, P.L. 93-288) for FY2012 through FY2021. This means funds appropriated through emergency supplemental acts for disaster relief for these 10 years may apply only to activities with a Stafford Act designation (generally requiring a federal disaster declaration from either the President or a state official). Since emergency agricultural land assistance programs do not normally require a federal disaster declaration, the Stafford Act requirement has become a limiting factor in the way agricultural land assistance programs work, potentially assisting fewer natural disaster events. |
The General Services Administration (GSA), through its Public Buildings Service (PBS), is the primary federal real property and asset management agency, with a portfolio consisting of 8,847 buildings and structures with an estimated replacement value of $68.8 billion in FY2006. GSA is also responsible for completing needed repairs and renovations to the federal facilities it manages. Congress enacted the Public Buildings Act Amendments in 1972, and established the Federal Buildings Fund (FBF) within GSA to finance the operating and capital costs associated with federal buildings. Created as a revolving fund, the FBF is financed by income from rental charges assessed to tenant agencies occupying GSA-owned-and-leased space that approximate commercial rates for comparable space and services. GSA determines the base or shell rental rate by conducting appraisals of other comparable properties and incorporates operating expenses and tenant improvements. In order to assess accurately the commercial market rate for each facility, GSA conducts a property appraisal every five years. In the event there may be no comparable building available on which to base a fair appraisal, GSA uses a "return on investment (ROI)" method, which calculates the rate needed to recover the building's actual construction costs over 25 to 30 years. The GSA Administrator is required to prescribe regulations providing for the rates that GSA charges to tenant agencies for use of its space. The rental rate may also include a charge for any additional improvements or remodeling performed by GSA at the request of the tenant, which is amortized, or paid in equal installments during the term of the lease. However, the tenant agency is responsible for paying shell rent for as long as it occupies the GSA facility. For privately leased space, GSA charges the tenant agency for the actual leasing and operating costs, and related management services. In each instance, there is an occupancy agreement between GSA and the tenant agency that sets forth the financial terms and conditions of the occupancy. While rent deposits to the FBF are the principal source of funding, Congress annually prescribes how GSA may allocate its FBF assets as new obligational authority in appropriations funding. Congress also may provide additional appropriations to the fund. Generally, FBF revenues are used first for GSA's building operating expenses. Congress then allocates FBF funds for the construction of new buildings, including courthouses, as well as for repairs and renovations to existing facilities. A major concern for GSA is that the FBF has not historically produced sufficient rent revenues to finance needed capital improvements to its inventory of owned buildings. By way of background, congressional establishment of the FBF to finance the capital costs of federal facilities with income derived from rent assessments represented an important revision to previously enacted federal real property law. Previously, construction authority for each federal building was approved and funded in separate legislation until the 1902 enactment of the Omnibus Public Building Act authorizing the Secretary of the Treasury to "give effect to and execute the provisions of existing legislation" to acquire property and to enter into contracts for the construction of federal buildings. The federal government's acquisition of federal property was suspended in 1914 at the onset of World War I, and was not reinstated until the enactment of the Public Buildings Act in 1926. This 1926 act provided the basic authority for construction of federal buildings by the congressional authorizations and appropriations process. Congress later enacted the Public Buildings Act of 1949 to authorize the acquisition of sites and design plans for federal buildings located outside Washington, DC, and for improvements to existing federal buildings. The same year, Congress enacted the Federal Property and Administrative Services Act of 1949. This act established the General Services Administration (GSA) and gave the GSA Administrator responsibility for administering federal real property. In 1954, Congress amended the Public Buildings Act of 1949 to authorize the GSA Administrator to acquire titles to real property and to construct federal buildings through lease-purchase contracts. Under this procedure, a building was financed by private capital, and the federal government made installment payments on the purchase price in lieu of rent payments. Title to the property was vested in the federal government at the end of the contract period, generally of at least 10 and not more than 30 years. When authority for lease-purchase contracts expired in 1957, Congress approved a successor statute, the Public Buildings Act of 1959. The 1959 act re-established earlier requirements to provide for direct federal construction of public buildings through the congressional authorizations and appropriations process. This law, as amended and recodified over the years, remains the basic statute authorizing the construction and renovation of federal civilian facilities. The act vests the Administrator of General Services with sole authority to acquire, construct, alter, repair, remodel, improve, or extend most federal buildings, and to acquire the sites or additions to sites for such buildings. As part of the funding authorization process, GSA is required to submit to the Senate Committee on Environment and Public Works, and the House Committee on Transportation and Infrastructure, a detailed prospectus of all proposed building projects. In the decade following the 1959 passage of the Public Buildings Act, Congress appropriated approximately $115 million each fiscal year to GSA for new construction projects. However, by 1972, a total of 63 congressionally authorized building projects had not received appropriations, largely as a result of fiscal constraints. In April 1972, the House Committee on Public Works reported that, while Congress "repeatedly asserted its insistence" that direct federal construction of public buildings was the most efficient and economical way to meet the government's urgent space requirements, an additional $1 billion would be needed in direct congressional appropriations to fund the 63 uncompleted construction projects. During its consideration of H.R. 10488 and the proposed Federal Buildings Fund, the committee reported that a single Congressional approval for all the costs of acquiring a site, designing, and construction of a building is essential to a timely, responsive Federal building program. Such a consolidated appropriation would expedite construction by allowing GSA to employ various time-saving techniques used in private construction but unavailable where funding uncertainties preclude the precision planning necessary to implement them.... A buildings fund to finance the acquisition, construction, alteration, maintenance, operation, and protection of all public buildings is the logical mechanism for one-time project funding. The proposed buildings fund was to be financed by income from rental charges assessed to tenant agencies occupying GSA-owned-and-leased space that approximated commercial rates for comparable space and services. Each tenant agency would budget for its own space needs in the annual congressional authorizations and appropriations process. The legislative history reveals that Congress believed that the requirement for tenant agencies to be directly accountable for their space needs would result in more efficient utilization of federal office space. During its 1971 consideration of legislation to create the FBF, the Senate Committee on Public Works reported that individual agency requests and justifications for office space during the annual budget process represented a "significant step toward performance budgeting," resulting in greater congressional oversight of the federal buildings program. The 1971 congressional deliberations focused on two different methods to establish agency rental charges, the cost-recovery method and the rent-equivalent method. Under the cost-recovery method, charges would have been based on estimated maintenance costs, the cost of leasing space, and depreciation costs on GSA-owned facilities. Income resulting from the depreciation charges would have been available to finance future GSA construction and repairs projects. The cost-recovery approach was rejected by Congress because not enough revenue could have been generated; in fact, GSA estimated that it would have needed additional appropriations of nearly $150 million each year to finance future construction projects. The second option, the rent-equivalent method based on commercial rates for leasing space, was ultimately embodied in law. GSA officials estimated that, based on 1971 funding obligations, approximately $800 million in rental charges would be paid to the fund. Of this total, Congress and GSA anticipated that nearly $300 million in revenues would be available for capital expenditures. The Senate Committee on Public Works reported that, while it endorsed GSA's use of commercial charges, it was not encouraging the agency to establish its rates so high as to produce an inordinate surplus of monies in the fund. On the contrary, the committee desires that the rates charged ... be sufficient only to defray the cost of constructing, maintaining, and replacing public buildings and facilities, and to provide related services. P.L. 92-313, enacted on June 16, 1972, amended the Federal Property and Administrative Services Act of 1949 to establish a real property management financing fund in the U.S. Treasury to receive revenues from tenant agencies for GSA-owned-and-leased space and services. Revenues deposited into the fund were authorized to be used for expenditures for real property management and related activities "in such amounts as are specified in annual appropriations Acts without regard to fiscal year limitations." The Federal Buildings Fund, which became operational in FY1975, replaced and received the unexpended balances of two existing buildings management and construction funds, and any prior GSA congressional appropriations for public buildings. The act authorized appropriations to the fund for the first two fiscal years in which the fund became operational, and any additional appropriations as might be necessary to carry out the fund's purposes. The legislation also reinstated the purchase contract authority for a three-year period to provide immediate funding for the construction of GSA's backlog of authorized, but unfunded, building projects. Section 5 authorized the GSA Administrator to enter into purchase contracts, for a period not to exceed 30 years, with title ultimately reverting to the federal government. In a departure from the 1954 act authorizing purchase contracts, P.L. 92-313 required GSA to pay local property taxes during the purchase term. The 1972 legislation authorized the GSA Administrator to charge a tenant for the GSA space which the agency occupied, and for all GSA maintenance and repairs. While the act specified that GSA's rental rates "shall approximate commercial charges for comparable space and services," the statute gave no criteria or guidance for computing these charges. The 92 nd Congress established the Federal Buildings Fund with the objective that income derived from agency rental assessments would provide a more predictable source of revenue for new construction and capital improvements than direct congressional appropriations. Congress also believed that the FBF would promote responsible asset management by requiring tenant agencies to budget for their rent and services. However, the FBF did not generate sufficient revenues for capital expenditures due, in large part, to statutory obligations and limitations placed on the FBF when it was created. When the FBF became operational in FY1975, GSA's existing portfolio of federal facilities, valued at nearly $3.5 billion, was transferred to the FBF as contributed capital and provided the principal source of revenue. However, the General Accounting Office (GAO, now the Government Accountability Office) estimated that nearly half of GSA's federal building inventory was more than 30 years old, requiring as much as $1.1 billion in extensive repairs. For many of GSA's older buildings, the funds needed for alterations and other related costs could sometimes exceed the annual rental income generated to the FBF. GAO reported in 1981 that, during the first six years of the fund's existence, a total of $442 million was available from the FBF for new construction, averaging only about $73.6 million each year. A second factor contributing to a loss of revenue for the FBF was GSA's use of the purchase contract method from 1972 to 1975 to finance the construction of 68 federal facilities that had not received congressional funding. As authorized by Section 5 of P.L. 92-313, building construction projects were financed with private funds, with ownership of the buildings eventually reverting to the federal government. GSA borrowed approximately $1.3 billion through the sale of participation certificates to private investors, while letting contracts for construction in the same manner employed for direct construction projects financed with appropriated funds. During the purchase contract term, the FBF's resources were obligated to repay the principal, interest, and local real estate taxes for the federal facilities, and these expenditures were a major drain on the FBF. On the basis of available data on 21 of the newly constructed federal buildings, GAO reported in 1979 that FBF expenditures for principal, interest, and real estate taxes actually exceeded the properties' incoming rental income to the FBF. In FY1980, GSA estimated that FBF resources would be used to pay about $100 million in principal, interest, and taxes on the 68 buildings. The obligations for annual purchase contract payments increased steadily between 1976 and 1982, from $51 million to $156 million. The FBF's reserves were also affected by its obligations to pay for the buildings' maintenance and other services pertaining to GSA's central property management responsibilities, which increased from $414 million in FY1975 to nearly $571 million in FY1980. Another reason the FBF generated less revenue than anticipated for needed capital investment was that Congress and the Office of Management and Budget (OMB) periodically restricted the rent payments that GSA was allowed to charge tenant agencies. GAO reported that, between 1975 and 1988, administrative and legislative rent restrictions reduced available FBF revenues by nearly $4 billion. When the Federal Buildings Fund became operational in FY1975, the GSA Administrator established agency rental charges and prescribed regulations providing for the rates that GSA charges to tenant agencies for use of its space. These rates were based on computing composite commercial rates charged in various locations throughout the country and included rating factors pertaining to the quality of structure and design elements for different types of commercial facilities. According to GAO's findings, the quality rating was an important component, since the higher the rating, the greater the building rental charge. GAO reported, however, that GSA's quality ratings were largely based on "subjective judgment and limited criteria," and that GSA's reliance on market surveys did not provide an "adequate basis" for determining approximate rental rates. Tenant agencies also criticized GSA's methodology in determining fees based on composite market rates instead of actual costs based on more favorable long-term leases. During consideration of GSA's FY1975 budget request, the House Committee on Appropriations reported that GSA's rent charges were higher than comparable commercial rates, reducing rental fees by 10%. The Senate Committee on Appropriations agreed to the provision. As a result, FY1975 rental income to the FBF was reduced from $1.16 billion to $1.04 billion, and any FBF revenues in excess of $1.08 billion were authorized to be deposited in miscellaneous receipts of the U.S. Treasury. Again in FY1976, the House and Senate Committees on Appropriations reduced agency rental payments to GSA by 10% and authorized that revenues to the FBF in excess of $1.34 billion be deposited in miscellaneous receipts of the U.S. Treasury. The following year, in FY1977 appropriations language, Congress again authorized GSA to deposit in the U.S. Treasury any revenues accruing to the FBF in excess of $1.15 billion. GAO reported that, in FY1977, GSA decided to reduce its rental rates by 10% to preclude a congressionally imposed reduction. In both FY1976 and FY1977, OMB required GSA to grant length-of-occupancy discounts to agency tenants, further reducing GSA's rental income by 20 %. In addition, a GSA internal audit committee issued a report which criticized the agency's method of calculating composite rental rates without giving adequate consideration to the location of facilities and the corresponding differences in market values. In order to provide a more equitable method to determine agency rental charges, GAO recommended that GSA conduct an individual survey and appraisal for each GSA-owned-and-leased building to determine a rent that would be "equivalent to commercial rent for comparable space and services." In part because of GAO's recommendations, GSA began conducting independent appraisals for each of its owned and leased facilities to establish rental rates in FY1978. GAO subsequently reported that GSA's new appraisal method appeared to provide documented and defensible justifications for computing commercially comparable rental rates. While Congress did not reduce tenant rental fees in FY1978, it did require GSA to deposit any income from the FBF in excess of $1.33 billion in miscellaneous receipts of the U.S. Treasury. From FY1975 to FY1978, GAO reported that GSA had transferred about $7 million from the FBF to miscellaneous receipts of the U.S. Treasury, further reducing FBF revenues available for capital improvements. After meeting its primary obligation to finance building operating expenses, the FBF has historically not produced sufficient revenues to fund needed repairs in GSA's real property inventory. Past studies by GAO reveal that a large portion of GSA's aging federal facilities are urgently in need of significant and costly repairs. In many instances, federal facilities are vacant or no longer needed because of tenant agencies' changing missions. GAO issued a 2003 report on federal property as part of its high-risk series, which identified areas vulnerable to mismanagement, waste, or fraud and concluded that "a major commitment is necessary to either modernize these facilities or to dispose of them." Two years later, GAO reported that, while progress had been initiated by the 2004 establishment of the Federal Real Property Council (discussed later in this CRS report), long-standing problems persisted for GSA in managing its real property inventory. Restoration, repair, and maintenance backlogs in federal facilities are significant and attributable to "ineffective stewardship" by GSA and other landholding federal agencies who oversee a valuable and historic real property portfolio. GAO investigations have revealed that significant repairs and alterations are necessary to renovate federal buildings that have deteriorated, have become functionally obsolete, or have health- and safety-related problems. Inspections of several deteriorating federal buildings have revealed inadequate and malfunctioning air ventilation and fire safety systems, unsafe water supplies, and continued structural deteriorations caused by long-standing plumbing leaks. Other factors impeding adequate workplace conditions included outdated cooling and heating systems, resulting in significantly higher operating costs, and obsolete electrical systems unable to accommodate new information technology. Aging and deteriorating office space can also adversely impact federal employee recruitment, retention, and productivity. Maintaining federal facilities is a challenging task, since many of GSA's largest buildings were constructed more than 50 years ago and have deteriorated without needed alterations. According to GSA, limitations in FBF revenues are exacerbated by the heightened demands for repairs and alterations associated with aging buildings. GAO's analysis of FBF revenues from FY1994 through FY1999 determined that GSA was authorized approximately $580 million in new obligational authority from the FBF each year to complete repairs on existing GSA facilities. While GSA completed substantial work, new requirements were frequently added to GSA's repairs inventory. In 1999, GSA estimated that nearly $4 billion was needed to complete repairs and alterations to 903 buildings, or approximately 54% of its entire inventory of 1,682 federal buildings. The repair and alteration work identified in 446 buildings was estimated to cost $500,000 or less per building. However, 44 aging facilities, classified by GSA as large office buildings or courthouses, needed major repairs of more than $20 million for each facility, accounting for nearly 60% of the almost $4 billion estimated as needed to fund all identified repairs and alterations. Furthermore, GAO found that some of the repairs and alterations that had been identified more than five years earlier were still unfinished. GSA officials stated that some tasks were not completed because adequate funding was not available. Three years later, in 2003, GAO reported that GSA's estimated backlog of repairs and alterations would require $5.7 billion in federal funding. GSA officials estimated in 2005 that deferred maintenance costs for its federal facilities totaled more than $6 billion. In 2007, GSA reported an estimated $6.6 billion backlog of repairs. The deteriorating physical condition of many federal buildings and the corresponding underutilization and vacancy of many government facilities has serious cost implications for GSA's real property portfolio. Investigations by GAO have revealed that many properties in the federal inventory are not financially self-sustaining and are no longer relevant to their agencies' changing missions. According to GAO, by identifying and disposing of unneeded properties, GSA could give greater attention and funding to the repair of a streamlined federal inventory. Due to the vast size and diversity of its real property portfolio, GSA is often not able to fully identify and assess each of its properties to determine those that need repairs and those for which there is no longer any substantial federal purpose. In May 1991, GAO first reported that GSA had not fully implemented a systematic approach for managing its inventory because of a lack of reliable real property data, causing even more delays in needed building repairs. At present, GSA annually reports summary data on real property owned and leased by the federal government worldwide, based on inventory reports submitted by the individual agencies. These inventory reports are not, however, required under current law, and there is no statutory requirement for landholding agencies to submit accurate or timely data. In July 2000, GAO reported to Congress that a comprehensive and reliable inventory of federal real property holdings was the first step in identifying and subsequently managing the government's large portfolio of federal assets. GAO investigations also revealed that GSA and the other landholding agencies had poor or inadequate data assessing the current market value of their properties. However, GAO acknowledged that agency compliance with proposed statutory requirements for a comprehensive property inventory would be a "challenging task," based on its finding that the federal government lacked the necessary standards to ensure complete and reliable information on its property assets. Lacking a reliable and comprehensive listing of federal properties, GSA continues to have limited success in the identification, maintenance, or disposal of its federal inventory. GAO reported in June 2003 that GSA, in response to GAO's earlier criticisms, had begun to conduct more systematic reviews of individual facilities, giving funding priority to projects that might return more rent revenues to the FBF and disposing of properties with no long-term federal purpose. In FY2005, the Federal Real Property Council issued new federal property reporting requirements for executive branch agencies, which replaced GSA's existing reporting requirements and the agency's comprehensive annual report on federally owned and leased properties. Published in June 2006, the Federal Real Property Council's first executive summary was compiled from agency data pertaining to utilization, condition, and operating and maintenance costs. Because of long-standing problems with a buildings portfolio that has not been financially self-sustaining, GSA has relied on leasing as the only practicable method available to meet increased space needs. Generally, the federal construction or purchase of buildings provides the most cost effective approach to meet space requirements over a long period of time. GSA's inventory of leased space increased from 87.4 million square feet in FY1975 to 91.2 million square feet in FY1981, an increase of approximately 4.5%. However, the corresponding costs for annual rental payments increased from $364 million to nearly $677 million, an 86% increase during the same period. In the past decade, GSA has continued to enter into lease agreements to acquire office space because of insufficient funding available to construct or repair existing buildings. GAO reported in 1995 that GSA had entered into 55 long-term lease agreements that would ultimately cost the federal government $700 million more in extended rent payments than would have total construction costs for the same space. A 1999 investigation by GAO auditors of nine major lease agreements proposed by GSA revealed that construction would have been the most economical option in eight instances, resulting in an estimated $126 million in savings to the federal government. While this GAO investigation focused on GSA's leasing practices, GAO had previously found that the other landholding agencies with leasing authorities also relied heavily on operating leases. In June 2006, GSA owned 218.9 million square feet of office space, and spent $4.6 billion to lease 168.8 million square feet of building space, or almost 46% of the government's total office area. The annual congressional appropriations and authorizations process tends to favor operating leases over construction or purchasing agreements, since they appear less costly in any given year. While operating leases are more expensive over a 10-year period, these total costs are not reflected in a single year's appropriations request. In contrast, total costs necessary for proposed construction and lease-purchase contracts must be included in the first year's budget authority. According to studies by GAO, the current budget process enables more expensive leasing transactions to appear to be more economical in the short term, thus encouraging an "over-reliance" on them for meeting the government's space requirements. While agency rental payments have provided a relatively stable and predictable source of income for the Federal Buildings Fund, this revenue had not been sufficient to finance both growing capital investment needs and the cost of leased space. GAO estimated that, between FY1983 and FY1988, annual revenues to the FBF from tenant rental payments increased from approximately $1.8 billion to $3.1 billion. Between FY1995 and FY2001, about $5.3 billion in incoming rent revenues was deposited each year into the FBF. Nearly 90% of this total was used for GSA's operating costs, rental payments for leased space, and construction of new buildings, with, on average, only $606 million remaining each year for completing repairs and renovations. In FY2007, $7.5 billion in FBF revenue came from rent paid by federal tenant agencies; $4.4 billion was obligated from the FBF for rental of space, and $733 million for repairs and alterations (see Table 1 ). Table 1 indicates the FBF's incoming revenues and obligations for FY2006 through FY2008 (request). While Congress has increased authorized funding through the FBF for building repairs and alterations, these funds have not been adequate to maintain GSA's building inventory. Funding data compiled by GSA since FY1995 indicate that Congress has authorized $8.9 billion from the FBF, or 72%, of the $12.5 billion in new obligational authority that GSA has requested for building repairs and alterations. However, in FY2006, Congress approved $1.1 billion in FBF revenues for repairs, which was more than was requested by GSA, or 104%. Table 2 indicates the FBF funding authority that GSA has requested from FY1995 through FY2008, and the obligational authority that Congress has approved for repairs and alterations from the FBF. GAO has reported that GSA officials are developing new ways to generate additional FBF revenues to finance capital improvements in GSA-owned facilities. These methods include giving the highest priority to maintenance projects that would achieve the most rent revenue for the FBF and reducing operating costs where possible to redirect monies to repair and alteration projects. Legislation enacted in the 108 th Congress authorized the GSA Administrator to convey real property by sale, lease, or exchange agreements, with net proceeds deposited into the FBF for future real property capital acquisitions and improvements. As a result of this new authority, an additional $50.4 million in net proceeds was achieved in FY2006 (see Table 1 ). As discussed earlier in this report, the FBF generated less revenue than anticipated during its first years of operation because Congress and OMB periodically restricted the rent payments that GSA was allowed to charge tenant agencies for their office space. GSA's ability to finance its repair and alteration requirements was so limited by these imposed rent restrictions that, in 1989, GAO recommended their removal. GAO further recommended that no new restrictions on rent be authorized. The GSA Administrator also has the authority to exempt a tenant agency from the rent it owes for occupying GSA space. These exemptions are generally granted for the partial or full rent payments for a particular building, and for a limited time. Based on GSA data, 14 partial and full rent exemptions were in effect in 2005, with an estimated forgone annual rent of $169.6 million. Of this total, 12 rent exemptions were authorized by the GSA Administrator, and the remaining two were authorized by Congress. Even though the federal judiciary has the responsibility to identify and propose new courthouse construction projects, GSA is responsible for their design and construction. GSA and the federal judiciary undertook a substantial courthouse construction initiative from FY1993 through FY2005, with congressional funding of approximately $4.5 billion through new appropriations and obligations from the FBF for 78 courthouse projects. In the last 30 years, the judicial branch has increased the amount of GSA space it occupies by 310%, an increase of one million square feet per year. In September 2004, the Judicial Conference approved a two-year moratorium on new courthouse projects in an attempt to reduce its annual rent obligations for the use of GSA-owned space. In December 2004, the Judicial Conference requested that GSA provide the judicial branch with a permanent annual $483 million rent exemption. According to GSA testimony, the $483 million rent exemption sought by the judiciary, approximately 50% of the courts' yearly rental payments, would essentially bankrupt the FBF. Two bills were introduced in the 109 th Congress to provide rent relief to the federal judiciary. The first, H.R. 4710 , the "Judiciary Rent Reform Act of 2006," would have required the GSA Administrator to establish rent charges for GSA-owned-and-leased space that do not exceed actual operating and maintenance costs. The proposed legislation would also have required the judiciary to reimburse GSA from judiciary appropriations for any GSA courthouse construction, alterations, or tenant improvements for which GSA did not receive congressional authorization and funding. The legislation was referred to the House Judiciary Committee and Transportation and Infrastructure Committee on February 8, 2006, and, on the following day, to the House Transportation and Infrastructure Subcommittee on Economic Development, Public Buildings, and Emergency Management. The second bill, S. 2292 , also would have required GSA to charge the judiciary for actual operating costs, but would have authorized the Director of the Administrative Office of the U.S. Courts and the GSA Administrator to agree mutually upon how the judicial branch would reimburse GSA for repairs. S. 2292 was referred to the Senate Judiciary Committee on February 15, 2006. The bill was reported favorably on April 27, 2006, and placed on the Senate Legislative Calendar the same day. During consideration of GSA's FY2006 funding, the Senate Committee on Appropriations expressed disappointment that the federal judiciary had attempted to relieve its overall budget problems by challenging the overall rent and cost of its courthouses. The judicial branch has suggested that all the courthouses be transferred to the judicial branch with a forgiveness of debt. This is misplaced logic and any forgiveness would undermine the ability of the Federal Buildings Fund to meet its mission of supporting federal buildings needs both currently and in the future. The committee notes that it strongly supports the purpose and structure of the Federal Buildings Fund, of which the judicial branch is an important participant. The Judicial Conference's rent exemption request has renewed longstanding congressional concerns over costly courthouse construction which requires upgraded structural and architectural elements. GAO reported that courthouses are among the most costly types of federal space to construct. These construction costs necessitate rental rates under GSA's pricing policy that are more expensive than the highest-quality office space in other locations. In addition, GAO recommended that GSA fully analyze and explain factors such as space increases, operating costs, and security upgrades that determine the judiciary's rental rates on an annual basis. GAO believes this information could enable the judiciary to "better understand the reasons behind its rent increases, make more informed space allocation decisions in the future, and identify errors in GSA's billing." The issues not completely resolved include courtroom sharing and assurances from GSA and the judiciary that all future construction projects will be adequately justified to reduce costs. GAO recommended that the judiciary create incentives for more efficient space use, establish criteria for courtrooms and chambers, and reallocate its space needs based on new technological advancements. Capital reinvestment is one of the largest challenges confronting GSA officials, who have described their buildings inventory as predominantly aging, with maintenance and repair needs that far exceed available FBF revenues. The condition of the federal government's real property inventory is not static; that is, even as certain repairs are completed, new problems are identified. In addition, the amount of funding needed for repairs is greater each year, due to cost increases in maintaining an expanded inventory of properties. As a solution, GAO has stated that GSA must find new ways to generate additional revenues that are needed to upgrade its federal inventory. Seeking to increase the amount of funding available to adequately maintain these federal properties, GSA officials have expressed support for legislative reform initiatives introduced in previous Congresses that would authorize the agency to convey excess real property by sale, lease, or exchange, with net proceeds deposited into the FBF for future real property capital acquisitions and improvements. Legislative initiatives to revise federal real property management policies, S. 2805 and H.R. 3285 , were introduced in the 106 th Congress, but neither bill was reported out of committee before Congress adjourned. In 2001, S. 1612 was introduced with recommendations to reform federal property asset management, but the legislation was not reported out of committee before adjournment of the 107 th Congress. Two similar bills were introduced in the 108 th Congress to revise federal property management policies, H.R. 2548 and H.R. 2573 . The first, H.R. 2548 , the Federal Property Asset Management Reform Act, was more comprehensive in its attempt to allow landholding agencies greater flexibility to manage directly their own federal properties. Its provisions were similar to those of S. 1612 , introduced in the 107 th Congress. The proposed legislation would have modified existing federal property statutes to authorize landholding agencies to enter into interagency transfers or exchanges of property, subleases of unexpired portions of existing leases, property exchanges or sales with non-federal sources, or outleases of underutilized real property that must remain in federal ownership. If enacted, H.R. 2548 would have authorized federal landholding agencies to retain the proceeds from their real property transactions. New statutory requirements would have been provided for the crediting of monetary proceeds to existing agency accounts, which would then have been used to fund that agency's capital asset expenditures. H.R. 2548 was ordered to be reported, as amended, by voice vote on July 17, 2003. No further action occurred during the 108 th Congress. The second bill, H.R. 2573 , the Public Private Partnership Act, focused on public-private partnerships as a method to increase funding for the FBF and would have authorized GSA to administer these transactions. The proposed legislation would have authorized GSA to enter into agreements with non-federal entities for the acquisition, lease, construction, maintenance, or renovation of real property under the jurisdiction of GSA, or other landholding agencies. Proceeds from all real property transactions have been deposited into the FBF. H.R. 2573 was reported favorably from the House Government Reform Committee to the full House by voice vote on June 25, 2003. No further action was taken on H.R. 2573 . Although no final action was taken on either H.R. 2548 or H.R. 2573 , the 108 th Congress revised GSA's property management policies with the passage of the FY2005 Consolidated Appropriations Act on December 8, 2004. Section 412 authorized the GSA Administrator to convey real property for sale, lease, exchange, or leaseback agreements, with net proceeds deposited into the FBF for future real property capital acquisitions and improvements. On February 4, 2004, President George W. Bush implemented new federal property guidelines for executive branch agencies with Executive Order 13327, entitled "Federal Real Property Asset Management." Many of its provisions were based on his earlier administrative initiatives pertaining to federal property asset management reforms, which were incorporated as Title III of S. 1612 , introduced during the 107 th Congress. In order to increase agency accountability for real property asset management, E.O. 13327 established the position of Senior Real Property Officer within each executive branch agency. Section 3(b) required that each officer prepare and submit to OMB an initial asset management plan composed of data on the agency's real property assets, and proposals for cooperative arrangements with the commercial real estate community. Section 4 established a Federal Real Property Council within OMB to develop guidance and provide oversight for the executive branch's real property inventory. The chairman of the council is OMB's Deputy Director for Management. Members include each agency's Senior Real Property Officer, OMB's Financial Management Controller, the Administrator of GSA, and any other federal officials deemed appropriate by the chairman. Section 5 required GSA, in consultation with the Federal Real Property Council, to provide policy oversight, and to manage selected properties for the executive branch agencies that requested such assistance. With the consent of the GSA Administrator, operational responsibilities may be delegated to a particular agency, taking into consideration the receiving agency's willingness and proven ability to perform such tasks. Section 5(b) authorized GSA, in conjunction with the council, to establish and maintain a comprehensive database of the executive branch's real property inventory, except when otherwise precluded for reasons of national security. GSA also must publish any asset management measures or standards that may be adopted by the Federal Real Property Council. E.O. 13327 further required GSA to consult with OMB and the other landholding agencies to develop new legislative initiatives to improve the federal government's management of real property activities. Section 2(b) recognized that the provisions of E.O. 13327 did not supersede existing real property law. H.R. 3134 , the Federal Real Property Disposal Pilot Program and Management Improvement Act of 2005, was introduced in the House by Representative Tom Davis and one co-sponsor, on June 30, 2005. The proposed legislation would have established a five-year pilot program to allow for the expedited disposal of surplus or underutilized federal real properties to increase revenues for capital improvements. The OMB Director would be authorized to select the federal properties to participate in the program, based on the cost and time required to dispose of real property assets and the availability of unneeded federal properties. A selected federal property would have been sold at or above fair market value, and the agency that owned the property would have been authorized to retain a portion of the proceeds. If enacted, H.R. 3134 would have codified certain provisions authorized by E.O. 13327, such as the establishment of a Federal Property Council and the creation of senior real property officer positions in the executive branch agencies. Two amendments were adopted by voice vote on October 26, 2005. The first amendment was to authorize the GSA Administrator to notify local governments of the federal government's intent to dispose of federal property in their jurisdictions. In addition, a federal property determined by GSA to be a public benefit conveyance for use by homeless groups would not have been eligible for the five-year pilot program. The second substitute amendment was to require that the OMB Director submit an annual report on the status of the Federal Real Property Disposal Pilot Program to the House Government Reform Committee and the Senate Homeland Security and Governmental Affairs Committee. H.R. 3134 , as amended, was ordered to be reported favorably by the House Committee on Government Reform on October 26, 2005. As approved by the House on June 28, 2007, H.R. 2829 , the FY2008 Financial Services and General Government appropriations bill, provides that an additional amount of $88 million be deposited in the FBF. On July 12, 2007, the Senate Appropriations Committee reported that an additional amount of $625 million be deposited in the Federal Buildings Fund. The FY2008 Consolidated Appropriations Act, signed into law on December 26, 2007, authorized that an additional amount of $84 million be deposited in the Federal Buildings Fund. Given its backlog of rent repairs and the FBF's limited resources, GSA is striving to improve its owned-building inventory by conducting a financial analysis to determine which GSA-owned facilities are not generating sufficient income to cover their operating expenses and the amounts needed for future repairs. Capital reinvestment funds would be used on GSA facilities that are not generating sufficient income compared with their market value, but might generate higher rents once the buildings are renovated. Buildings that are deemed to be nonperforming may be referred for disposal or, if authorized by Congress, alternatives include property exchanges with other federal, state, or local agencies; outleasing to non-federal tenants; and public-private partnerships. Legislation enacted in the 108 th Congress authorized the GSA Administrator to convey real property by sale, lease, or exchange agreements, with net proceeds deposited into the FBF for future real property capital acquisitions and improvements. As a result of this new authority, an additional $50.4 million in net proceeds for the FBF was achieved in FY2006. It has been documented that incoming rent revenues deposited into the FBF have been insufficient to fund needed repairs. Moreover, GSA's efforts to deal with a long-standing backlog of needed repairs have been hindered by a lack of reliable and detailed information about specific properties. In addition, real property law restricts GSA's, and other landholding agencies', ability to generate the additional revenues necessary to upgrade federal buildings, or to dispose of them when they are no longer of use. Some observers contend that existing statutory requirements that have been in place since 1949 often constrain effective federal property management that is necessary to meet agencies' changing mission requirements. As previously mentioned, the 108 th Congress revised GSA's property management policies with the passage of the FY2005 Consolidated Appropriations Act, on December 8, 2004. Section 412 authorized the GSA Administrator to convey real property by sale, lease, exchange, or leaseback agreements, with net proceeds deposited into GSA's Federal Buildings Fund for future real property capital acquisitions and improvements. Introduced in the 109 th Congress, H.R. 3134 , the Federal Real Property Disposal Pilot Program and Management Improvement Act of 2005, proposed to improve the management of federal real property by establishing a five-year pilot program to allow for the expedited disposal of surplus or underutilized federal real properties, and would have enacted many of the requirements of E.O. 13327 into law. It also appears that certain types of transactions with the private sector will continue to be encouraged as the most cost-effective means to restore federal properties, and to dispose of properties that the government no longer needs. GAO has long supported real property reform initiatives that would allow incoming revenues to the FBF from real property transactions. According to proponents, enactment of reform initiatives, such as H.R. 3134 , could fundamentally change existing law by giving GSA and other landholding agencies new incentives to manage and dispose of their real property inventories. Other issues regarding property management may also need to be addressed to resolve GSA's long-standing problems. GAO has reported that GSA's continued reliance on leased property remains as one of the major obstacles to a viable and self-sustaining federal property portfolio. As stated earlier, the current budget process favors lease agreements that appear more economical. One option that Congress may wish to consider would be to include a reference to the total cost of lease agreements in the annual appropriations and authorizations process to reflect better the actual long-term costs associated with leasing. President Bush's establishment of the Federal Real Property Council and the appointment of Senior Real Property Officers will arguably provide greater coordination within the executive branch to improve the operational and financial management of the government's real property inventory. Congressional enactment of H.R. 3134 would have codified these provisions into law. GAO has reported that, while the Federal Real Property Council is developing performance measures and a real property inventory database, it is too early to determine the impact of these efforts, which, in GAO's view, are positive. Funding limitations will likely continue to be GSA's greatest obstacle to completing urgent repairs and renovations to aging federal facilities. Addressing GSA's long-standing issues with its real property portfolio will: ...require a reconsideration of funding priorities at a time when budget constraints will be pervasive. Without effective incentives and tools; top management accountability, leadership, and commitment; adequate funding; full transparency with regard to the government's real property activities; and an effective system to measure results, long-standing real property problems will continue and likely worsen. The cost history pertaining to FBF reserves and trends in the following areas may continue to be of particular concern to Congress: the size of the GSA-managed space inventory and how efficiently that space is used; the leasing program and its effect on costs; and the level of capital investments. In addition to Congress and the executive branch, local and foreign governments, the private sector, and various advocacy groups, such as historic preservation organizations, all have a vested interest in how GSA acquires, manages, and disposes of its real property. A diversity of views could be expected should Congress choose to address this issue further. | The General Services Administration (GSA), through its Public Buildings Service (PBS), is the primary federal real property and asset management agency, with a portfolio consisting of 8,847 buildings and structures with an estimated replacement value of $68.8 billion in FY2006. GSA is also responsible for completing needed repairs and renovations to the federal facilities it manages. Congress enacted the Public Buildings Act Amendments in 1972, and established the Federal Buildings Fund (FBF) within GSA to finance the operating and capital costs associated with federal facilities. Created as a revolving fund, the FBF is financed by income from rental charges assessed to tenant agencies occupying GSA-owned-and-leased space that approximate commercial rates for comparable space and services. While these deposits to the FBF are the principal source of funding, Congress annually prescribes how GSA may allocate its FBF assets as new obligational authority in appropriations funding. Congress also may appropriate additional monies into the fund. Generally, FBF revenues are used first for GSA's building operating expenses. Congress then allocates FBF funds for new construction, repairs, and renovations. The 92nd Congress established the Federal Buildings Fund with the objective that income derived from agency rental assessments would provide a more predictable source of revenue for new construction and capital improvements than direct congressional appropriations. However, the FBF did not generate sufficient revenues for capital expenditures due, in large part, to statutory obligations and limitations placed on the FBF when it was created. After meeting its primary obligation to finance building operating expenses, the FBF has historically not produced sufficient revenues to fund needed repairs in GSA's real property inventory. Because of long-standing problems with a buildings portfolio that has not been financially self-sustaining, GSA has relied on leasing as the only practicable method available to meet increased space needs. Capital reinvestment is one of the largest challenges confronting GSA officials, who have described their buildings inventory as predominantly aging, with maintenance and repair needs that far exceed available FBF revenues. Legislation enacted in the 108th Congress authorized the GSA Administrator to convey real property by sale, lease, exchange, or buyback agreements, with net proceeds deposited into the FBF for future real property capital acquisitions and improvements. The FY2008 Consolidated Appropriations Act, signed into law on December 26, 2007, authorizes that an additional amount of $84 million be deposited in the Federal Buildings Fund. The President's FY2009 budget requests that $525 million be deposited in the FBF. This report was originally written by [author name scrubbed], who has retired from CRS, and will not be updated. |
Because concerns about possible identity theft resulting from data breaches are widespread, Congress spent a considerable amount of time in the 109 th Congress assessing data security practices and working on data breach legislation that would require companies to safeguard sensitive personal data and notify consumers about data security breaches. According to the Federal Trade Commission (FTC), identity theft is the most common complaint from consumers in all 50 states. In the FTC- sponsored ID-theft survey of U.S. adults, victims reported misuse of credit card and non-credit card accounts, and misuse of personal information to open new accounts or engage in other types of fraud. Victims of identity theft may incur damaged credit records, unauthorized charges on credit cards, and unauthorized withdrawals from bank accounts. In the remainder of the 110 th Congress, "The data-security legislative outlook is murky, with several conflicting bills pending in Congress, several committees involved, and little sign of imminent consensus." Although, as noted, the occurrence of data breaches has been commonplace, the solutions presented in the federal legislation to address the problems have varied. Common themes included the scope of coverage (who and what is covered); imposition of information security safeguards; breach notification requirements (when, how, triggers, frequency, and exceptions); customer access to and amendment of records; restrictions on the use of social security numbers; credit freezes on consumer reports; identity theft penalties; enforcement authorities and causes of action; and preemption. Congress will continue to grapple with the problem of establishing a legal framework to prevent and respond to improper disclosures of personally identifiable information, including how to notify the public about such security breaches. For the 110 th Congress, several high-tech companies have formed the Consumer Privacy Legislative Forum to promote a comprehensive data privacy bill to create a simplified, uniform legal framework that would set standards for what notice must be given to consumers about personal information collected on them and how it will be used, and preempt any existing state laws. Federal legislative data security proposals were modeled after, in large part, state breach notification and data security laws. The imposition of data security breach notification obligations on entities that own, possess, or license sensitive personal information is a relatively new phenomenon. California was the first jurisdiction to enact a data breach notification law in 2002. There followed the emergence of numerous federal and state bills to impose notification requirements on entities that collect sensitive personal information. S.B. 1386, the California Security Breach Notification Act, requires a state agency, or any person or business that owns or licenses computerized data that include personal information, to disclose any breach of security of the data to any resident of the state whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person. A "breach of the security of the system" is the "unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the person or business." "Personal information" is defined as the first name or initial and last name of an individual, with one or more of the following: Social Security Number, driver's license number, credit card or debit card number, or a financial account number with information such as PIN numbers, passwords, or authorization codes that could gain access to the account. Exemptions are provided for encrypted information, for criminal investigations by law enforcement, and for breaches that are either immaterial or not "reasonably likely to subject the customers to unauthorized disclosure of personal information." California requires notice be given in the "most expedient time possible and without unreasonable delay," either in writing or by e-mail. If a company can show that the cost of notification will exceed $250,000, that more than 500,000 people are affected, or that the individual's contact information is unknown, then notice may be given through the media. Numerous data security breaches were subsequently disclosed in response to California's law. In the absence of a comprehensive federal data breach notification law, many states enacted laws requiring consumer notice of security breaches of personal data. The majority of states have introduced or passed bills to require companies to notify persons affected by breaches involving their personal information, and in some cases to implement information security programs to protect the security, confidentiality, and integrity of data. Many states have enacted laws requiring notice of security breaches of personal data and consumer redress. As of January 2008, 39 states enacted data security laws requiring entities to notify persons affected by security breaches and, in some cases, to implement information security programs to protect the security, confidentiality, and integrity of data. The two predominant themes are consumer notification requirements in the event of a data breach and consumer redress. Most of the statutes cover both private entities and government agencies. Some statutes also impose obligations on third-party service providers to notify the owner or licensor of the data when a breach occurs. Many of the state laws follow the basic framework of the California breach notification law. The majority of state laws apply to electronic or computerized data only. Notice provisions addressed by the states include description of triggering events, consideration of the level of harm or the risk of misuse that triggers notification, recipients of notification, timing of notice, method of notification, and content of notice. In addition, state laws may include exemptions for entities that are regulated under federal privacy laws (e.g., the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act); expanded definitions of "personal information"; notice requirements to consumer reporting agencies of customers affected by security breaches; civil penalties for failure to promptly notify customers of a security breach; requirements for the implementation of information security programs; creation of a private right of action to recover actual damages from businesses for failure to notify customers of a security breach in a timely manner; the right to place a credit freeze on a consumer credit report; restrictions on the sale and use of social security numbers; and enhanced criminal penalties for identity fraud. The following discussion highlights some of the various legislative approaches proposed in the 110 th Congress, including existing laws affected by the bills; the scope of coverage (who and what information is covered); data privacy and security safeguards for sensitive personal information; requirements for security breach notification (when, how, triggers, frequency, and exceptions); restrictions on social security numbers (collection, use, and sale); credit freezes and fraud alerts on consumer reports; identity theft penalties; causes of action; and preemption (some of these bills preempt and sometimes limit recently enacted state laws). Some of the bills attempted to amend the Gramm-Leach-Bliley Act to require a financial institution to notify customers, consumer reporting agencies, and law enforcement agencies of a breach. Others would have amended the Fair Credit Reporting Act to prescribe data security standards, and others would amend the federal criminal code to prohibit intentionally accessing a computer without authorization, concealing security breaches involving personally identifiable information, and unlawfully accessing another's means of identification during a felony involving computers. Amendments to the Racketeer Influenced and Corrupt Organizations Act to cover fraud in connection with unauthorized access were also recommended, along with amendments by the U.S. Sentencing Commission to the sentencing guidelines regarding identity theft. Some of the bills are free-standing. Data brokers sell a wide array of personal information (real property, motor vehicle, health, employment, and demographic information), and are in many respects unregulated. Generally, they are not subject to the requirements imposed on credit reporting agencies under the Fair Credit Reporting Act. The federal bills varied in their scope of covered entities: agencies or persons that own, license, or possess electronic personal data; any commercial entity or charitable, educational, or nonprofit organization that acquires, maintains, or uses sensitive personal information; individual reference services providers, marketing list brokers, governmental entities, consumer reporting agencies, businesses sharing information with affiliates, entities with established business relationships with the data subject, news organizations, private investigators, and labor unions; any agency or person engaged in interstate commerce that owns or licenses electronic data containing personal information; a financial institution; or a consumer reporting agency, reporting broker, or reporting collector. The federal bills included provisions that define protected information, regulating either personal information, sensitive financial identity information, sensitive financial account information, or sensitive personally identifiable information. Some bills established limitations on the sale or transfer of sensitive personal information. The federal bills required covered entities to take reasonable steps to protect against security breaches and to prevent unauthorized access to sensitive personal information that the entity sells, maintains, collects, or transfers. Some bills prescribe data security safeguards and guidelines for joint promulgation of security regulations. Others required the Federal Trade Commission (FTC) to promulgate regulations governing the conduct of information brokers. Many of the federal bills included provisions that would have imposed mandatory security requirements for sensitive personal information, required implementation of technical security safeguards and best practices, and mandated the development of security policies governing the processing and storage of personal data. Regulations in some cases were to include requirements for financial institutions to dispose of sensitive personal financial information. An Online Information Security Working Group to develop best practices was created in one of the bills. Another theme that existed within some of the bills was application of fair information practices, similar to the Privacy Act (5 U.S.C. § 552a) and other privacy laws, such the Health Insurance Portability and Accountability Act (HIPAA), to information brokers not currently subject to similar protection to give individuals more control over the sharing of their personal information. Fair Information Practices typically include notice of information practices; informed consent/choice as to how personal information is used beyond the use for which the information was provided (e.g., giving the individual the opportunity to either opt-in or opt-out before personal data is sold); access to one's personal information, including a reasonable opportunity to review information and to correct inaccuracies or delete information; requirements for companies to take reasonable steps to protect the security of the information they collect from consumers; and the establishment of enforcement mechanisms to ensure compliance, including independent recourse mechanisms, systems to verify the privacy practices of businesses, and obligations to remedy implementation problems. Some of the federal bills incorporated fair information practices, such as access to and correction of personal information by the subject. Some bills adopted fair information practices and provided for individual access to information held by an information broker, accounting of disclosures, and amendment of errors. The federal bills established breach notification requirements, delineated triggers for consumer notice, and specified the level of risk of harm or injury that triggers notification. Provisions regarding the timeliness of notification, the methods and content of notice, and the duty to coordinate with consumer reporting agencies were generally included. Sometimes exceptions to notification requirements were permitted for national security and law enforcement purposes, with notice to Congress when exceptions are made. The purpose of a law enforcement exception to request a hold on notification is to gather additional information pending investigation. Some bills required notice to individuals if it is determined that the breach has resulted in or poses a reasonable risk of identity theft, or if the breach is reasonably likely to result in harm or substantial inconvenience to the consumer. Some amend Gramm-Leach-Bliley to require financial institutions to provide notice when a breach occurs to the consumer, to consumer reporting agencies, to a newly created FTC information clearinghouse, and to law enforcement agencies. In some cases, entities that maintain personal information for financial institutions are required to notify the institution when a breach has occurred. Some of the proposals provided an exemption from the notice requirement when the information was encrypted. In some of the bills, covered entities were required upon discovering a breach of security to report the breach to the FTC or other appropriate federal regulator and to notify consumer reporting agencies if the breach is determined to affect the sensitive personal information of 1,000 or more individuals. Recently, Congress has sought to further limit uses of the social security number, and is likely to continue to consider such measures in the 110 th Congress, including proposals to remove social security numbers from Medicare cards, and limiting or prohibiting solicitation, display, sale, purchase, use, or access to social security numbers in the private sector. Thirty-eight states now have credit freeze laws. Some bills would have permitted a consumer to place a credit or security freeze on his or her credit report in response to a security breach. Others required consumer reporting agencies to maintain fraud alerts for consumers who have received notice of a breach of their data. A security freeze law allows a customer to block unauthorized third parties from obtaining his or her credit report or score. A consumer who places a security freeze on his or her credit report or score receives a personal identification number to gain access to credit information or to authorize the dissemination of credit information. Benefits of security freeze laws include increased consumer control over access to personal information and corresponding decreased opportunities for imposters to obtain access to credit. Critics of security freeze laws argue that security freezes may cause consumers unwanted delays when they must provide third-party institutions access to credit histories for purposes such as qualifying for loans, applying for rental property leases, and obtaining mortgage rate approval. Some bills established in the FTC an Office of Identity Theft to take civil enforcement actions. Some defined identity theft as the unauthorized assumption of another person's identity for the purpose of engaging in commercial transactions under that person's name; others defined it as the unauthorized acquisition, purchase, sale, or use by any person of a person's sensitive personal information that violates section 1028 of title 18 of the U.S. Code (fraud and related activity in connection with identification documents and information) or any provision of state law on the same subject or matter, or results in economic loss to the individual. Some of the bills expressly provided for enforcement by state attorneys general. The bills also treated violations as unfair or deceptive acts or practices under the FTC Act. In some of the bills, states were authorized to bring civil actions on behalf of residents and a private right of action was created for individuals injured by violations. Others provided a safe harbor for financial institutions that comply with the legislation. Some would require joint promulgation of regulations to shield consumer reporters from liability under state common law. The National Research Council would study securing personal information. The Comptroller General would study either social security number uses or federal agency use of data brokers or commercial databases containing personally identifiable information. The Administrator of the General Services Administration (GSA) would be required to evaluate contractor programs. For example, in considering contract awards totaling more than $500,000, GSA would be required to evaluate the data privacy and security program of a data broker, program compliance, the extent to which databases and systems have been compromised by security breaches, and data broker responses to such breaches. In some bills, the Secret Service would report to Congress on security breaches. The relationship of federal law to state data security laws, the question of federal preemption, was addressed in federal legislation. A variety of approaches was incorporated in the bills. With respect to other federal laws, such as the Fair Credit Reporting Act or the Gramm-Leach-Bliley Act, some would not preempt them. Others would have amended the Fair Credit Reporting Act to prevent states from imposing laws relating to the protection of consumer information, safeguarding of information, notification of data breaches, to misuse of information, and mitigation. Others would have amended Gramm-Leach-Bliley. Some of the bills would have preempted state laws, some would preempt only inconsistent state laws, and some would have preempted state law except to the extent that the state law provides greater protection for consumers. Others would preempt state laws relating to notification of data breaches; notification of data breaches (with the exception of California's law); information security programs and notifications of financial institutions; individual access to and correction of electronic records; liability for failure to notify an individual of a data breach or failure to maintain an information security program; requirements for consumer reporting agencies to comply with a consumer's request to prohibit release of the consumer's information; prohibitions on the solicitation or display of social security account numbers; and compliance with administrative, technical, and physical safeguards for sensitive personally identifying information. Other bills would have created a national notification standard without preempting stronger state laws, and still others would not preempt state trespass, contract, or tort law or other state laws that relate to fraud. Compliance concerns have been raised with the prospect that multiple laws requiring potentially different notification requirements will make compliance an overly complex and expensive task. Business groups and privacy advocates differ in their views of whether a federal data security law should allow stronger state laws. Industry groups and affected companies advocate a narrow notification standard that would preempt differing state laws. Privacy advocates seek a uniform national notification standard without preempting stronger state laws. The question of over-notification has been raised by industry participants. Business groups argue that the California breach notification law has prompted over-notification (companies notifying consumers of data security breaches when there is no risk of economic harm or fraud). A related question is whether breach notification should occur for all security breaches, or whether it should be limited to significant breaches. Some of the federal bills would have established a federal notice requirement when there has been a breach that raises significant risks to consumers. Federal legislation was also introduced to establish a federal floor for notification requirements that are not preemptive of state laws (an approach supported by the majority of state attorneys general). Business interests have pointed out that a federal floor approach will mean that, in practice, the law of the strictest state will become the de facto standard, and thus prefer clear federal preemption of state laws. Several bills have been introduced in the 110 th Congress to combat identity theft, address security breaches, and protect personal information. During the First Session of the 110 th Congress, three data security bills were reported favorably out of Senate committeesâ S. 239 (Feinstein), a bill to require federal agencies, and persons engaged in interstate commerce, in possession of data containing sensitive personally identifiable information, to disclose any breach of such information; S. 495 (Leahy), a bill to prevent and mitigate identity theft, to ensure privacy, to provide notice of security breaches, and to enhance criminal penalties, law enforcement assistance, and other protections against security breaches, fraudulent access, and misuse of personally identifiable information; and S. 1178 (Inouye), a bill to strengthen data protection and safeguards, require data breach notification, and further prevent identity theft. On June 3, H.R. 4791 (Clay), a bill to strengthen requirements for ensuring the effectiveness of information security controls over information resources that support federal operations and assets, was passed by the House by voice vote under suspension of the rules. Summaries of the bills provided below are from the Legislative Information System http://www.congress.gov . Federal Agency Data Privacy Protection Act. This bill would establish requirements for the use of encryption for sensitive data maintained by the federal government; relating to access by agency personnel to sensitive data; and relating to government contractors and their employees involving sensitive data. Cyber-Security Enhancement and Consumer Data Protection Act of 2007. This bill would amend the federal criminal code to (1) prohibit accessing or remotely controlling a protected computer to obtain identification information; (2) revise the definition of "protected computer" to include computers affecting interstate or foreign commerce or communication; (3) expand the definition of racketeering to include computer fraud; (4) redefine the crime of computer-related extortion to include threats to access without authorization (or to exceed authorized access of) a protected computer; (5) impose criminal penalties for conspiracy to commit computer fraud; (6) impose a fine and/or five year prison term for failure to notify the U.S. Secret Service or Federal Bureau of Investigation (FBI) of a major security breach (involving a significant risk of identity theft) in a computer system, with the intent to thwart an investigation of such breach; (7) increase to 30 years the maximum term of imprisonment for computer fraud and require forfeiture of property used to commit computer fraud; and (8) impose criminal penalties for damaging 10 or more protected computers during any one-year period. The bill also directs the U.S. Sentencing Commission to review and amend its guidelines and policy statements to reflect congressional intent to increase criminal penalties for computer fraud and authorizes additional appropriations in FY2007-FY2011 to the U.S. Secret Service, the Department of Justice, and the FBI to investigate and prosecute criminal activity involving computers. Data Accountability and Trust Act. This bill would require the Federal Trade Commission (FTC) to promulgate regulations requiring each person engaged in interstate commerce that owns or possesses electronic data containing personal information to establish security policies and procedures. The bill also authorizes the FTC to require a standard method or methods for destroying obsolete nonelectronic data. The bill also requires information brokers to submit their security policies to the FTC in conjunction with a security breach notification or on FTC request, requires the FTC to conduct or require an audit of security practices when information brokers are required to provide notification of such a breach, and authorizes additional audits after a breach. Additionally, the bill requires information brokers to (1) establish procedures to verify the accuracy of information that identifies individuals; (2) provide to individuals whose personal information they maintain a means to review it; (3) place notice on the Internet instructing individuals how to request access to such information; and (4) correct inaccurate information. Furthermore, the bill directs the FTC to require information brokers to establish measures which facilitate the auditing or retracing of access to, or transmissions of, electronic data containing personal information and prohibits information brokers from obtaining or disclosing personal information by false pretenses (pretexting). Additionally, the bill prescribes procedures for notification to the FTC and affected individuals of information security breaches. The bill also sets forth special notification requirements for breaches (1) by contractors who maintain or process electronic data containing personal information; (2) involving telecommunications and computer services; and (3) of health information. H.R. 958 preempts state information security laws. Data Security Act of 2007. This bill would prescribe security procedures which an entity that maintains or communicates sensitive account or personal information must implement and enforce in order to protect the information from an unauthorized use likely to result in substantial harm or inconvenience to the consumer. The bill also grants exclusive enforcement powers to specified federal regulatory agencies with oversight of financial institutions. The bill also denies a private right of action, including a class action, regarding any act or practice regulated under this act. The bill also prohibits any civil or criminal action in state court or under state law relating to any act or practice governed under this act. The bill prescribes data security standards to be implemented by federal agencies. The bill also expresses the sense of the Congress that federal regulators shall make every effort to reconcile differences between this act and specified requirements of the Gramm-Leach-Bliley Act. The bill provides that a notice provided to any consumer under this act may be the basis for a request by the consumer for an initial fraud alert under the Fair Credit Reporting Act. H.R. 1685 preempts state law with respect to the responsibilities of any person to protect against and investigate such data security breaches and mitigate any losses or harm resulting from them. Federal Agency Data Breach Protection Act. The bill would amend federal law governing public printing and documents to instruct the Director of the Office of Management and Budget (OMB) to establish policies, procedures, and standards for agencies to follow in the event of a breach of data security involving disclosure of sensitive personal information for which harm to an individual could reasonably be expected to result. The bill would also require such policies and procedures to include (1) timely notification to individuals whose sensitive personal information could be compromised as a result of a breach; (2) guidance on determining how to provide timely notice; and (3) guidance regarding whether additional special actions are necessary and appropriate, including data breach analysis, fraud resolution services, identity theft insurance, and credit protection or monitoring services. The bill would also authorizes each agency Chief Information Officer to: (1) enforce data breach policies; and (2) develop an inventory of all personal computers, laptops, or any other hardware containing sensitive personal information. The bill would require federal agency information security programs to include data breach notification procedures to alert individuals whose sensitive personal information is compromised. H.R. 2124 would make it the duty of each agency Chief Human Capital Officer to prescribe policies and procedures for employee exit interviews, including a full accounting of all federal personal property assigned to the employee during the course of employment. Privacy and Cybercrime Enforcement Act of 2007. This bill would amend the federal criminal code provisions relating to computer fraud and unauthorized access to computers to (1) include computer fraud within the definition of racketeering activity; (2) provide criminal penalties for intentional failures to provide required notices of a security breach involving sensitive personally identifiable information; (3) expand penalties for conspiracies to commit computer fraud and extortion attempts involving threats to access computers without authorization; (4) provide for forfeiture of property used to commit computer fraud; and (5) require restitution for victims of identity theft and computer fraud. The bill would also authorize additional appropriations for investigating and prosecuting criminal activity involving computers. H.R. 4175 would require the U.S. Sentencing Commission to review and amend, if appropriate, its sentencing guidelines and policies related to identity theft and computer fraud offenses. The bill authorizes the Attorney General and state attorneys general to bring civil actions and obtain injunctive relief for violations of federal laws relating to data security. H.R. 4175 would require federal agencies as part of their rulemaking process to prepare and make available to the public privacy impact assessments that describe the impact of proposed agency rules on the privacy of individuals. The bill would also authorize the Office of Justice Programs of the Department of Justice (DOJ) to award grants to states for programs to increase enforcement efforts involving fraudulent, unauthorized, or other criminal use of personally identifiable information. In addition, the bill would also authorize the Director of the Bureau of Justice Assistance to make grants to improve the identification, investigation, and prosecution of criminal or terrorist conspiracies or activities that span jurisdictional boundaries, including terrorism, economic crime, and high-tech crime. Federal Agency Data Protection Act. Defines "personally identifiable information" as any information about an individual maintained by a federal agency, including information about the individual's education, finances, medical, criminal, or employment history, that can be used to distinguish or trace such individual's identity or that is linked or linkable to the individual. Defines "mobile digital device" as any device that can store or process information electronically and is designed to be used in a manner not limited to a fixed location. Includes the following within the information security duties of the Director of the Office of Management and Budget (OMB): (1) the establishment of minimum requirements for the protection of personally identifiable information maintained in or transmitted by mobile digital devices, including requirements for the use of technologies that render information unusable by unauthorized persons; (2) the establishment of minimum requirements for agency actions following a breach of information security; (3) notification of individuals whose personally identifiable information may have been compromised or accessed during a security breach; (4) reporting of information security breaches involving personally identifiable information that may have been compromised or accessed during a security breach to the Federal Information Security Incident Center; (5) requiring agencies to comply with minimally acceptable system configuration requirements; (6) requiring agency contractors to meet minimally acceptable system configuration requirements; and (7) ensuring compliance with information security requirements for information and information systems used or operated by a contractor of an agency or subcontractor. Requires federal agencies to (1) adopt plans and procedures for ensuring the adequacy of information security protections for systems maintaining or transmitting personally identifiable information; (2) follow policies, procedures, and standards in the event of a data security breach involving the disclosure of personally identifiable information; (3) maintain an inventory of all personal computers, laptops, or other hardware containing personally identifiable information; (4) implement policies for employee exit interview to account for all federal personal property assigned to the employee; (5) develop and implement a plan to protect the security and privacy of federal government information collected or maintained by or on behalf of the agency from the risks posed by peer-to-peer file sharing; and (6) undergo annual independent audits (currently, evaluations are required) in conformity with generally accepted government accounting standards of their information programs and practices (such audits would also include the information systems used, operated, or supported on behalf of the agency by a contractor of the agency, any subcontractor, or any other entity). Amends the E-Government Act of 2002 to require the development of best practices for agencies to follow in conducting privacy impact assessments. The House Committee on Oversight and Government reported the bill, as amended, with H.Rept. 110-664 on May 21, 2008. On June 3, 2008, H.R. 4791 was passed by the House by voice vote under suspension of the rules. Notification of Risk to Personal Data Act of 2007. This bill would require any federal agency or business entity engaged in interstate commerce that uses, accesses, transmits, stores, disposes of, or collects sensitive, personally identifiable information, following the discovery of a security breach, to notify (as specified): (1) any U.S. resident whose information may have been accessed or acquired; and (2) the owner or licensee of any such information the agency or business does not own or license. Additionally, the bill exempts (1) agencies from notification requirements for national security and law enforcement purposes and for security breaches that do not have a significant risk of resulting in harm, provided specified certification or notice is given to the U.S. Secret Service; and (2) business entities from notification requirements if the entity utilizes a security program that blocks unauthorized financial transactions and provides notice of a breach to affected individuals. The bill also requires notifications regarding security breaches under specified circumstances to the Secret Service, the Federal Bureau of Investigation, the United States Postal Inspection Service, and state attorneys general. Furthermore, the bill sets forth enforcement provisions and authorizes appropriations for costs incurred by the Secret Service to investigate and conduct risk assessments of security breaches. The Senate Committee on the Judiciary reported the bill without a written report on May 31, 2007. Personal Data Privacy and Security Act of 2007. This bill would amend the federal criminal code to (1) make fraud in connection with the unauthorized access of sensitive personally identifiable information (in electronic or digital form) a predicate for racketeering charges; and (2) prohibit concealment of security breaches involving such information. The bill also directs the U.S. Sentencing Commission to review and amend its guidelines relating to fraudulent access to, or misuse of, digitized or electronic personally identifiable information (including identify theft). Additionally, the bill requires a data broker to (1) disclose to an individual, upon request, personal electronic records pertaining to such individual maintained for disclosure to third parties; and (2) maintain procedures for correcting the accuracy of such records. The bill also establishes standards for developing and implementing safeguards to protect the security of sensitive personally identifiable information. Additionally, the bill imposes upon business entities civil penalties for violations of such standards and requires such business entities to notify (1) any individual whose information has been accessed or acquired; and (2) the U.S. Secret Service if the number of individuals involved exceeds 10,000. Furthermore, the bill authorizes the Attorney General and state attorneys general to bring civil actions against business entities for violations of this act. The bill requires the Administrator of the General Services Administration in considering contract awards totaling more than $500,000, to evaluate (1) the data privacy and security program of a data broker; (2) program compliance; (3) the extent to which databases and systems have been compromised by security breaches; and (4) data broker responses to such breaches. The bill also requires federal agencies to conduct a privacy impact assessment before purchasing personally identifiable information from a data broker. The Senate Committee on the Judiciary reported the bill with written report 110-70 on May 23, 3007. Identity Theft Prevention Act. This bill would require any commercial entity or charitable, educational, or nonprofit organization that acquires, maintains, or uses sensitive personal information (covered entity) to develop, implement, maintain, and enforce a written program, containing administrative, technical, and physical safeguards, for the security of sensitive personal information it collects, maintains, sells, transfers, or disposes of. The bill defines "sensitive personal information" as an individual's name, address, or telephone number combined with at least one of the following relating to that individual: (1) the social security number or numbers derived from that number; (2) financial account or credit or debit card numbers combined with codes or passwords that permit account access, subject to exception; or (3) a state driver's license or resident identification number. The proposed act requires a covered entity (1) to report a security breach to the Federal Trade Commission (FTC); (2) if the entity determines that the breach creates a reasonable risk of identity theft, to notify each affected individual; and (3) if the breach involves at least 1,000 individuals, to notify all consumer reporting agencies specified in the Fair Credit Reporting Act. The bill also authorizes a consumer to place a security freeze on his or her credit report by making a request to a consumer credit reporting agency, and prohibits a reporting agency, when a freeze is in effect, from releasing the consumer's report for credit review purposes without the consumer's prior express authorization. Additionally, this legislation requires (1) the establishment of the Information Security and Consumer Privacy Advisory Committee; and (2) a related crime study, including the correlation between methamphetamine use and identity theft crimes. Also, this bill treats any violation of this act as an unfair or deceptive act or practice under the Federal Trade Commission Act, requires enforcement under other specified laws, allows enforcement by state attorneys general, and preempts state laws requiring notification of affected individuals of security breaches. The Senate Committee on Commerce, Science and Transportation reported the bill with written report 110-235 on December 5, 2007. Personal Data Protection Act of 2007. This bill would require agencies and individuals who possess computerized data containing sensitive personal information to disclose security breaches that pose a significant risk of identity theft. Data Security Act of 2007. The bill would prescribe security procedures which an entity that maintains or communicates sensitive account or personal information must implement and enforce in order to protect the information from an unauthorized use likely to result in substantial harm or inconvenience to the consumer. The bill would also grant exclusive enforcement powers to specified federal regulatory agencies with oversight of financial institutions. The bill also denies a private right of action, including a class action, regarding any act or practice regulated under this act. The bill would also prohibit any civil or criminal action in state court or under state law relating to any act or practice governed under this act. The bill would prescribe data security standards to be implemented by federal agencies. S. 1260 preempts state law with respect to the responsibilities of any person to protect against and investigate such data security breaches and mitigate any losses or harm resulting from them. Federal Agency Data Breach Protection Act. The bill would amend federal law governing public printing and documents to instruct the Director of the Office of Management and Budget (OMB) to establish policies, procedures, and standards for agencies to follow in the event of a breach of data security involving disclosure of sensitive personal information for which harm to an individual could reasonably be expected to result. The bill would require such policies and procedures to include (1) timely notification to individuals whose sensitive personal information could be compromised as a result of a breach; (2) guidance on determining how to provide timely notice; and (3) guidance regarding whether additional special actions are necessary and appropriate, including data breach analysis, fraud resolution services, identity theft insurance, and credit protection or monitoring services. The bill also authorizes each agency Chief Information Officer to: (1) enforce data breach policies; and (2) develop an inventory of all personal computers, laptops, or any other hardware containing sensitive personal information. The bill would also require federal agency information security programs to include data breach notification procedures to alert individuals whose sensitive personal information is compromised. S. 1558 makes it the duty of each agency Chief Human Capital Officer to prescribe policies and procedures for employee exit interviews, including a full accounting of all federal personal property assigned to the employee during the course of employment. | During the First Session of the 110 th Congress, three data security bills were reported favorably out of Senate committeesâ S. 239 (Feinstein), a bill to require federal agencies, and persons engaged in interstate commerce, in possession of data containing sensitive personally identifiable information, to disclose any breach of such information; S. 495 (Leahy), a bill to prevent and mitigate identity theft, to ensure privacy, to provide notice of security breaches, and to enhance criminal penalties, law enforcement assistance, and other protections against security breaches, fraudulent access, and misuse of personally identifiable information; and S. 1178 (Inouye), a bill to strengthen data protection and safeguards, require data breach notification, and further prevent identity theft. On June 3, 2008, H.R. 4791 (Clay), a bill to strengthen requirements for ensuring the effectiveness of information security controls over information resources that support federal operations and assets and to protect personally identifiable information of individuals that is maintained in or transmitted by federal agency information systems, was passed by the House by voice vote under suspension of the rules. Other data security bills were also introduced including S. 1202 (Sessions), S. 1260 (Carper), S. 1558 (Coleman), H.R. 516 (Davis), H.R. 836 (Smith), H.R. 958 (Rush), H.R. 1685 (Price), H.R. 2124 (Davis), and H.R. 4175 (Conyers). This report discusses the core areas addressed in federal legislation. For related reports, see CRS Report RL34120, Federal Information Security and Data Breach Notification Laws , by [author name scrubbed]. Also see the Current Legislative Issues web page for "Privacy and Data Security" available at http://apps.crs.gov/ cli/ cli.aspx?PRDS_CLI_ITEM_ID=2105 . This report will be updated as warranted. |
Article I of the U.S. Constitution grants all legislative powers to a bicameral Congress: a House of Representatives and a Senate that are the result of a "Great Compromise" seeking to balance the effects of popular majorities with the interests of the states. Our system currently provides for a two-year term of office for House Members from the 435 population-based districts. In the Senate, voters of each state elect two Senators, who serve six-year terms that overlap (such that only one-third of the chamber is up for election in any given election cycle). The two chambers are fundamentally equal in their legislative roles and functions. Only the Senate confirms presidential nominations and approves treaties. Only the House can originate revenue legislation, but the Senate can amend revenue legislation, and the enactment of law always requires both chambers to separately agree to the same bill in the same form before presenting it to the President. Because each chamber has the constitutional authority to make its own rules, the House and Senate have developed very different ways of processing legislation, perhaps partially flowing from their constitutional differences. In general, House rules and practices allow a numerical majority to process legislation relatively quickly. Senate rules and procedures, on the other hand, favor deliberation over quick action, as they provide significant procedural leverage to individual Senators. Congressional action is typically planned and coordinated by party leaders in each chamber, who have been chosen by Members of their own caucus or conference—that is, the group of Members in a chamber who share a party affiliation. Majority party leaders in the House have important powers and prerogatives to effectively set the policy agenda and decide which proposals will receive floor consideration. In the Senate, the leader of the majority party is generally expected to propose items for consideration, but formal tools that allow a numerical majority to take action are few. Instead, majority party leadership typically must negotiate with minority party leaders (and often all Senators) to effectively conduct Senate floor action. In both chambers, much of the policy expertise resides in the standing committees—panels of Members from both parties that typically take the lead in developing and assessing legislation. Members typically serve on a small number of committees, often for many years, allowing them to become highly knowledgeable in certain policy areas. All committees are chaired by a Member of the majority party, though chairs often work closely with the committee's ranking member, the leader of the minority party on the committee. In almost all cases, the ratio of majority party to minority party members on a committee roughly reflects the overall partisan ratio in the congressional chamber. Committee members and staff spend much of their time drafting and considering legislative proposals, but committees engage in other activities, as well. Once law is enacted, Congress has the prerogative and responsibility to provide oversight of policy implementation, and its committees take the lead in this effort. Both chambers provide their committees with significant powers and latitude for oversight and investigations into questions of public policy and its effects. Although the engine of legislative ideas and action is Congress itself, the President has influence in the legislative process, as well. The President recommends an annual budget for federal agencies and often suggests legislation. Perhaps more significantly, the power to veto legislation can affect the content of bills passed by Congress. Because it is quite unusual for law to be enacted over a presidential veto, Congress typically must accommodate the President's position on proposed policies. The process by which a bill becomes law is rarely predictable and can vary significantly from bill to bill. In fact, for many bills, the process will not follow the sequence of congressional stages that are often understood to make up the legislative process. This report presents a look at each of the common stages through which a bill may move, but complications and variations abound in practice. Legislation may take one of several forms, depending on the intended purpose. Bills and joint resolutions may become law if enacted during the two-year Congress in which they were introduced. Simple resolutions and concurrent resolutions are the other options; these measures cannot make law, but may be used by each chamber, or by both, to publicly express sentiments or accomplish internal administrative or organizational tasks, such as establishing their rules for proceeding. Only Members of the House or Senate may introduce legislation, though occasionally a Member introduces legislation by request of the President. Members and their staff typically consult with nonpartisan attorneys in each chamber's Legislative Counsel office for assistance in putting policy proposals into legislative language. Members may circulate the bill and ask others in the chamber—often via Dear Colleague letters—to sign on as original co-sponsors of a bill to demonstrate a solid base of support for the idea. In the House, a bill is introduced when it is dropped in the hopper (a wooden box on the House floor). In the Senate, the bill is submitted to clerks on the Senate floor. Upon introduction, the bill will receive a designation based on the chamber of introduction, for example, H.R. or H.J.Res. for House-originated bills or joint resolutions and S. or S.J.Res. for Senate-originated measures. It will also receive a number, which is typically the next number available in sequence during that two-year Congress. In the House, bills then are referred by the Speaker, on the advice of the nonpartisan parliamentarian, to all committees that have jurisdiction over the provisions in the bill, as determined by the chamber's standing rules and past referral decisions. Most bills fall under the jurisdiction of one committee. If multiple committees are involved and receive the bill, each committee may work only on the portion of the bill under its jurisdiction. One of those committees will be designated the primary committee of jurisdiction and will likely take the lead on any action that may occur. In the Senate, bills are typically referred to committee in a similar process, though in almost all cases, the bill is referred to only the committee with jurisdiction over the issue that predominates in the bill. In a limited number of cases, a bill might not be referred to committee, but instead be placed directly on the Senate Calendar of Business through a series of procedural steps on the floor. Each committee receives many bill referrals over the course of a Congress—far more than the panel is capable of pursuing in any detail. The committee's chair has the chief agenda-setting authority for the committee; in essence, the chair identifies the bills or issues on which the committee will try to formally act through hearings or markups (or both). The first formal committee action on a bill or issue might be a hearing, which provides a forum at which committee Members and the public can hear about the strengths and weaknesses of a proposal from selected parties—like key executive branch agencies, relevant industries, and groups representing interested citizens. Hearings are also a way to spotlight legislation to colleagues, the public, and the press. At the hearing, invited witnesses provide short oral remarks to the assembled committee, but each witness also submits a longer written version of his or her feedback on the bill. After witnesses' oral statements, Members of the committee take turns asking questions of the witnesses. Although these hearings provide the formal public setting at which feedback is solicited on the policy proposal, committee Members and staff engage in additional assessment of the approach through informal briefings and other mechanisms. Also note that a hearing is not required from a procedural standpoint for a bill to receive further action from the committee. A committee markup is the key formal step a committee ultimately takes for the bill to advance to the floor. Normally, the committee chair chooses the proposal that will be placed before the committee for markup: a referred bill or a new draft text. At this meeting, which is typically open to the public, Members of the committee consider possible changes to the proposal by offering and voting on amendments to it, including possibly a complete substitute for its text. A markup concludes when the committee agrees, by majority vote, to report the bill to the chamber. Committees rarely hold a markup unless the proposal in question is expected to receive majority support on that vote. The committee may vote to report a referred bill, with recommended changes that reflect any amendments adopted during the markup. As an alternative to a referred bill, it may instead report out an original or clean bill that was basically written in the markup process itself from a draft proposal. Most House and Senate committees also establish subcommittees—subpanels of the full committee where Members can further focus on specific elements of the policy area. The extent to which subcommittees play a formal role in policymaking—for example, by holding hearings or marking up legislation prior to full committee consideration—varies by chamber and by committee tradition and practice. Whatever role a full committee allows its subcommittees to play, subcommittees cannot report legislation to the chamber; only full committees may do so. Once a committee has reported a bill, it is placed on one of the respective chambers' calendars. These calendars are essentially a list of bills eligible for floor consideration; however, the bills on the calendars are not guaranteed floor consideration. Many will never be brought up on the floor during the course of a two-year Congress. It is also possible, although less common, for a bill to come directly to the floor without being reported and placed on a calendar. In the House, majority party leadership decides which bills the House will consider, and in what order. For example, after consulting with committee leaders, majority party leadership may decide to schedule a bill for expedited floor consideration. Alternatively, leadership may ask the Rules Committee to start the process of bringing a specific bill to the floor for more lengthy consideration and possible amendments. These different mechanisms by which the majority party proposes floor consideration of a bill are discussed in more detail in the next section. In the Senate, majority party leadership does not have procedures like those in the House for bringing bills to the floor. One way the Senate can take up a bill is by agreeing to a motion to proceed to consider it. Once a Senator—typically the majority leader—makes such a motion that the Senate proceed to a certain bill, the Senate can then normally debate the motion to proceed. If it eventually agrees to the motion by a majority vote, the Senate can then begin consideration of the bill. Alternatively, the majority leader can ask unanimous consent that the Senate take up a certain bill. If no one objects to such a request when it is made, then the Senate can immediately begin consideration of the bill in question. (When the leader refrains from making such a request because he has been informed that a Senator would object, it is often said that a Senator has placed a hold on the bill.) In both chambers, party leaders keep their membership informed of the anticipated floor schedule using various methods—like periodic whip notices or other frequent communications. The House considers bills under a variety of procedures, each of which differs in the amount of time allotted for debate and the opportunities given to Members to propose amendments. Most bills are considered under "suspension of the rules" procedures, which limits debate to 40 minutes and does not allow amendments to be offered by Members on the floor. However, for the House to pass a bill under suspension of the rules requires two-thirds of Members voting to agree. Bills not considered on the House floor under suspension of the rules are typically considered instead under terms tailored for each particular bill. The House establishes these parameters on a case-by-case basis through the adoption of a simple House resolution (an H. Res.) called a special rule. Special rules are reported by the House Rules Committee. This committee is considered an arm of the majority party leadership, and majority party members outnumber minority party members, nine to four. Common provisions found in a special rule include the identification of the text to be considered, a specified period for general debate, and limits on the amendments that can be offered on the floor. For instance, sometimes the committee reports a rule that places few restrictions at all on amending, which can result in dozens of amendments being offered on the floor during consideration. In other cases, the special rule will allow only specific predetermined amendments to be offered, or even preclude floor amendments altogether. Note that House rules also place certain other limitations on the content of amendments, unless the special rule waives these restrictions. For instance, amendments must typically be germane to the text they propose to change. That is, an amendment cannot change the subject under consideration. After the Rules Committee reports a rule for consideration of a bill, the House first considers that special rule itself on the House floor, for approximately one hour. After debate, the House votes on adopting the special rule; only after its adoption will the House then proceed to consider the bill itself, under the terms specified by the special rule. In this situation, the House will typically consider the bill in a procedural setting called the Committee of the Whole, which allows Members an efficient way to consider and vote on amendments. After any amendments are offered and debated, Members vote on approval; each amendment requires a simple majority to be agreed to. After the amendment process is complete, the Committee of the Whole reports to the full House any recommended amendments, which are then usually approved by the House by voice vote. Just prior to voting on final passage, Members will typically briefly debate and then vote on a motion to recommit, which allows the minority party to effectively propose its own amendment. In the House, some votes are taken by voice, but many votes are taken by electronic device, a method that records the individual position of each Member who voted. To consider a bill on the floor, the Senate first must agree to bring it up—typically by agreeing to a unanimous consent request or by voting to adopt a motion to proceed to the bill, as discussed earlier. Only once the Senate has agreed to consider a bill may Senators propose amendments to it. Perhaps the modern Senate's defining feature is the potential difficulty of reaching a final vote on a matter. Most questions that the Senate considers—from a motion to proceed to a bill, to each amendment, to the bill itself—are not subject to any debate limit. Senate rules provide no way for a simple numerical majority to cut off or otherwise impose a debate limit and move to a final vote. As a result, Senators can wage (or threaten to wage) a filibuster on most amendments, bills, or other motions—in effect, insisting on extended debate or taking other actions intended to delay or prevent a final vote. In addition, under most circumstances, neither debate nor amendments in the Senate are required to be germane. This can lead to much more wide-ranging and less predictable floor consideration than typically occurs in the House. Senate Rule XXII, often called the cloture rule, does allow a supermajority to limit debate on a bill, amendment, or motion; in addition, in the case of a bill, cloture limits the amendments that can be offered. Supporters of, for instance, a bill under floor consideration can file a cloture motion, signed by at least 16 Senators. Two days of session later, Senators vote on the cloture motion. If three-fifths—usually 60 Senators —agree, then further consideration of the bill is limited to 30 hours, during which only germane amendments submitted in advance can be offered. After this concluding period of consideration, the Senate will take a final vote on the bill. This vote requires only a simple majority for approval. However, because a cloture process is often required to end debate on a bill, often the bill first must garner the support of a three-fifths supermajority. Even with the necessary supermajority support, use of this cloture process can require the use of significant amounts of Senate floor time. Overall, these rules and practices governing floor debate and amending in the Senate provide significant leverage to each individual Senator. Rather than relying on the formal rules like cloture, however, frequently the Senate can more effectively act using unanimous consent agreements. Such an agreement is a structured plan for limiting debate and amending—a plan that can be tailored to each bill that comes to the floor (somewhat akin to a special rule in the House). Through the use of these agreements, the details of which all Senators have agreed upon, the Senate can more effectively process its business while protecting the procedural rights of each of its Members. Although many votes are conducted by voice, a recorded vote is required in some cases, and it is often requested by Senators in others. Unlike the House, the Senate does not have an electronic voting system; recorded votes are conducted through a call of the roll. In addition to full legislative authority, the U.S. Constitution provides the Senate with two unique responsibilities: first, the power to confirm certain presidential nominees to the federal judiciary and certain executive branch positions; and second, the power to approve treaties. In the legislative process, treaties are treated very much like bills: they are referred to the Foreign Relations Committee, where they may be considered and reported. The Senate can consider a treaty on the floor under similar procedures used for legislation. However, the Constitution requires that two-thirds of voting Senators agree for a treaty to be ratified. Most presidential nominations are referred to the relevant Senate committee of jurisdiction. Prior to potential committee action to report a nomination, a committee may hold a hearing at which the nominee answers questions from the committee's members. If a nominee is considered on the Senate floor, his or her confirmation requires only a simple majority vote, but nominations are debatable. Therefore, supporters of a nominee may have to use the cloture process to reach a vote on the nominee. Invoking cloture on most questions requires a vote of three-fifths of the Senate, as described earlier, but cloture can be invoked on a nomination by a simple majority threshold. Using cloture to reach a vote on a pending nomination, however, may take significant floor time. A bill must be agreed to by both chambers in the same form before it can be presented to the President. Therefore, at some point in the legislative process, either the House must act on a Senate bill or the Senate must act on a House bill. Frequently, identical or similar proposals are introduced in the House and in the Senate, each potentially moving through the legislative process in the chamber in which it was introduced. In this case, when one chamber receives the bill passed by the other, it may act on (and possibly amend) that bill, or alternatively, it may consider (and possibly amend) its own bill first—eventually substituting its language into the other chamber's bill for the purposes of resolving differences between the two proposals. Once one chamber passes a bill, it is engrossed—that is, prepared in official form—and then sent (or messaged) to the other chamber. In a majority of cases, the second chamber simply agrees to the exact text passed by the first chamber, in which case Congress has then completed its action on the bill. In some cases, the second chamber instead decides to amend the first chamber's bill. The second chamber is often proposing, in effect, an alternative version of the bill, which may differ from the bill in minor or substantial ways. In some circumstances, the alternative may even embody a proposal on a different topic. Once the second chamber agrees to this proposed alternative to the bill, it may send the proposal back to the first chamber for possible consideration and a vote. The receiving chamber may also respond with a counterproposal, and so on. This back-and-forth trading of proposals by the House and Senate is called amendments between the houses (or amendment exchange, or sometimes simply ping-pong). For the bill to have a chance of becoming law, one chamber must eventually agree to the proposal that the other chamber sent it. Sometimes, the resolution of differences between the House and Senate proposals may instead be accomplished through a conference committee. A conference committee is a temporary committee appointed in relation to a specific bill; its task is to negotiate a proposal that can be agreed to by both chambers. Each conference committee is made up of Members of the House and Members of the Senate—called conferees—who are drawn primarily from the standing committee(s) with jurisdiction over the bill. Through a combination of informal negotiations and formal meetings, the conferees try to hammer out a compromise, drawing on elements of the competing proposals that were adopted by each chamber. If a proposal can garner the support of a majority of the House conferees, and also separately, a majority of the Senate conferees, then the negotiated proposal is embodied in a conference report. This conference report can then be considered in one chamber, and, if agreed to, then considered in the other chamber. Regardless of which chamber goes first, the conference report may be considered under the same procedures used for other business, though it cannot be amended. Reaching a vote on a conference report in the Senate may require a cloture process, and in the House, conference reports are typically considered under a special rule. If the conference report is to become law, both chambers must agree to it. Once both chambers of Congress have each agreed to the bill in the same form, it is enrolled —that is, prepared in its final official form and then presented to the President. Beginning at midnight on the closing of the day of presentment, the President has 10 days, excluding Sundays, to sign or veto the bill. If the bill is signed in that 10-day period, it becomes law. If the President declines to either sign or veto it—that is, he does not act on it in any way—then it becomes law without his signature (except when Congress has adjourned under certain circumstances). If the President vetoes the bill, it is returned to the congressional chamber in which it originated; that chamber may attempt to override the President's veto, though a successful override vote requires the support of two-thirds of those voting. If the vote is successful, the other chamber then decides whether to attempt its own override vote; here, as well, a successful override vote requires two-thirds of voting Members to agree. Only if both chambers vote to override does the bill become law notwithstanding the President's veto; successful overrides of a veto are rare. Bills that are ultimately enacted are delivered to the Office of the Federal Register at the National Archives, assigned a public law number, and included in the next edition of the United States Statutes at Large. | This report introduces the main steps through which a bill (or other item of business) may travel in the legislative process—from introduction to committee and floor consideration to possible presidential consideration. However, the process by which a bill can become law is rarely predictable and can vary significantly from bill to bill. In fact, for many bills, the process will not follow the sequence of congressional stages that are often understood to make up the legislative process. This report presents a look at each of the common stages through which a bill may move, but complications and variations abound in practice. Throughout, the report provides references to a variety of other CRS reports that focus on specific elements of congressional procedure. CRS also has many other reports not cited herein that address some procedural issues in additional detail (including congressional budget and appropriations processes). These reports are organized by subissue at http://www.crs.gov/iap/congressional-process-administration-and-elections. Congressional action on bills typically is planned and coordinated by party leaders in each chamber, though as described in this report, majority party leaders in the House have more tools with which to set the floor agenda than do majority party leaders in the Senate. In both chambers, much of the policy expertise resides in the standing committees, panels of Members who typically take the lead in developing and assessing proposed legislation within specified policy jurisdictions. Introduction and Referral of Legislation. Once a Member of the House or Senate introduces a bill, it is typically referred to the committee (or committees) in that chamber with jurisdiction over its elements. Committees do not formally consider each of these referred bills. The committee chair has the primary agenda-setting authority for each committee and identifies which bills will receive formal committee attention during the course of the two-year Congress. (Committees are not limited, however, to consideration of measures referred to them and may initiate legislative action on their own.) Committee Consideration. A committee may conduct hearings on a bill to provide committee members and the public an opportunity to hear from selected parties (e.g., a federal agency or organized interest) about the bill's strengths and weaknesses. If the committee wants to formally recommend that the bill receive consideration from its parent chamber, it will hold a markup on the bill, at which committee members vote on any proposed amendments. The markup concludes when the committee agrees, by majority vote, to report the bill (with any recommended changes adopted in the markup) to its chamber. Floor Scheduling. In the House, majority party leaders generally decide which bills will receive floor consideration; typically, they schedule a bill for a type of streamlined floor consideration, or instead ask the Rules Committee to propose a set of tailored parameters for floor consideration. In the Senate, bills are brought to the floor only after the Senate agrees to a motion (typically offered by the majority leader) to proceed to a specific bill or, alternatively, if no Senator objects to a unanimous consent request to bring it up. House Floor Consideration. In the House, most bills that receive consideration do so under a procedure called "suspension of the rules," which limits debate to 40 minutes and prohibits floor amendments, but requires two-thirds of Members voting to agree. Most other bills are considered under tailored debate and amending parameters set by the terms of a special rule reported by the House Rules Committee (which effectively operates as an arm of the majority party leadership). The House first votes to adopt the special rule, and then can proceed to debate and potentially amend the bill (typically accomplished in a setting called Committee of the Whole). After any debate and amending process is complete, the House then typically votes on a minority party alternative (through a vote on a motion to recommit) before proceeding to a final vote on passage. Senate Floor Consideration. In the Senate, once the chamber has agreed to bring up a bill, it can be considered under rules and practices that allow for a wide-ranging debate and amendment process. A defining feature of Senate floor consideration is that no rule permits a numerical majority to end debate and proceed to a final vote on most questions (e.g., a bill or amendment). Thus, Senators may wage a filibuster, effectively threatening extended debate or other actions that would delay or prevent a final vote. The Senate's cloture rule provides a process, however, by which a supermajority of the Senate (usually three-fifths) can, over a series of days, place a limit on debate (as well as limits on amendments) and eventually reach a final vote. These rules and practices provide extraordinary leverage to individual Senators, but frequently the Senate decides it can more effectively act by putting aside the formal rules and instead agreeing—by unanimous consent—to tailored parameters on debate and amending. Executive Business in the Senate. The Senate has the unique responsibility to confirm certain presidential nominations and to approve treaties. Nominations and treaties are treated very much like bills: they are referred to committees, where they may be considered and reported to the chamber. On the floor, a ratification of a treaty requires the support of two-thirds of voting Senators. Nominations considered on the floor may be confirmed by a numerical majority, but they are subject to debate, such that reaching a final vote may require a successful cloture process. Resolving Differences between the Chambers. At some point in the legislative process, either the House must act on a Senate bill, or the Senate must act on a House bill since only one can be presented to the President. One chamber frequently agrees to a bill—without changes—that was sent to it by the other, but sometimes each chamber proposes changes to a bill sent to it by the other. The chambers resolve their differences on the competing proposals either through a back-and-forth trading of alternative proposals (called amendments between the houses), or by convening an ad hoc conference committee in which House and Senate Members from the relevant committees are appointed to hammer out a compromise called a conference report. After both chambers have agreed to identical text (either by agreeing to the other chamber's proposal during amendments between the houses or by agreeing to the conference report), the bill can be presented to the President. Presidential Action. The President has 10 days, excluding Sundays, to sign or veto a bill. If it is vetoed, it can only become law if Congress agrees—by two-thirds in each chamber, separately—to override the veto. Successful overrides of presidential vetoes are rare, so Congress typically must accommodate the President's position earlier in the process. |
I n the spring of 2016, the U.S. Supreme Court considered a set of challenges alleging that the contraceptive coverage regulations under the Affordable Care Act (ACA) violate the federal Religious Freedom Restoration Act (RFRA). Following oral arguments in which the eight sitting Justices appeared to be evenly divided, the Court unanimously declined to declare an answer in the set of seven consolidated cases, each brought by nonprofit religious entities with objections to the provision and use of contraceptives as well as to the process by which their objections may be accommodated under ACA regulations that require employers to provide contraceptive coverage in group health plans. The question at issue is whether the accommodation process—requiring employers with religious objections to inform the government of their objection and third-party insurers to provide required coverage to the employer's employees—would impose a substantial burden on religious exercise in violation of RFRA. The Court's consideration of these cases (consolidated under the case name Zubik v. Burwell and referred to collectively throughout this report as "the nonprofit challenges") followed its landmark 2014 decision, Burwell v. Hobby Lobby Stores, Inc. , and presented the Court with an opportunity to clarify the meaning of substantial burden on religious exercise under RFRA. However, the Court's disposition of the case provided no decision on the merits, instead vacating and remanding each of the cases to the respective federal appellate courts for reconsideration after allowing time for the parties to reach a compromise that would accommodate the employers' religious objections and the government's interest in ensuring contraceptive coverage for female employees. This report examines the current parameters on governmental restrictions on religious exercise. It discusses the history of federal protection offered under the Free Exercise Clause of the First Amendment and RFRA, and notes parallel protections available at the state level. It analyzes the current interpretations of RFRA as applied to the contraceptive coverage requirement of the ACA, including discussion of Hobby Lobby and a review of the lower courts' interpretations of the nonprofit challenges. Finally, the report highlights a range of issue areas of interest to Congress that may be affected by the Court's interpretation of RFRA. Federal law includes several protections to prevent the government from interfering with the free exercise of religion. Both constitutional and statutory protections exist to protect the ability of individuals and groups to exercise their sincerely held religious beliefs. The First Amendment of the U.S. Constitution states that "Congress shall make no law respecting the establishment of religion, or prohibiting the free exercise thereof.... " The latter clause, known as the Free Exercise Clause, guarantees the right to practice religious beliefs without government interference. Historically, the Court had required that the government demonstrate a compelling interest in any action that would interfere with religious exercise. In 1990, however, it clarified the standard of the Free Exercise Clause in Employment Division, Department of Human Resources of Oregon v. Smith , effectively lowering the constitutional barrier and barring religious objection as a basis for exemption from neutral laws of general applicability. In Smith , the Court explained that it "never held that an individual's religious beliefs excuse him from compliance with an otherwise valid law prohibiting conduct that the State is free to regulate." The Court noted the distinction between regulation of religious belief and religious exercise, affirming a principle it had first established in 1879: "Laws," we said, "are made for the government of actions, and while they cannot interfere with mere religious belief and opinions, they may with practices ... . Can a man excuse his practices to the contrary because of his religious belief? To permit this would be to make the professed doctrines of religious belief superior to the law of the land, and in effect to permit every citizen to become a law unto himself." Under the Court's interpretation of the Free Exercise Clause in Smith , laws that do not specifically target religion or do not allow for individualized assessments are not subject to heightened review under the Constitution. Rather, these laws of general applicability are required only to be rationally related to a legitimate government purpose—a baseline of constitutional protection analysis often referred to as rational basis review. Congress responded to the Court's decision in Smith by enacting RFRA, which statutorily augmented the standard of protection for government actions interfering with a person's free exercise of religion. RFRA prohibits the federal government from restricting religious exercise in certain cases, stating that it "shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability, except [ ... ] if it demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest." This standard of review, though effective through federal statute, is typically used in constitutional analysis and is widely known as strict scrutiny analysis. Congress explicitly provided for retroactive as well as prospective application of RFRA's protections. As a statutory enactment, rather than a constitutional standard, RFRA is not necessarily absolutely binding against all post-RFRA legislation, however. Rather, it is possible that future statutes may not be required to comply with RFRA, if Congress explicitly includes language exempting the legislation from RFRA. Thus, Congress may amend RFRA's scope of application generally or may provide specific exemptions from RFRA in future legislation. It may be noted that after the Supreme Court held that the federal RFRA did not constrain the states, many states enacted their own versions of RFRA to prevent burdens on religious exercise at the state and local levels. Almost half of the states have enacted a version of RFRA, many of which follow the federal model. Some states have proposed broader protections than are available in the federal RFRA, with mixed results. In one example of broader protection enacted by a state, Indiana's RFRA explicitly applies to individuals, organizations, and a broad range of businesses (not only closely held corporations), and can be invoked not only when religious exercise has been substantially burdened, but also when it "is likely to be substantially burdened." It also permits eligible persons to assert a violation of the protection provided "as a claim or defense in a judicial or administrative proceeding, regardless of whether the state or any other governmental entity is a party to the proceeding." Notably, states that have not enacted heightened statutory protections may have constitutional provisions that the state has interpreted to provide heightened protection without additional legislation. The Supreme Court and other federal courts have considered issues related to the questions currently arising under RFRA in a number of cases historically. It is important to remember that these decisions were issued as a matter of free exercise rights under the First Amendment, not RFRA. However, the general understanding of the common terms in the analysis of religious exercise claims, whether constitutional or statutory, may be illuminating of the parameters of protection from substantial burdens on the exercise of sincerely held religious beliefs. Notably, at least as a matter of constitutional interpretation of free exercise rights, the Court has long recognized a distinction between religious belief and religious conduct. It has stated that free exercise of religion "embraces two concepts—freedom to believe and freedom to act. The first is absolute, but in the nature of things, the second cannot be." The Court has explained that "[l]aws are made for the government of actions, and while they cannot interfere with mere religious belief and opinions, they may with practices." As such, the government cannot regulate the belief itself, but it may regulate the exercise of that belief, subject to any protections provided by the First Amendment or RFRA. Under the First Amendment, any law not targeting the exercise of religious beliefs would be subject to rational basis review, while under RFRA, federal laws that substantially burden the exercise of religious beliefs would be subject to strict scrutiny. Thus, there are essentially two threshold questions to any religious exercise claim—whether a belief is sincerely held and whether exercise of that belief has been substantially burdened. These requirements, developed over the course of the Court's free exercise jurisprudence, were adopted by Congress through enactment of RFRA. In the Court's constitutional analysis of religious exercise claims, in order for an individual's religious beliefs to be protected, the beliefs must be sincerely held. An individual's beliefs are not required to conform with the beliefs of other members of his or her religious group; nor is the individual required to be a member of a religious group at all. Furthermore, the accuracy of an individual's religious belief need not be verified by factual findings. The U.S. Supreme Court has held that courts are not to judge the truth or falsity of religious beliefs. Instead, courts generally examine whether the individual applies the belief consistently in his or her own practices. These limitations reflect the Court's prescription of avoidance of matters involving religious doctrine. The Court has maintained an understanding that "courts should refrain from trolling through a person's or institution's religious beliefs." Accordingly, courts are generally reluctant to inquire as to the nature of religious beliefs. As a result, the sincerity of religious beliefs often is not in question in various legal challenges. The Court has defined a substantial burden on religious exercise as a constitutional matter as one that puts "substantial pressure on an adherent to modify his behavior and to violate his beliefs." It has required evidence that the legal requirement in question violates the individual's sincerely held belief. That is, if the legal requirement that the individual opposes does not actually interfere with the individual's exercise of his or her religious belief, the government may still require the individual to comply with the requirement. For example, a religious organization challenged the imposition of a sales tax on religious products that it sold, claiming the tax burdened the organization's religious exercise. The organization's religious doctrine did not include a belief that payment of taxes was forbidden, but rather claimed that the government was taking part of the money the organization raised as a part of its religious practice. The Supreme Court held that a sales tax applied generally to products distributed by religious and non-religious entities did not constitute a significant burden on religious exercise because the tax itself did not violate the religious entity's sincerely held beliefs. Therefore, in the case of a religious organization's objections to paying sales tax on products it sells, the organization would be substantially burdened by the tax if its sincerely held beliefs prohibited the payment of taxes, because the tax requirement forces the organization to act in violation of its beliefs. However, because the action being regulated by the government was not one that directly affected the organization's sincerely held beliefs, the Court held that the burden did not implicate the organization's religious exercise. Since its enactment, the Supreme Court has considered only a few cases under RFRA. Early on, the Court addressed the constitutionality of RFRA's application, while later decisions in cases related to the Controlled Substances Act (CSA) and the ACA have clarified how RFRA applies in challenges to particular governmental actions that allegedly burden religious exercise and the scope of its protections. Shortly after its enactment, a constitutional challenge to RFRA reached the Supreme Court, regarding whether RFRA violated constitutional principles of federalism. As originally enacted, RFRA applied the strict scrutiny standard for governmental action at the federal, state, and local levels. Congress had 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]." The Supreme Court has 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 a 1997 case, City of Boerne v. Flores , the Supreme Court held RFRA to be unconstitutional as it applied to states and localities because the statute exceeded Congress's remedial powers to enforce rights under the Fourteenth Amendment. In City of Boerne , the Court considered whether RFRA could exempt a church from local zoning requirements in a historic district, holding 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's application to state and local government as an overbroad response to a relatively nonexistent problem. In 2006, the Supreme Court considered the protection that RFRA provides to individuals with religious objections to generally applicable laws in Gonzales v. O Centro Espirita Beneficente Uniao Do Vegetal . Members of the O Centro Espirita Beneficente Uniao Do Vegetal (UDV) church claimed that the government had violated RFRA when U.S. Customs inspectors seized a shipment of hoasca—a sacramental tea containing a hallucinogen regulated under the CSA—that the church used to celebrate their faith. The Court unanimously held (except Justice Alito, who did not participate in the case) that the government had not demonstrated the compelling interest that RFRA requires to justify barring the UDV's sacramental use of hoasca. Although the government asserted three interests in completely banning hoasca, the Court did not believe that any of these interests satisfied the strict scrutiny standard that RFRA requires for laws that interfered with exercise of religious beliefs. Although the government claimed that a complete ban was necessary and that any exceptions would be detrimental to its purposes for regulating the drugs, the Court noted that the CSA itself provides for possible exemptions and that there has been an exemption made for use of peyote by the Native American Church for 35 years. The Court explained that, because the CSA appears to recognize that the restrictions it places on certain substances are not absolute, mere categorization of substances by the CSA "should not carry the determinative weight, for RFRA purposes, that the Government would ascribe to them." Thus, the Court recognized "that there may be instances in which a need for uniformity precludes the recognition of exceptions to generally applicable laws under RFRA," but the Court did not allow the government to apply broad prohibitions that affect individuals' free exercise of religion without a specific compelling interest in the particular case. Although RFRA litigation rarely reached the Supreme Court in the statute's first two decades, the Court has agreed to review RFRA challenges twice in two years since RFRA's 20 th anniversary. Burwell v. Hobby Lobby Stores, Inc . and Zubik v. Burwell arose from religious objections to the contraceptive coverage requirement enacted under the Affordable Care Act (ACA) and concern over the statutory interpretation of terms Congress left undefined when it enacted RFRA. These cases are not direct challenges to the ACA, but instead challenge the regulatory implementation of the ACA as a violation of RFRA. As a matter of background, the ACA, enacted in 2010, requires that group health plans and health insurance issuers provide coverage for certain preventive health services, including a range of contraceptive services. This requirement has been implemented through a series of regulations, aimed at addressing objections of employers with religious beliefs that oppose contraception. The final rules address the religious objections of certain employers through two methods: an exemption and an accommodation. The exemption is available to religious employers qualifying under certain sections of the tax code (generally including churches, church auxiliaries, church associations, or other religious orders). Under the exemption, employees of religious employers do not receive contraceptive coverage either from their employer or from the issuer directly. The accommodation is available to employers that (1) oppose providing coverage for required contraceptive services based on religious beliefs; (2) are either (a) a nonprofit religious organization or (b) a closely held for-profit entity whose governing body takes official action to establish its objection; and (3) self-certify its objection, either by use of a standard form or written notice to the relevant agency. Under the accommodation, employees of eligible organizations would not receive contraceptive coverage from their employer, but would have coverage provided directly through the health plan issuer at no cost to the employee or employer. The version of ACA regulations that was in effect during the litigation of Hobby Lobby required that organizations seeking the accommodation must be nonprofit entities. As a result, a number of owners of for-profit businesses objected to the regulation's limitation of accommodation for their businesses, claiming that such entities qualified as "persons" under RFRA. Thus, the threshold question in Hobby Lobb y was who may claim protection under RFRA, given that Congress did not define the term person in the statute. In a 5-4 decision, issued over a highly critical dissent, the Supreme Court held that closely held corporations that hold religious objections to certain contraceptive coverage services are protected by RFRA and accordingly cannot be required to provide coverage of those services in employee health plans. The Court's decision was limited to the statutory challenge—clarifying the meaning of the term person and applying RFRA's strict scrutiny restriction on the imposition of substantial burden. Noting the absence of a statutory definition of person in RFRA, the Court relied upon the generally available Dictionary Act to define the term as a general matter in statutory language. That definition includes "corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." Although there was strong disagreement among the Justices related to the requisite ability to exercise religion, the majority noted that there were previous cases in which the Court had recognized claims involving exercise of religion of individuals who owned for-profit businesses as sole proprietorships and nonprofit corporations. The Court explained that the definition of person was not limited by for-profit status: "No known understanding of the term 'person' includes some but not all corporations. The term 'person' sometimes encompasses artificial persons ..., and it sometimes is limited to natural persons. But no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations." Responding to concerns that applying RFRA protections to for-profit corporations would raise challenges of ascertaining "the religious identity of large, publicly traded corporations," the Court emphasized that its decision applied only to such companies as the ones challenging the contraceptive coverage requirement in this case. In effect, the decision was limited to "closely held corporations, each owned and controlled by members of a single family." Although the majority noted that it was recognizing RFRA's applicability to closely held corporations only, it did not foreclose the possibility that, in a future case, a court may extend RFRA protection to other types of corporations such as those that are publicly traded. While the majority found that such expansion "seems unlikely," the dissent characterized the decision as one of "startling breadth," citing the possibility that the majority's logic could be extended if a new claimant presented itself. Notably, the dissent's concerns about potential expansion in future interpretation of RFRA may reasonably give pause. As noted, the majority did not preclude future application of RFRA to a broader range of corporations using tentative language and noting a lack of obvious challenges. Furthermore, the majority's explanation that the Dictionary Act's definition of person could not be read to distinguish types of corporations related to the company's profit status suggests that it also may not be read to distinguish between types of corporations on other grounds (e.g., size or public trading status). In addition to the Court's clarification of the scope of "persons" eligible for protection under RFRA as a matter of statutory interpretation, the Court's analysis of the substantive protections of RFRA has been cited to support interpretations of "substantial burdens" in later cases (discussed in the following section of this report). The Hobby Lobby majority had "little trouble concluding that [the ACA regulations substantially burden the exercise of religion]." Noting the sincerity of the religious beliefs underlying the claimants' objections to contraceptives, the Court acknowledged that the requirement to "arrange for such coverage ... demands that they engage in conduct that seriously violates their religious beliefs." The majority relied upon the financial penalties imposed for non-compliance with coverage requirements, declaring the potential penalties as "sums [that] are surely substantial." The majority in Hobby Lobby also addressed the dissenting Justices' argument that the regulations did not impose a substantial burden because the connection between the required action and the action that they found to be objectionable was "simply too attenuated." In response, the majority deferred to the claimants' characterization of the burden: This argument dodges the question that RFRA presents (whether the HHS mandate imposes a substantial burden on the ability of the objecting parties to conduct business in accordance with their religious beliefs ) and instead addresses a very different question that the federal courts have no business addressing (whether the religious belief asserted in a RFRA case is reasonable). The majority emphasized its interpretation that the claimants' sincere beliefs express the burden imposed, and reasoned that "it is not for us to say that their religious beliefs are mistaken or insubstantial. Instead, our 'narrow function ... in this context is to determine' whether the line drawn reflects 'an honest conviction,' and there is no dispute that it does." Although the Justices debated the meaning of substantial burden in their application of RFRA in Hobby Lobby , the decision did not resolve the meaning of that term. Hobby Lobby only resolved RFRA challenges brought by for-profit entities owned by individuals with religious objections to the contraceptive coverage requirement, interpreting the meaning of RFRA regarding who or what qualified as a "person" eligible to raise a claim under the statute. As noted in the previous section, the Court's subsequent application of RFRA foreshadowed the next questions of statutory interpretation under RFRA: What constitutes a substantial burden under RFRA, and who decides the significance of the burden? Just two years after the Court's decision in Hobby Lobby , the Court was poised to decide that question in the context of nonprofit religious employers objecting to the process under which the ACA regulations provide accommodation. However, as discussed later in this section, the Court ultimately vacated the appellate decisions and remanded for further consideration, leaving the issue unresolved. The Court granted certiorari and consolidated seven challenges following a split among the federal appellate courts on the issue of whether the accommodation process imposes a substantial burden on nonprofit religious employers' religious exercise under RFRA. Essentially, the nonprofit challenges allege that the certification requirement to qualify for the accommodation imposes a substantial burden on religious exercise. While the burden has been characterized in a number of different ways, it arguably is most simply stated as an objection to having an active role in the process of providing coverage for contraceptives to which the entities object. In other words, the objecting employers claim that notifying the government of their objections forces them to take part in (i.e., makes them complicit in, facilitates, or triggers) the provision of services to which they object by other entities. Most of the federal circuit courts issued decisions addressing whether the certification requirement imposes a substantial burden on the nonprofit employers' religious exercise, and all but one of those to consider the merits upheld the accommodation, finding that the certification requirement did not impose a substantial burden on religious exercise. Each of these courts relied on similar reasoning, explaining that "federal law, rather than the religious organization's signing and mailing the [certification], ... requires healthcare issuers, along with third-party administrators of self-insured health plans, to cover contraceptive services." Some courts characterized the burden as a de minimis one generally used in other historic cases of religious objection. One court, the U.S. Court of Appeals for the Eighth Circuit, reached a contrary conclusion, which created a split among the circuits and apparently led the U.S. Solicitor General to seek, and the Supreme Court to grant, review of these cases. The Eighth Circuit granted injunctive relief to organizations with objections to the provision of contraceptive coverage and the eligibility requirements of the accommodation. The court's standard for examining the nature of the burden gave significant deference to the organizations' assessment of the burden. It relied on Supreme Court precedent instructing courts to "accept a religious objector's description of his religious beliefs, regardless of whether [the court considers] those beliefs 'acceptable, logical, consistent, or comprehensible.'" This deference generally has been applied when assessing the sincerity of an objector's belief, and the Eighth Circuit's decision appears to extend that analysis to the assessment of a substantial burden. The deference afforded by the Eighth Circuit was based in part on language from the majority opinion in Hobby Lobby (discussed above), although the focus of the burden analysis in that case was directed at the financial penalties of noncompliance with the coverage requirements. The Court's consideration of Zubik was highly anticipated both in the specific context of the protections available for religious objectors to the contraceptive coverage requirement and for guidance regarding the application of RFRA generally. Notably, after the Court's decision in Hobby Lobby , the Supreme Court remanded several pending cases that had upheld the accommodation, directing the lower courts to reconsider their decisions in light of the Court's decision in Hobby Lobby . However, after rehearing, each of these circuits again upheld the accommodation in each of those cases. When the cases ultimately reached the Supreme Court, the eight sitting Justices appeared to be evenly divided at oral arguments. Within a week, the Court took the unusual step of ordering supplemental briefing on a possible compromise that could reconcile the parties' conflicting positions without further litigation. In May, the Court issued a unanimous per curiam opinion that declined to declare an answer on the merits of the cases, including whether the employers are substantially burdened, whether the government has a compelling interest, and whether the existing accommodation is the least restrictive means to achieve such an interest. Instead, the Court remanded the cases to the respective circuits (including the Third, Fifth, Tenth, and D.C. Circuits) with instructions to reconsider the cases after giving the parties an opportunity to "arrive at an approach going forward that accommodates petitioners' religious exercise while at the same time ensuring that women ... 'receive full and equal health coverage, including contraceptive coverage.'" The Court's decision in Zubik announced that each party found a compromise "feasible." The Court's focus on reaching a compromise outside of a judicial decision on the merits would seem to reflect an effort to avoid an evenly split decision. While a 4-4 decision also would have had no precedential value, it would have foreclosed further litigation of the consolidated cases, effectively letting the circuit courts' decisions stand, each of which had upheld the accommodation. Because there is currently a split among the federal circuits, the controversy surrounding the requirement would remain unresolved, and further litigation would continue in other cases, with results differing depending on the jurisdiction of a particular challenge. If a compromise is reached among the parties, the issue may be moot for judicial resolution, at least in the context of the contraceptive coverage requirement. However, a number of cases presenting the same question across the federal judicial system are still pending, and it is possible that the Court may be presented with the same issue in a later term. Given the presumption that the current Justices are split, the outcome likely will depend on the Court's composition, specifically when a nominee to the current vacancy has been confirmed. The religious organizations challenging the ACA accommodation in the nonprofit cases, like Hobby Lobby , are seeking statutory protection under RFRA, not constitutional protections under the First Amendment. As a matter of statutory law, Congress remains free to amend the language at its discretion of RFRA regardless of any judicial interpretation. In other words, Congress may respond to a decision on the merits by clarifying the meaning of the statutory language itself, providing an explicit definition of substantial burden , or identifying a standard by which such burdens should be measured. If Congress took any such action, its amendment would supersede a judicial interpretation to the extent it conflicted with the court's decision. Given Congress's primary authority in statutory law, there are a number of issues it may consider in the wake of a future decision on the meaning of substantial burden , including what impact the decision may have on a wide range of legislative issues. Because RFRA applies to all federal actions, and because state religious freedom laws may rely on related opinions for guidance in interpreting their own similar laws, both federal and state issues may be affected. RFRA is a so-called "super statute," one that establishes legal norms that perform constitutional functions. As discussed earlier in this report, it was enacted to augment the protection offered by the First Amendment, and it consequently heightened the protection for religious objections beyond the protection of the Free Exercise Clause. It applies to any federal action—including any law enacted by Congress, regulation promulgated by an agency, etc.—and can only be avoided if Congress chooses to exempt a particular law from the application of RFRA, which it has not done since RFRA was enacted. Thus, an interpretation of the scope of applicability of RFRA has potentially far-reaching implications. As noted earlier, the Court limited the application of RFRA to protect against substantial burdens on religious exercise imposed only by the federal government. In the wake of the City of Boerne decision, Congress enacted the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA). RLUIPA conformed with the Court's decision in City of Boerne , limiting that protection to substantial burdens imposed by land-use provisions or on institutionalized persons. Thus, RLUIPA did not directly amend RFRA, but instead is an analogous statute applied to a separate set of government actions. RLUIPA's protections mirror those enacted in RFRA. Although a separate statute, the context of RLUIPA's enactment in addition to its use of the same statutory scheme makes any interpretation of the meaning of RFRA's terms relevant to the interpretation of the same language in RLUIPA. Thus, a decision defining these terms may be influential in future RLUIPA litigation as well. Zubik and the consolidated cases involve challenges to a federal action by organizations seeking protection under the federal RFRA. Thus, any decision interpreting the meaning and scope of RFRA's protections will apply only to federal law and would not extend directly to state actions. However, as discussed earlier, a number of states have adopted state versions of RFRA, many of which include language similar to the federal RFRA that is at issue in the nonprofit challenges. For any challenges asserted under state RFRAs, a court would not be bound to use whatever interpretation federal courts may adopt. However, it may consider federal courts' interpretation persuasive, particularly for state RFRAs including language identical or similar to the federal RFRA. Notably, a recent trend in state RFRA legislation following the Court's decision in Hobby Lobby has reflected a broader approach to religious freedom protections, though proposed laws have had mixed success. A decision that broadens the recognition of substantial burdens under the federal RFRA may provide support for broad interpretation of existing state RFRAs or efforts to enact explicitly broad protection for religious freedom by states considering new legislation. Because of the broad reach of RFRA as it applies to all federal actions and because of the influence that the interpretation of the federal RFRA may have on similar state protections, the potential impact of an ultimate decision may be far-reaching. Though not an exhaustive list, the following discussion highlights examples of legislative issues that frequently involve religious objections and could be affected by clarification of the meaning of substantial burden . It should be noted that eligibility for RFRA protection and identification of a substantial burden are threshold issues of RFRA analysis. That is, even if a religious objector satisfies these standards, a court still must find that the government lacked a compelling interest or failed to use the least restrictive means to achieve that interest before the objector may lawfully avoid compliance with the law in question. Like the contraceptive coverage cases, another issue of reproductive health—abortion—also frequently involves a number of questions related to religious freedom. In one example of state regulation of abortion that has raised religious objections, California requires certain clinics that provide family planning or pregnancy-related services to notify its consumers of the availability of public programs providing abortion, contraception, and prenatal care for free or at low cost. Operators of such centers with religious objections to abortion have challenged this law as a violation of their constitutional rights, but a federal court denied their request for a preliminary injunction. A broad ruling regarding recognition of burdens identified by claimants with religious objections to legal mandates may offer such centers the opportunity to challenge such requirements under RFRA (assuming the challenged mandate is subject to the federal RFRA or a state equivalent). For example, a crisis pregnancy center that is eligible for RFRA protection—presumably a nonprofit religious organization or a closely held for-profit entity owned by individuals who operate the center according to their religious beliefs—could allege that posting such notice violates their religious beliefs. Like the claimants in the nonprofit challenges, such entities may view the posting itself as a mode of facilitating access to a procedure or service to which they hold sincere religious objections. In recent years, particularly in light of the Supreme Court's recognition of a constitutional right for same-sex couples to marry in Obergefell v. Hodges , a number of individuals, organizations, and businesses with religious objections based on sexual orientation asserted RFRA claims alleging that compliance with various civil rights laws would substantially burden their religious exercise. While the Court's decision in Obergefell did not dictate the behavior of private parties, civil rights legislation enacted by federal, state, and local governments may regulate the behavior of private entities that operate public accommodations (i.e., entities that provide goods and services to the general public) and those that provide housing, employment, or credit. Federal civil rights law does not provide express protection in these contexts based on sexual orientation, but some state and local governments have enacted such protection. As a result, individuals, organizations, and businesses with religious objections to serving same-sex couples may seek legal protection under state religious freedom laws (whether statutory or constitutional), claiming that the nondiscrimination laws are a substantial burden on their religious exercise subject to the limitations of applicable religious freedom provisions. Thus far, it is unclear how religious freedom protections and various civil rights provisions may be balanced or reconciled. Some of the most prominent challenges have been made in the context of business owners' religious objections to serving same-sex couples related to goods and services available for wedding celebrations. These challenges generally have been unsuccessful, with administrative rulings and court decisions holding that goods and services must be offered on an equal basis to couples, regardless of sexual orientation. The leading decisions have involved a case-specific range of circumstances (e.g., availability of heightened protection for religious freedom in the jurisdiction; availability of the applicable RFRA for actions of administrative agencies versus the legislature or courts), and thus do not indicate a conclusive analysis of potential claims of substantial burdens on religious exercise in the context of civil rights requirements. Notably, the Court's decision in Hobby Lobby raised a number of questions regarding the extent to which RFRA protections could be used to exempt businesses from statutory nondiscrimination mandates (e.g., employment). The majority and dissenting opinions in Hobby Lobby debated the potential scope of the decision's effect, with the dissent expressing concern that the decision may protect businesses that engage in discriminatory practices. However, the majority specifically responded to the concern that RFRA might permit a business to engage in racially discriminatory hiring practices, writing that the "decision today provides no such shield. The Government has a compelling interest in providing an equal opportunity to participate in the workforce without regard to race, and prohibitions on racial discrimination are precisely tailored to achieve that critical goal." It may be noted that the Court's statement did not address sexual orientation specifically, and that the decision emphasized the case-by-case basis of evaluating application of the heightened protection provided by RFRA. Thus, although the decision implies that RFRA protections would not supersede at least some civil rights protections (e.g., employment rights in the context of race discrimination), it is not clear how the issue would be decided on the merits of a particular legal challenge. It is important to note that Title VII of the Civil Rights Act, the federal law prohibiting discrimination based on race, color, national origin, religion, or sex—includes an exemption for religious organizations to permit such organizations to consider religion in employment decisions. That exemption, available to "religious corporation[s], association[s], educational institution[s], or societ[ies]," generally has been interpreted to mean nonprofit entities. Hobby Lobby arguably creates an opportunity for for-profit businesses to seek similar accommodation as a matter of protection afforded by RFRA, even though they would not otherwise qualify for the explicit exemption adopted by Congress. Furthermore, a broad interpretation of substantial burden may permit entities to seek broader protection under RFRA than is currently available under Title VII's exemption. That is, such entities arguably may assert RFRA to seek exemption from discrimination based on other categories, not only religion. In sum, a broad interpretation of the meaning of substantial burden , or one that provides significant deference to the claimants' identification of the burden, likely would strengthen the ability of entities with religious beliefs that may conflict with nondiscrimination requirements to assert successful RFRA claims for accommodation from those requirements. Recent reports about waivers granted by the U.S. Department of Education to religious colleges and universities to exempt the schools from Title IX of the Education Amendments of 1972 highlight concerns about the potential scope of protection for religious objectors from nondiscrimination requirements in education programs. Title IX prohibits discrimination on the basis of sex in any education program or activity that receives federal assistance. A number of religious colleges have applied for waivers under an exemption available to such institutions with religious tenets that conflict with the nondiscrimination requirements. Concerns have been raised about the tension between public policy preventing discrimination (particularly based on sexual orientation and gender identity) and accommodating such institutions' religious beliefs. A number of federal nondiscrimination laws include exemptions for religious objectors, and schools have typically been included as eligible for protection, whether under such exemptions or under RFRA. Accordingly, while the Court's decision in Hobby Lobby likely would not impact the analysis in challenges to Title IX waivers, a decision on the nonprofit challenges may have implications. If a school's waiver request were to be denied, the school may consider a RFRA challenge, alleging that the prohibition on discrimination based on sex, including sexual orientation and gender identity, constituted a substantial burden on its operation. A number of federal funding programs, particularly grants for social service providers, have expanded to permit religious providers to participate under programs including rules known as "charitable choice provisions." The religious organization receiving funding is permitted to "retain its independence" regarding its control over its religious exercise and beliefs. Such an organization cannot be required to change its form of internal governance or remove religious symbols from its facilities. Some programs also include explicit protections for beneficiaries who object to the religious character of a recipient organization. The state must notify the beneficiary of an alternative provider that would be accessible to the beneficiary. Furthermore, religious providers are prohibited from discriminating against beneficiaries "on the basis of religion, a religious belief, or refusal to actively participate in a religious practice." Thus, current provisions in existing statutory programs protect both the religious identity of the organization and the religious freedom of beneficiaries. The balance of the rights of participating religious providers and potential program beneficiaries likely would be a matter of congressional discretion. It may be noted that the parameters of the ban on discrimination against beneficiaries based on religion are unclear. In some contexts, for example, under employment nondiscrimination statutes, courts have indicated that discrimination based on religion may include other forms of discrimination as long as the action relates to a religious tenet. Under this theory of interpretation, a religious organization that receives public funds may argue that extending its services to certain beneficiaries would infringe on its religious identity in violation of RFRA. In other words, for example, a religious organization that objects to certain sexual orientations may seek protection under RFRA in order to limit its service to same-sex beneficiaries by claiming that such service is a matter of religious doctrine, and a requirement to serve such beneficiaries constitutes a substantial burden on religion that would require strict scrutiny under RFRA. In addition to the implications of the Court's latest interpretation of RFRA in the context of the ACA, likely the most prominent legislation ever passed to govern various issues in health care law and policy, there are a number of other issues in health care that involve religious objections. For example, all 50 states and the District of Columbia require children to be vaccinated for certain illnesses and diseases before entering schools. Also as a matter of public health, individuals with highly contagious diseases have been subject to potential quarantine to avoid the spread of the illness. Some religious denominations believe that certain health care measures would violate their religious beliefs, and individuals may object to such policies as a matter of religious belief. Accordingly, many states have adopted exceptions for religious objections. However, under a broad definition of substantial burden , the class of recognized objections to such matters could be expanded significantly. Members of some religious groups may object to having their photograph taken, as many identification laws require. The teachings of several religious groups may prohibit their members from being photographed in general or from revealing some parts of the body. Identification laws that require individuals to be photographed or require individuals to be photographed without head coverings may infringe upon these individuals' religious exercise, leading to potential challenges regarding whether the individuals' religious objections must be accommodated under religious freedom protections such as RFRA. While many of these requirements are state laws that would depend on state religious freedom protections (e.g., driver's license requirements, voter ID requirements), there are some federal requirements or related interests that could trigger a challenge under the federal RFRA (e.g., passport requirements). Notably, the Supreme Court has considered the validity of state voter identification laws, and acknowledged issues related to religious objections, though it did not rule definitively on such issues. Some Justices have criticized certain methods of accommodation of religious objections to photo identification requirements adopted at the state level as too great a burden on those individuals with objections. | In the spring of 2016, the U.S. Supreme Court considered a set of challenges alleging that the contraceptive coverage regulations under the Affordable Care Act (ACA) violate the federal Religious Freedom Restoration Act (RFRA). Following oral arguments in which the eight sitting Justices appeared to be evenly divided, the Court unanimously declined to declare an answer in the set of seven consolidated cases, each brought by nonprofit religious entities with objections to the provision and use of contraceptives as well as to the process by which their objections may be accommodated under ACA regulations that require employers to provide contraceptive coverage in group health plans. The question at issue is whether the accommodation process—requiring employers with religious objections to inform the government of their objection and third-party insurers to provide required coverage to the employer's employees—would impose a substantial burden on religious exercise in violation of RFRA. The Court's consideration of these cases (consolidated under the case name Zubik v. Burwell and referred to collectively throughout this report as "the nonprofit challenges") followed its landmark 2014 decision, Burwell v. Hobby Lobby Stores, Inc., which has had ongoing implications for a number of legal and legislative issues. Hobby Lobby expanded the scope of entities recognized as eligible for protection under RFRA, but left open a number of other questions about how far RFRA's protection may extend, including what governmental actions might constitute a substantial burden on religious exercise prohibited under RFRA. Federal courts have been divided on the standard for recognizing a substantial burden in many cases, particularly in challenges to the ACA regulations. Providing no decision on the merits, the Court vacated the appellate court decisions in each of the seven cases and remanded those cases to the respective federal circuit courts with instructions to reconsider the cases after giving the parties an opportunity to "arrive at an approach going forward that accommodates petitioners' religious exercise while at the same time ensuring that women ... 'receive full and equal health coverage, including contraceptive coverage.'" The Court's action effectively means that the legal debate over RFRA's protections will continue to be litigated and could be expected to return to the Court in a later term, which could be of interest related to the Senate's consideration of a nomination to fill the current vacancy on the Court. A decision regarding what might constitute a substantial burden could have significant implications on RFRA claims not only related to the contraceptive coverage requirement, but also for a range of other issues being litigated in courts and considered in legislatures, both on the federal and state level. RFRA applies to all federal actions, unless specifically exempted by Congress, meaning that the impacts of its interpretation may affect a broad number of legislative issues. Additionally, a number of states have enacted state versions, the interpretation of which may be influenced by the Court's decisions. For example, organizations with religious objections to same-sex relationships have sought protection under RFRA for requirements to serve same-sex couples, including service by public accommodations; participation of religious providers in social service programs; and admission programs in religious institutions of higher education. This report examines the current parameters on governmental restrictions on religious exercise. It discusses the history of federal protection offered under the Free Exercise Clause of the First Amendment and RFRA, and notes parallel protections available at the state level. It analyzes the current interpretations of RFRA as applied to the contraceptive coverage requirement of the ACA, including discussion of Hobby Lobby and a review of the lower courts' interpretations of the nonprofit challenges. Finally, the report highlights a range of issue areas of interest to Congress that may be affected by the interpretation of RFRA. |
This CRS Report analyzes the security implications of Taiwan's presidential election of March 22, 2008, including the implications for U.S. assessments, security interests, and options for policymakers in Congress and the Bush Administration. This analysis draws in part from direct information gained through a visit to Taiwan to observe the election and to discuss views with a number of interlocutors, including those advising or aligned with President Chen Shui-bian and President-elect Ma Ying-jeou. This CRS Report will discuss the results of Taiwan's presidential election and symbolic yet sensitive referendums on U.N. membership, outlook for Taiwan's policies, implications for U.S. security interests in Taiwan, and options for U.S. policymakers presented with a window of opportunity. For details on U.S. arms sales, Taiwan's missile program, a possible withdrawal of missiles by the People's Liberation Army (PLA), Taiwan's defense budgets, etc. mentioned below, see CRS Report RL30957, Taiwan: Major U.S. Arms Sales Since 1990 , by [author name scrubbed]. Other relevant reports on the election and U.S. policy toward Taiwan are: CRS Report RS22853, Taiwan ' s 2008 Presidential Election , by [author name scrubbed], CRS Report RL30341, China/Taiwan: Evolution of the " One China " Policy—Key Statements from Washington, Beijing, and Taipei , by [author name scrubbed], and CRS Report RL33510, Taiwan: Overall Developments and Policy Issues in the 109 th Congress , by [author name scrubbed]. Days before Taiwan's presidential election on March 22, 2008, in a sign of U.S. anxiety about peace and stability, the Defense Department had two aircraft carriers (including the Kitty Hawk returning from its base in Japan for decommissioning) "responsibly positioned" east of Taiwan to respond to any "provocative situation." Perhaps more so than the election, two referendums on Taiwan's membership in the United Nations (U.N.) were of crucial concern to U.S. policymakers. Partly to turn out more supporters for legislative and presidential elections in January and March 2008, the ruling Democratic Progressive Party (DPP) proposed a referendum on whether to join the U.N. as "Taiwan." For political cover, the opposition Nationalist Party, or Kuomintang (KMT), reluctantly followed with its proposed referendum on whether to "rejoin" the U.N. using Taiwan's formal name of "Republic of China (ROC)" or another name (for membership that the ROC lost in 1971). The People's Republic of China (PRC) issued strident warnings about even the symbolic referendums as nonetheless a step for Taiwan's " de jure independence." Agreeing with Beijing, the Bush Administration harbored concerns about the DPP's referendum as proposed in June 2007 by Chen Shui-bian, the President of the ROC since 2000. Washington perceived President Chen's referendum as the latest in a series of provocative moves to change the "status quo" that have vexed the Bush Administration. Thus, there was U.S. relief when the referendums, as targets of U.S. and PRC condemnation, failed to become valid after only 36 percent of voters participated in both the referendums (50 percent participation was required for validity). The KMT had urged voters to boycott the DPP's referendum. Voters said they viewed them as cynical political gimmicks, since it is "impossible" for Taiwan to join the U.N. (The PRC's opposition to Taiwan's membership is backed by veto power at the U.N.) KMT presidential candidate Ma Ying-jeou won, as expected, but with a surprising and solid margin of victory (17 percent; 2.2 million votes). He won 58.5 percent of the votes, while DPP candidate Frank Hsieh won 41.5 percent. The turnout rate was 76 percent. Ma's inauguration will be on May 20, 2008. With the KMT's victory in the legislative elections on January 12, 2008, it will control both the Legislative Yuan (LY) and Executive Yuan (EY), or Cabinet, in the government. Upon the smooth and credible counting and announcement of results in the evening of the election, there was a renewed and widespread sense of relief and optimism among a majority of Taiwan's people, although the campaigning elements of the DPP were emotionally upset. As expected, on the Monday after the election, Taiwan's stock market rallied 4 percent higher, after gaining 4.5 percent the previous week with wide expectation of Ma's victory. President Bush immediately issued his personal congratulation to Ma Ying-jeou, calling Taiwan a "beacon of democracy" to Asia and the world. KMT interlocutors were pleased with Bush's prompt and warm message and use of the phrase "beacon of democracy." Indeed, representatives from 28 countries around the world observed Taiwan's election. One implication concerns whether Beijing's assessment of a "highly dangerous period" involving the referendums and legislative and presidential elections in Taiwan was well-founded or alarmist. Concerned about cross-strait stability, the Bush Administration agreed with the PRC's warnings and sought to derail the referendums. The Administration believes that it was correct and effective in managing the cross-strait situation. It escalated its criticism of President Chen Shui-bian's referendum as a unilateral step to change Taiwan's "status," as promptly stated by the State Department's spokesman in June 2007. Then, in August, Deputy Secretary of State John Negroponte opposed the referendum as "a step towards a declaration of independence of Taiwan." Deputy Assistant Secretary of State Thomas Christensen followed with a harsh speech in September that stressed U.S. opposition to this referendum as "an apparent pursuit of name change." While President Bush did not issue a public rebuke as Beijing desired, the most senior criticism came from Secretary of State Condoleezza Rice, who called the referendum "provocative" in December. The PRC Foreign Ministry promptly expressed appreciation for the Bush Administration in working together with China against Taiwan. Critics charged the Administration with agreeing with Beijing's unnecessary over-reaction, with justifying its alarmist case against Taiwan as moving towards de jure independence and being the provocative party, with working in concert with Beijing to "co-manage" Taiwan, and with interfering in Taiwan's democracy. Representative Tom Tancredo wrote a letter on August 30, 2007, to Secretary Rice, rebuking Negroponte's comments. Co-chairs of the Senate and House Taiwan Caucuses wrote to President Bush on February 29 and March 5, 2008, expressing concern about the criticisms of Taiwan's referendum by the State Department's officials as "provocative" and "a mistake." They urged the Administration to remain silent for the remainder of Taiwan's presidential campaign, declaring that "the U.S. should not be perceived as taking sides" in Taiwan's democracy. Critics contended that those stances undermined U.S. support for a key friend, fed Beijing's belligerence, exacerbated dangerous miscalculation of weakened U.S. interest in case of a PLA attack, and lacked understanding of Taiwan's democracy. Even if the referendums passed, Taiwan's membership in the U.N. is impossible due to the PRC's opposition in the U.N. Finally, the Administration's stance fostered rising expectations in Beijing that the United States would accede to PRC demands for restricting defense and other support to Taiwan. There are a number of alternative futures for Taiwan in the near and longer terms, including scenarios that are conducive to stability and policymaking, and scenarios that would challenge consensus-building and effective governance in Taiwan, with implications for U.S. security interests in stability and deterrence. Greater Stability: KMT controls LY and EY; DPP is divided and weak. KMT stays unified; DPP rebuilds; and stable two-party democracy is sustained. Greater Instability: KMT dominates politics and integrates with PRC; DPP's supporters demonstrate. KMT splits into factions (LY out of control); DPP re-organizes as strong challenge. KMT splits into factions; DPP stays divided between moderates and hardliners. Third party is formed that precludes majority rule by any one party. The near-term outlook for Taiwan's future is positive for stability and progress in policy-making, including policies on defense that previously faced partisan bickering in Taiwan's polarized political environment. The March 2008 presidential election was Taiwan's fourth direct, democratic presidential election held without disastrous problems since such elections began in 1996. A mature democracy, Taiwan is experiencing its second democratic turnover in power (from the KMT to the DPP in 2000, and from DPP to the KMT in 2008). At a meeting with visiting former Senator Frank Murkowski two days before the election on March 22, President Chen reversed his remarks that threw doubt on a smooth transfer of power and promised to support a peaceful and constitutional transition. The election results were not close nor contested, as some in Taiwan thought. With the large margin of Ma's victory, the DPP was resigned to its defeat in the presidential election, and no major protests or rioting occurred in the streets. Hsieh promptly offered his concession, and DPP leaders talked of reflection and reform. With Ma as president, the KMT will solidly dominate both the LY and EY (Cabinet) with power to push through policies, in contrast to the gridlock of the past eight years of divided government in which the KMT controlled the LY and DPP controlled the EY. Ma is seen as a unifying leader, in contrast to the divisive politics of Chen. The prospects for the DPP as a viable opposition to check KMT power in policymaking is uncertain, although the DPP remains potentially powerful. The DPP's dramatic defeat in this presidential election was the latest in a declining trend in its political power over at least the last three years. Moreover, the DPP that previously presented politicians younger than the traditional KMT politicians ("old guard") has found it a challenge to pass on leadership to a new generation. Ironically, the DPP's current leadership who rose in power in the 1980s lost to Ma, who represents the next generation of leadership in the KMT and attracts younger voters. The DPP has failed to adjust to regain greater support among centrist voters who cared about effective governance (particularly in the north of the island and among younger voters), despite electoral losses, President Chen's unpopularity, and the demise of the Taiwan Solidarity Union (TSU) (the DPP's hardline ally in the "Pan-Green" coalition). A DPP official, who also was one of the moderate incumbent legislators attacked as a "pro-China bandit" in the DPP's own primary for the legislative elections in January 2008, warned on the morning of the presidential election on March 22 that a defeat for DPP candidate Frank Hsieh would prompt a purge of moderates inside the DPP. Nonetheless, if, instead of remaining divided and weak, the DPP is able to regroup and rejuvenate to attract more support, then a stronger opposition would be conducive to a stable two-party democracy in Taiwan. Despite its troubles, the DPP still commands at least 40 percent of votes. In any case, checks and balances plus the politics of moderation have been institutionalized in Taiwan, favoring U.S. interests in stability and security. Both the DPP and KMT presidential candidates moved towards centrist positions concerning Taiwan's policies and identity. Both Ma and Hsieh presented moderate positions of their respective parties, including the common objectives of stronger defense, closer economic ties with the PRC, and repairing the relationship with the United States. Taiwan's voters demonstrated once again that they support moderate policies, without veering to extreme directions (such as declaring independence or surrendering Taiwan's status). Based on polling data over the years, a majority of Taiwan's people consistently prefer the status quo (Taiwan's current de facto status without unification or independence). However, in the longer term for Taiwan (for both the DPP and KMT), the question of Taiwan's identity and sovereignty as separate from that of the PRC remains unresolved. Some question whether there is any "status quo." This situation will continue to challenge U.S. management of peace and stability in the Taiwan Strait. Even though the current situation is stable and tensions are reduced with Beijing less alarmist about Taiwan, the PRC's insecurity about the Taiwan question is unlikely to disappear. Taiwan's democratic model poses a threat to the PRC's Communist regime. Taipei's government, whether under the KMT or DPP, claims sovereign status. (U.S. policy states that Taiwan's status is unsettled.) The PLA has continued to build up its forces that threaten Taiwan, raising the question of whether the military balance already has shifted to favor the PRC. Although the election is over, the potential remains for instability in the longer term. Moreover, while Taiwan's people have shown that they will not undertake extreme acts to upset peace and prosperity, the PRC does not have the moderating factor of a democratic system to restrain its decisions. Finally, there remain concerns about PRC misperceptions and changing dynamics in the relationships among the United States, PRC, and Taiwan. Aside from the PLA buildup, the PRC also has become the largest economic partner of Taiwan, surpassing the past U.S. role. Looking across the strait, Taiwan faces both a military threat and economic dependence or coercion. The KMT has fostered skepticism about its commitment to Taiwan's strong self-defense, including concerns about anti-American attacks on U.S. arms sales. As KMT chairman, Ma Ying-jeou was non-committal on Taiwan's defense policy and U.S. arms sales in 2005 and 2006, as shown in a disappointing visit to Washington, DC, in March 2006 that also avoided meetings with Members of Congress. For years, the KMT frustrated U.S. efforts to have Taiwan's LY pass higher defense budgets and approve U.S. arms sales. Information indicated KMT efforts in the LY hindered progress on U.S. arms programs until the latter part of 2007. Ma finally issued his defense policy in September 2007. That policy stressed a defensive "Hard ROC" (a pun on rock and ROC standing for "Republic of China"). Ma supported the same goal as the DPP government: increase military spending to 3 percent of GDP. However, Ma's policy has stressed the need to increase the portion of the budget on personnel in order to transition to an all-volunteer, professional military by eliminating conscription in four to six years. There is also discussion in the KMT of reorganizing the military. These announced changes have raised anxiety in the military about upcoming organizational, leadership, and personnel changes, at a time when President Chen already imposed frequent turnover of commanders and shortened the conscription period (now at 12 months) that have challenged military reforms, recruitment and retention, and training. An advisor to Ma estimates that transition to a professional military would cost $2 billion. Ma's defense policy indicated that he would continue to acquire U.S. weapons in the face of the PLA's modernization and threat toward Taiwan. While his policy did not explicitly discuss a sensitive submarine sale (which has been subject to delays due to KMT concerns since President Bush approved a sale in 2001), other acquired information indicated that Ma's stance was to support the purchase of submarines. His advisors have been divided on the submarine program, but he seems to have sided with supporters. They also look to buy new U.S. fighters and destroyers. In addition, Ma called for efforts to ensure peace and stability with the PRC: withdrawal of the PLA's missiles targeting Taiwan; military contacts and confidence building measures with the PLA; negotiation of a peace accord with the PRC; no possession of nuclear weapons or other weapons of mass destruction. In February 2008, Ma issued his national security strategy, stressing "soft power." Like the September 2007 defense policy, he stressed the need for deterrence and defense, and opposition to "offensive" weapons. He called for a "Hard ROC" defense by building an integrated defensive capability that would make it impossible to "scare us, blockade us, occupy us, or wear us down." He also repeated his call for ensuring the status quo: his "Three Noes" policy (no negotiation of unification, no attempt to push de jure independence, and no cross-strait use of military force). Again, Ma did not explicitly call for support of submarine procurement, while he did call for buying F-16C/D fighters in that statement on national security. Nonetheless, other acquired information indicates that since the "Hard ROC" defense policy was issued, Ma has focused on maritime capabilities, including greater attention to the navy and shipbuilding. In his campaign literature on defense, presidential candidate Ma supported the use of military procurement as well as commercial procurement to "quickly and reliably acquire advanced weapons from abroad" to face the PRC's military modernization. At a press conference the day after the election, Ma stated his goals of: "peace agreement" after a PLA missile withdrawal to end hostilities; more cross-strait economic ties for tourism, transportation, and investments; free trade agreements (FTAs) with the United States, Japan, and Singapore; membership in the U.N.; boycotting the Beijing Olympic games if Tibet's situation worsens; "mutual non-denial" (of the co-existence of the ROC and PRC); repairing the relationship with the United States; restarting quasi-official cross-strait dialogue using Taipei's Strait Exchange Foundation (SEF) and Beijing's Association for Relations Across the Taiwan Strait (ARATS) based on what the KMT now calls the "1992 Consensus," which involved a vague formula for talks called "one China, respective interpretations" ("PRC" for Beijing and "ROC" for Taipei). With President Ma Ying-jeou and control of the LY, the KMT will have various options. Ma declared a "Three Noes" policy: no unification, no independence, and no use of force. Nonetheless, aside from those excluded routes, the KMT could choose approaches of accommodating Beijing, challenging Beijing, and seeking a bipartisan consensus on national security. The KMT might have to resolve internal disputes about its defense policy and ties to Beijing, raising future uncertainty. Ma and the KMT are known to desire closer economic integration with the PRC, including his vice presidential running mate's proposal of a "common market" that was attacked by the DPP as surrender to a "one China." The KMT is expected to support direct transportation links, more PRC tourists visiting Taiwan, and greater investments, with optimism that lessened tensions and inter-dependence will foster peace and stability. Supporters say that the issue is not whether to increase economic ties with the PRC, which are already substantial, but whether to normalize them to remove unilateral restrictions faced only by Taiwan's businesses in a competitive global economy. For example, Taiwan's companies are prevented from investing more than 40 percent of net worth in the PRC, and their efforts nonetheless to invest there have come at the expense of further gains for Taiwan's economy. Taiwan's people still travel to the mainland to work, but they have to expend extra money and time to travel indirectly through Hong Kong. Those in the DPP have warned that economic integration will threaten Taiwan's security, including economic and military security. Some also fear the increased potential for PRC coercion and insertion of forces for sabotage in the event of conflict. There is concern in Taiwan about over-dependence on the PRC's economy. The PRC is Taiwan's largest trading partner. Taiwan sends about 40% of exports to mainland China (including Hong Kong). About 1-2 million of Taiwan's citizens live there. Taiwan has invested as much as $300 billion in the PRC. This dependence on the PRC's economy has stoked fears that the KMT would capitulate to Beijing, appease the Communist regime, or negotiate even unification of China, bringing instability to the regional balance of power. The KMT includes elements that seek much closer and accommodating ties with the PRC and continues to see Taiwan as a part of China, albeit called the "Republic of China." Despite the PRC's adoption in March 2005 of the belligerent "Anti-Secession Law" that triggered concerted criticism in the United States (particularly in Congress) and Europe (which then stopped efforts to end the arms embargo against the PRC), KMT Chairman Lien Chan flew to Beijing for a historic meeting with Communist Party of China's General-Secretary Hu Jintao the very next month. As for U.S. security assistance, although the KMT reaffirmed continued interest in F-16 fighters, a foreign policy advisor to Ma urged U.S. approval before his inauguration. That stance is significant as a reversal of the KMT's position in past years of trying not to give credit for progress in U.S. security ties to the DPP and a signal that the KMT might not want or be able to withstand PRC pressures to forgo F-16C/D fighters under Ma. Since the Bush Administration has refused since 2006 to accept a formal Letter of Request from Taiwan for new F-16 fighters, the new KMT government could stop efforts to submit a request altogether. That advisor had said in September 2007 that if Ma won the election, the KMT might submit a "new list" of arms requests to the United States. The KMT could continue to complicate U.S. arms acquisitions as it had done for years before the run-up to the presidential election, including refusing to approve or freezing the release of defense funds for U.S. weapons acquisition programs. For example, on missile defense, the opposition KMT and People's First Party (PFP) objected to acquiring U.S. PAC-3 missiles for three years, arguing that a referendum in 2004 "vetoed" the proposal. (A referendum on buying more missile defense systems failed to become valid with a lower than 50 percent participation rate.) In December 2007, the KMT-controlled LY decided to fund four sets of PAC-3 missiles but to freeze the funds for two more. On the question of whether to continue to develop and deploy Taiwan's HF-2E long-range land-attack cruise missiles, a program that brought quiet opposition and then public criticism by the Bush Administration a year ago, the KMT might restrict this program at the military's research and development Chung-Shan Institute for Science and Technology. A defense policy advisor to Ma said that he would restrict the range of the missile for counter-strike against only military targets on the coastal areas of mainland China directly across the strait (to degrade the PLA's sites for command and control, missile attacks, and surface-to-air missiles that threaten Taiwan's fighters). A foreign policy advisor to Ma has voiced objections to what he called "offensive" weapons in Taiwan's military. Another option is for Taiwan to cancel the HF-2E program and stop deployment. If the KMT negotiates with the PRC on its "withdrawal" of missiles targeting Taiwan, Taiwan's military deployments and missile programs could be subject to PRC demands. The KMT's decision could affect the issue of what U.S. actions to take in response to Taiwan's missile program. Some view that counter-attack capability as destabilizing, and others see tactical utility. The KMT could distance itself from the United States as well as Japan. There have been concerns that the KMT would shift its strategic orientation to pursue ties with Beijing and Washington with equal distance, or even secure a closer relationship with the PRC than that with the United States and Japan. The KMT has a legacy of fighting Japan in the 1930s and 1940s, whereas DPP leaders and President Chen's Administration forged close ties with Japan. Some are concerned that the KMT would be less pro-Japan than the DPP. The KMT has tended to assert its sovereignty over islands with disputed claims among Japan, Taiwan, and the PRC (called Senkakus by Japan, Tiaoyutai by Taiwan, and Diaoyudao by the PRC). Japan has historical, security, and economic interests in Taiwan due to its status as a Japanese colony from 1895 to 1945 and geographical proximity. Nonetheless, upon winning the election, Ma and the KMT signaled that they will stand up to Beijing. When asked about his priorities, a probable candidate to be Ma's national security advisor said that he would first repair the relationship with the United States and secondarily improve ties with the PRC, placing Washington before Beijing. Ma immediately announced his wish to visit the United States as well as Japan before his inauguration—significantly not the PRC. A KMT interlocutor said that senior KMT officials recently met quietly with retired Japanese admirals known as strong supporters of Taiwan. KMT officials also said that they support Taiwan's military in trying to submit a request to the United States for new F-16C/D fighters (to replace aging F-5 and IDF fighters). After stalling for years, KMT politicians also said that they are now committed to U.S. arms sales, including submarines and Patriot missile defense. However, a KMT politician expressed concerns about the Po Sheng command and control program. Reasons for the credibility of the KMT's current pro-U.S. assurances include: (1) the KMT would no longer fear giving credit to President Chen for progress in policies or encouraging his pro-independence steps; (2) the second party in the KMT-led "Pan-Blue" coalition, the pro-China PFP, has been eviscerated (with its leader, James Soong, no longer a challenge to Ma); (3) the KMT would now take over the governing responsibility for the country; and (4) the KMT understands that the premise for Taipei to engage in dialogue and other ties with Beijing has been a strong negotiating position that includes self-defense and security links with Washington. In any case, whether the KMT accommodates or stands up to the PRC, Taiwan's institutionalized democracy and established separate identity (that the KMT does not deny and Taiwan's people broadly uphold) will challenge the PRC's Communist authoritarian rule. In pursuing alternative approaches, the KMT also has the option of forging a new consensus with the DPP on national identity and security that have been lacking under Chen. Moreover, the KMT could stop the politicization of the debate over defense issues, a problem the Defense Department has lamented for years. Such steps would result in a more resilient Taiwan to counter coercion or conflict inflicted by Beijing. Alternatively, a new consensus could help the KMT to negotiate ties with the PRC, with closer economic and political integration. U.S. policy has declared support for a resolution of the Taiwan question with the assent of Taiwan's people. Upon discussions in the days following the election, KMT interlocutors highlighted Ma's goal of reconciliation after the long political fight. However, there was little discussion of forging a new national consensus on national security with the DPP. Some seemed receptive to the possibility, but one KMT leading lawmaker on defense policy dismissed the DPP as "that defeated party." Options for the majority KMT include working meaningfully with DPP lawmakers in the LY, particularly in the Foreign Affairs and Defense Committee. (The newly reorganized committee has 11 KMT legislators, 3 DPP legislators, and 1 independent legislator.) Another option would be to appoint DPP members in major ministries, including the Ministry of National Defense. A sensitive option for Ma would be to grant a presidential pardon of Chen who will lose immunity when he steps down as president. Fighting corruption in defense programs and decision-making could be another step to take. The results of March 22 sapped the PRC's alarmist warnings about the election and referendums, although it might still warn about instability until the inauguration on May 20 while Chen Shui-bian is still president. Nevertheless, cross-strait tension is greatly reduced. Chen is effectively weakened and concentrating on the transition. President-elect Ma and KMT interlocutors give pro-U.S. assurances. As president, Ma is expected to be less provocative towards Beijing than Chen. In one view, there is opportunity to turn U.S. attention from managing the cross-strait situation to urgent problems that require the PRC's improved cooperation, such as dealing with nuclear proliferation in North Korea and Iran, the crisis in Darfur in Sudan, repression in Burma, the crackdown in Tibet, etc. Alternatively, a window of opportunity is presented for the first time in years to advance U.S. security interests in Taiwan's self-defense, democracy, economy (as the United States' 9 th largest trading partner), and role as a responsible global citizen (for example, in weapons nonproliferation). Given the results (of the election and referendum) and outlook for Taiwan as discussed above, there are a number of U.S. objectives that might be pursued with renewed vigor to further U.S. interests. U.S. policymakers in the Congress and the Administration might strengthen engagement with the KMT as well as the DPP to shape the outcome of certain clear goals that are consistent with U.S. interests in Taiwan's sustained stability and security. These goals might include: reverse delays of past years in upgrading Taiwan's self-defense; bolster Taiwan's will to fight in face of PRC coercion or conflict; restore Taiwan's confidence in U.S. support and balance in the two relationships with Taipei and Beijing; improve Taiwan's critical infrastructure protection, a stated goal of U.S. interests since 2004 for Taiwan to expand its efforts from national defense to national security, by protecting national command centers, telecommunications, energy, water, media, computer networks, etc.; strengthen Taiwan's crisis-management and ensure prior consultation with the U.S. in the event of tensions or conflict to secure U.S. escalation control; repair Taiwan's weakened efforts to maintain international space; improve Taiwan's ties with U.S. allies and friends, including Singapore; keep Taiwan separate from PRC control and manipulations; promote Taiwan's consensus-building on national security, particularly in de-linking defense questions from political disputes; return to a situation with cross-strait dialogue (suspended in 1998); support the goal of Taiwan's officials and businesses to maintain U.S.-Taiwan economic ties (e.g., with an FTA) to balance links with the PRC. Consideration of U.S. policy options in the relationship with Taiwan would depend on the timing of certain events: the inauguration of Ma Ying-jeou as the new president on May 20, President Bush's attendance at the Olympic Games in Beijing (opening on August 8), and the end of Bush's term on January 20, 2009. KMT officials said that Beijing is unlikely to make negative actions against Ma at the start of his term and has an interest in Ma's ability to show voters that he can gain results for Taiwan in order to sustain KMT rule. New engagement with Taiwan after Ma's inauguration could remove the distaste in the Administration for dealing with current President Chen Shui-bian. President Bush's attendance at the Olympic games could offer leverage and a diplomatic damper for any U.S. initiatives toward Taiwan. Sensitive steps taken near the end of Bush's term could allow the current administration to bear the brunt of Beijing's ire and to preclude a difficult start to the next U.S. president's term in the U.S.-PRC relationship. Lastly, decisions could be delayed until the next U.S. administration. The Bush Administration's criticism of Taiwan's referendum on membership in the U.N. in addition to the refusal since 2006 of acceptance of a formal request from Taiwan for new F-16C/D fighters have raised concerns that the Administration has given Beijing the perception of "co-management" in handling Taiwan as well as rising expectations that Washington would continue to accede to Beijing's demands, for example, to forgo a sale of F-16s. Thus, one significant consideration for U.S. policymakers is whether to take steps to dispel notions of "co-management" (as Administration officials have firmly denied) and to counter any rising expectations from Beijing. Ma Ying-jeou's election presents a window of opportunity in the cross-strait and U.S.-Taiwan relationships. The issue is what options might be pursued by U.S. policymakers in Congress and the Bush Administration to advance U.S. interests. (CRS takes no position on the options discussed here.) One approach in continued management of peace and stability in the Taiwan Strait is for the Administration to "run out the clock" through the end of President Bush's term rather than pursue initiatives with Taiwan that might meet Beijing's ire. In this approach, the lessened cross-strait tension presents an opportunity to focus on other U.S. priorities requiring more robust PRC cooperation. An alternative would be for the United States to continue its existing policy of resisting policy initiatives through the presidential inauguration on May 20, 2008 (until current President Chen Shui-bian leaves office). New initiatives with Taiwan might be pursued after Ma takes office. The United States could wait until the KMT resolves internal debates and clarifies its national security policy, including decisions on military programs, organization, personnel, leadership, and spending. Those decisions could provide greater certainty about whether the KMT has changed its attitude toward acquisitions of U.S. arms, given its record in the past few years. A second approach would respond to president-elect Ma with these options: Allow Ma Ying-jeou to visit Washington, DC, or another U.S. city before his inauguration. Ma expressed a desire to visit the United States before becoming president (when U.S. policy would deny him a visa and allow only transits). Congress could invite and host Ma. Another option is a video conference with Ma. In August 2005, Co-chairs of the House Taiwan Caucus had written to Ma as the new KMT chairman, in part to invite him to visit. In 2007, the House passed H.Con.Res. 136 to support visits by Taiwan's officials. Work with Ma's transition team in ensuring a smooth power transition, as was done for Chen's transition team in 2000. Discuss the substance of Ma's inauguration address, including his policy intentions in dealing with the PRC and Taiwan's security, to convey critical near-term and long-term U.S. interests. Send a senior delegation to attend Ma's inauguration. (Representative James Leach, then Chairman of the House International Relations Subcommittee on Asia and the Pacific, was the U.S. representative at Chen's second inauguration in 2004.) A third approach to take (either before or after Ma's inauguration) with comprehensive or certain options would strengthen U.S.-Taiwan relations in military, political, or economic security. However, careful consideration could include the question of whether such steps would seriously risk other U.S. priorities that require PRC cooperation. Policy options include: Set positive objectives to achieve in the relationship with Taiwan. While U.S. officials list many goals to pursue with Beijing, they are often at a loss when asked to identify objectives in the relationship with Taipei. Chen's departure could change this U.S. stance. Accept Taiwan's formal letter of request for U.S. consideration of whether to sell new F-16C/D fighters. The removal of Chen as a factor in negative U.S.-Taiwan and PRC-Taiwan relations presents a fresh situation for acceptance of the letter. In October 2007, the House passed H.Res. 676 to urge the President to consider security assistance "based solely" upon the legitimate defense needs of Taiwan (citing Section 3(b) of the Taiwan Relations Act (TRA), P.L. 96-8 ). On March 19, 2008, the Co-Chairs of the Senate Taiwan Caucus, Senators Tim Johnson and James Inhofe wrote a letter to Defense Secretary Robert Gates, offering their "assistance" in his receipt of Taiwan's request. Reach out to moderate, pro-U.S. elements of the KMT. Ma Ying-jeou as well as some of his defense and foreign policy advisors are English speakers with familiar ties to the United States. Ma was educated at Harvard University, and his daughters are studying at U.S. universities. U.S. efforts might bolster the long-term influence of such pro-U.S. leaders in the KMT over the influence of pro-PRC ones. U.S. efforts are more likely to succeed if undertaken early, while Ma enjoys the initial "honeymoon" period and before the PRC can influence its allies in the KMT. Reach out to the moderate, pro-U.S. elements of the DPP. The DPP's electoral defeats have demoralized its members, particularly the moderates, with feelings of betrayal by Washington. A viable opposition DPP would check the KMT's power. Support Taiwan's bipartisan efforts to gain observership, if not membership, in the World Health Organization (WHO). 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. In signing S. 2092 into law ( P.L. 108-235 ), President Bush stated support for Taiwan's observer status in the WHO. The next meeting of the WHO's governing body, the World Health Assembly, will start on May 19 (the day before Ma's inauguration) in Geneva. Engage with the KMT to more quickly reduce uncertainties and anxieties in the military about changes to personnel, programs, and organization expected under Ma. One option would be to allow Taiwan's defense minister to visit for a conference in September 2008 (as was done in 2002). Conduct a meaningful and genuine dialogue with Taiwan's military to establish a new understanding if not agreement about the sensitive HF-2E cruise missile program to remove an irritant in defense ties. Allow U.S. naval port visits to Taiwan, particularly after the dispute in November 2007, when the PRC disapproved a number of port calls at Hong Kong by U.S. Navy ships, including two minesweepers in distress seeking to refuel in face of an approaching storm and an aircraft carrier planning on family reunions for Thanksgiving. Support Taiwan's senior-level representation at the summit of the APEC (Asian Pacific Economic Cooperation) forum. Although Taiwan is a full member of APEC, its representation has been downgraded due to PRC demands. The next summit will be held in Lima, Peru, in November 2008. Support Taiwan's inclusion in the Proliferation Security Initiative (PSI). Taiwan already is a cooperative member of the Container Security Initiative (CSI). As shown by the Defense Department's announcement on March 26, 2008, of Taiwan's own notification to the Pentagon of a mistaken shipment of parts for warheads in U.S. intercontinental ballistic missiles to Taiwan in 2006, it can be considered a responsible weapons nonproliferation partner. Engage more meaningfully with Taiwan's government in its relatively new exercises to ensure continuity of government, critical infrastructure protection, and crisis-management. Such engagement could be conducted through comprehensive channels (including Congress, Secret Service, National Security Council, as well as Departments of Homeland Security, Defense, Energy, and Treasury). Negotiate an FTA as Taiwan has sought unsuccessfully for years, in recognition of its status as one of the top ten trading partners of the United States and its dominance in the global information technology (IT) industries. S.Con.Res. 60 and H.Con.Res. 137 would urge the start of negotiations with Taiwan on an FTA. Another option would be to pursue an FTA in the services sector, since this sector dominates Taiwan's economy. Senator Baucus had suggested a services FTA with the European Union and Japan. Send a Cabinet-level official to visit Taiwan. The Bush Administration has refused to allow Cabinet officers to visit Taiwan, in a reversal of policies pursued by the George H. W. Bush and Clinton Administrations. The last such officer to visit Taiwan was Secretary of Transportation Rodney Slater (in 2000). A fourth approach concerns the U.S. role in renewed cross-strait dialogue. For decades, an issue for U.S. policy has been what role the United States should play to ensure a peaceful dialogue across the Taiwan Strait. As part of U.S. policy, President Reagan issued his "Six Assurances" of 1982, including one of no mediation between Taipei and Beijing. Short of whether that policy should change, there are various possible U.S. roles. In one view, the United States should seize this first window of opportunity presented in a decade to effectively ensure a cross-strait dialogue for sustainable peace and stability that would be worthwhile to help prevent a war between two nuclear powers. The United States could also shape the cross-strait dialogue to focus on functional cooperation, rather than premature political integration, national unification, or concessions on Taiwan's security. In another view, the United States should continue to stay out of any PRC-Taiwan negotiations, beyond a spectator's encouragement of dialogue. Indeed, in his congratulatory message to Ma, President Bush stated that "it falls to Taiwan and Beijing to build the essential foundations for peace and stability by pursuing dialogue through all available means and refraining from unilateral steps that would alter the cross-strait situation." President Bush also called PRC ruler Hu Jintao on March 26, to stress that the election "provides a fresh opportunity for both sides to reach out and engage one another in peacefully resolving their differences." In response, Hu Jintao appeared to state explicitly for the first time that the "1992 Consensus" involved "one China, different interpretations," a point that National Security Advisor Stephen Hadley also noted to the press on that day. A fifth approach would be for Congress to require a strategic review of policy. There has been no major policy review since 1994, one conducted by the Clinton Administration. Some say that a coherent strategy is needed to sustain U.S. interests in Taiwan, including peace and stability. Others say that the last year of a presidency leaves little time or energy to undertake such a review. A February 2008 report by the Taiwan Policy Working Group chaired by former Bush Administration officials Randy Schriver and Dan Blumenthal offered a comprehensive "common agenda" with Taiwan. An alternative is to forge a strategic approach in coordination with allies in Europe and Asia (e.g., Australia, Japan, South Korea), plus Singapore. | This CRS Report analyzes the security implications of Taiwan's presidential election of March 22, 2008. This analysis draws in part from direct information gained through a visit to Taiwan to observe the election and to discuss views with a number of interlocutors, including those advising or aligned with President Chen Shui-bian and President-elect Ma Ying-jeou. This CRS Report will discuss the results of Taiwan's presidential election and symbolic yet sensitive referendums on U.N. membership, outlook for Taiwan's stability and policies, implications for U.S. security interests, and options for U.S. policymakers in a window of opportunity. This report will not be updated. The United States positioned two aircraft carriers near Taiwan. Thus, there was U.S. relief when the referendums, as targets of the People's Republic of China (PRC)'s condemnation, failed to be valid. Kuomintang (KMT) candidate Ma Ying-jeou won with a surprising and solid margin of victory (17 percent; 2.2 million votes), against Democratic Progressive Party (DPP) candidate Frank Hsieh. The near-term outlook for Taiwan's future is positive for stability and in policy-making on defense. However, in the longer term, the question of Taiwan's identity and sovereignty as separate from the PRC remains unsettled. Moreover, the People's Liberation Army (PLA) has continued to build up its forces that threaten Taiwan, raising the issue of whether the military balance already has shifted to favor the PRC. The results of March 22 sapped the PRC's alarmist warnings about the election and referendums, although it might still warn about instability until the inauguration on May 20 while Chen is still president. Nevertheless, cross-strait tension is greatly reduced. Chen is effectively weakened and concentrating on the transition. Ma is less provocative towards Beijing than Chen. Ma gives pro-U.S. assurances. There is future uncertainty, however, as the KMT could choose to accommodate Beijing, challenge Beijing, or seek a bipartisan consensus on national security. In one view, there is an opportunity to turn U.S. attention from managing the cross-strait situation to more urgent priorities that require the PRC's improved cooperation, such as dealing with nuclear proliferation in North Korea and Iran, the crisis in Darfur in Sudan, repression in Burma, the crackdown in Tibet, etc. Alternatively, a window of opportunity is presented for the first time in years to take steps to sustain U.S. interests in security and stability in the Taiwan Strait. Considerations include whether to counter perceptions in Beijing of "co-management" with Washington and rising expectations about U.S. concessions to PRC demands, notions denied by the Administration. An issue for policymakers is what approach to take in a window of opportunity. U.S. policymakers have various options to: continue the existing approach; engage with president-elect Ma (including a possible U.S. visit before his inauguration); strengthen ties for Taiwan's military, political, and economic security (including a possible consideration of its request for F-16C/D fighters); promote a new cross-strait dialogue; and conduct a strategic review of policy toward Taiwan. |
The November 2000 elections caused the Senate to be tied with 50 Republicans and 50 Democrats. The issue was further complicated by the election of Richard B. Cheney as Vice President. When the 107 th Congress convened on January 3, 2001, the incumbent Vice President, Albert Gore Jr., presided until Vice President-elect Cheney was sworn in on January 20. Although a titular Democratic majority existed (with Vice President Gore available to break tie votes) and could have tried to organize the Senate, any such organization actions could have been revisited under Republican auspices once Vice President Cheney was in the chair to break ties. The Senate often negotiates formal and informal agreements to govern the legislative agenda and its consideration of individual measures. Similar negotiations about the organization of the Senate began informally in late November between the Democratic leader, Senator Tom Daschle (D-SD), and the Republican leader, Senator Trent Lott (R-MS). Talks continued after the Senate convened, and proposals under consideration by the two leaders were discussed at meetings of the party conferences. Senator Daschle, recognized as majority leader by Vice President Gore who was presiding, made no attempt to replace the incumbent Senate administrative officers with Democratic nominees. In an unprecedented step, the Senate agreed to S.Res. 3 , electing Senator Robert C. Byrd (D-WV) President pro tempore upon the adoption of the resolution, and simultaneously electing Senator Strom Thurmond (R-SC) President pro tempore , to be effective at noon on January 20. The Senate designated committee chairmen on opening day. As Senate committees are continuing bodies, Senators serving on panels in the 106 th Congress retained their positions and roles when the 107 th Congress convened. Several committee chairmen did not return to the 107 th Congress, however, and, for administrative reasons, it was necessary for the Senate, at a minimum, to designate acting committee chairs to replace them, pending election of the full committee slates. The Senate went further in adopting S.Res. 7 , naming Democratic committee chairs on all Senate committees to serve as such through January 20, and naming Republican chairs to assume their posts at noon that day. Two days later, on the afternoon of January 5, 2001, Senator Daschle presented to the Senate S.Res. 8 , a measure to provide the organizational basis for powersharing in the Senate when the parties were equally divided. The resolution was agreed to later that day. The key provisions of the resolution were as follows: Committees All Senate committees would have equal numbers of Republicans and Democrats; a full committee chair could discharge a subcommittee from further consideration of a measure or matter, if it was not reported because of a tie vote; and budgets and office space for all committees were equally divided, with overall committee budgets to remain within "historic levels;" Discharging Measures or Matters If a measure or nomination was not reported because of a tie vote in committee, the majority or minority leader (after consultation with committee leaders) could move to discharge the committee from further consideration of such measure or nomination; this discharge motion could be debated for four hours, equally divided and controlled by the majority and minority leaders. After the expiration (or yielding back) of time, the Senate would vote on the discharge motion, without any intervening action, motion, or debate; and if the committee were discharged by majority vote, the measure or matter would be placed on the appropriate Senate calendar to await further parliamentary actions. Agenda Control and Cloture The agreement prohibited a cloture motion from being filed on any amendable item of business during the first 12 hours in which it is debated; required both party leaders "to seek to attain an equal balance of the interests of the two parties" in scheduling and considering Senate legislative and executive business; and noted that the motion to proceed to any calendar item "shall continue to be considered the prerogative of the Majority Leader," although qualifying such statement with the observation that "Senate Rules do not prohibit the right of the Democratic Leader, or any other Senator, to move to proceed to any item." On January 8, 2001, the provisions of S.Res. 8 were further clarified and other procedures relating to the powersharing agreement were announced. Senator Harry Reid (D-NV), the assistant Democratic floor leader, received unanimous consent to enter a printed colloquy between Senators Daschle and Lott into the Congressional Record , and to direct that "the permanent ( Congressional ) Record be corrected to provide for its inclusion with the resolution when it passed the Senate last Friday." In addition to summarizing the provisions of S.Res. 8 , the colloquy covered several additional issues. In perhaps the most significant announcement, the two leaders pledged to refrain from using their preferential rights of recognition to "fill the amendment tree" in an effort to block consideration of controversial issues. Senator Lott, on behalf of both leaders, declared the policy in the written colloquy. ... (I)t is our intention that the Senate have full and vigorous debates in this 107 th Congress, and that the right of all Senators to have their amendments considered will be honored. We have therefore jointly agreed that neither leader, nor their designees in the absence of the leader, will offer consecutive amendments to fill the amendment tree so as to deprive either side of the right to offer an amendment. We both agree that nothing in this resolution or colloquy limits the majority leader's right to amend a non-relevant amendment, nor does it limit the sponsor of that nonrelevant amendment from responding with a further amendment after the majority leader's amendment or amendments are disposed of. The party leaders agreed that minority party Senators would be permitted to serve as presiding officers of the Senate. This differed from the usual Senate practice under which only majority party Senators serve as temporary presiding officers. The colloquy further specified that both parties would "have equal access" to common space in the Capitol complex for purposes of holding meetings, press conferences, and other events. This supplemented the provisions in S.Res. 8 guaranteeing the minority equal committee office space. The agreement embodied in S.Res. 8 was not comprehensive. It did not address many parliamentary issues. As Senator Lott noted in floor remarks, it covered the issues on which the party leaders were able to reach agreement. "In instance after instance, Senator Daschle and I discussed points, argued about points. When we could not come to agreement, we said we would deal with the rules as they are. So we got it down to what really matters." For example, one issue that was not resolved was conference committee composition. Although the agreement specified equal party strength on the Senate's standing, special, and joint committees, it did not specify equal party strength on conference delegations. Some Senate Republicans were insistent that a majority of Senate conferees be Republicans, reflecting the tie-breaking vote of Vice President Cheney available to approve any conference compromise. As one Republican Senator noted, "I think it's absolutely our position, and my position, that we have to control the conferences." The parliamentary stages though which the Senate passes to get to conference are usually handled by unanimous consent. This particularly includes granting authority to the presiding officer to appoint conferees, based on the recommendations of the committee and floor leaders. If objection is raised to granting this authority, Senate conferees are to be elected by amendable motion, debatable under the normal rules of the Senate. Senator Lott alluded to this possibility in the printed colloquy of January 8. With respect to the ratios of members on conferences, we both understand that under previous Senate practices, those ratios are suggested by the majority party and, if not acceptable by the minority party, their right to amend and debate is in order.... (T)he intention of this resolution is not to alter that practice and this resolution does not serve to set into motion any action that would alter that practice in any way. The Senate did not name conferees through its traditional mechanisms during the powersharing period of the 107 th Congress. During that time, the Senate agreed to send only two measures to conference committee, the budget resolution and the reconciliation bill, but it should be noted that conference procedures on these measures are governed in part by the Budget Act. In both of these cases, a majority of the conferees were Republican. On May 24, 2001, Senator James Jeffords announced his intention to leave the Republican party, to become an Independent, and to caucus with the Senate Democrats. With Senator Jeffords's announcement, the Democrats held a numerical edge in the Senate. On June 5, 2001, Senator Jeffords met with Senate Democrats at their weekly conference meeting. On June 6, the Senate convened with the Democrats as the acknowledged Senate majority party. The powersharing agreement in effect in the Senate from January to June of 2001 was an experiment. It differed from many established practices of the Senate. The agreement was not comprehensive, and new issues came before the Senate that had to be resolved by informal agreements, unanimous consent negotiations, or other means. The success of any Senate organizational settlement depends in part upon its adaptability and that of its members to changing circumstances. | The 2000 elections resulted in a Senate composed of 50 Republicans and 50 Democrats. An historic agreement, worked out by the party floor leaders, in consultation with their party colleagues, was presented to the Senate ( S.Res. 8 ) on January 5, 2001, and agreed to the same day. The agreement was expanded by a leadership colloquy on January 8, 2001. It remained in effect until June of 2001, when Senators reached a new agreement to account for the fact that a Senator had left the Republican party to become an Independent who would caucus with the Democratic party. This report describes the principal features of this and related agreements which provided for Republican chairs of all Senate committees after January 20, 2001; equal party representation on all Senate committees; equal division of committee staffs between the parties; procedures for discharging measures blocked by tie votes in committee; a restriction on the offering of cloture motions on amendable matters; restrictions on floor amendments offered by party leaders; eligibility of Senators from both parties to preside over the Senate; and general provisions seeking to reiterate the equal interest of both parties in the scheduling of Senate chamber business. Also noted is that not all aspects of Senate practice were affected by the powersharing agreement. |
C ontroversies have arisen in several states over establishment of ambient water quality standards. At issue is whether states are setting standards at levels that adequately protect public health from pollutants in waterways. Some groups argue that states are adopting overly stringent standards that are unattainable and unaffordable and are being pressured to do so by the U.S. Environmental Protection Agency (EPA). Others contend that the states are failing to protect population groups that consume large amounts of fish, such as members of Indian tribes that have treaty fishing rights. The issue involves complex scientific and technical questions about cancer risk levels and fish consumption rates, among others. States where these controversies have occurred recently include Maine and several in the Pacific Northwest (Washington, Oregon, and Idaho). Similar issues could arise in other states that have large tribal populations or other populations that are exposed to toxic pollutants in streams, lakes, and other ambient waters. In many respects, water quality standards are the fundamental building blocks of the Clean Water Act (CWA; 33 U.S.C. 1253 et seq.). Established by states and approved by EPA, they define a state's water quality goals, and they result in direct requirements for dischargers because states issue enforceable discharge permits based on criteria limits in the standards. They also provide the benchmark against which states identify impaired waters and then develop plans that establish Total Maximum Daily Loads (TMDLs) to attain the standards. Water quality standards consist of narrative and numeric limits on pollutants, designated uses or goals for protection of the waterbody (such as fishing, swimming, or public water supply), and antidegradation policy to maintain and protect existing uses and high-quality waters. In support of standard setting by states, EPA develops risk-based water quality criteria that set a concentration for contaminants in water to ensure that public health and aquatic life will not be harmed. For most pollutants, EPA develops water quality criteria to protect aquatic life and separate water quality criteria to protect human health. The latter are sometimes referred to as the potable water criteria, since they are intended to protect human health from water that is consumed directly or protect human health from exposure to contaminants that may occur as a result of consuming fish. The most recent EPA update of the human health water quality criteria was issued in 2015. It included revisions to 94 existing criteria; EPA now has recommended human health criteria for 122 pollutants. The EPA criteria are recommendations to states—they do not apply automatically, they are not binding on states, nor are they enforceable. Most states use the EPA national criteria as the starting point for developing criteria as part of their water quality standards. They usually are expressed as concentration limits for a pollutant. The states' criteria must protect the designated use of a waterbody and be based on "sound scientific rationale." If a state adopts criteria that differ from EPA's recommended criteria, the state must explain its rationale for doing so, as part of developing enforceable water quality standards that are reviewed and approved by EPA. Following EPA's approval of water quality standards, states establish discharge permit limits to ensure that industrial and municipal sources will not violate criteria in the standards. If EPA disapproves state criteria or determines that revised criteria are necessary, it can issue federal criteria for the state. When that occurs, the federal criteria are the state's water quality standards until such time as EPA approves the state's revised criteria. EPA then withdraws the federally promulgated water quality standards because they are no longer necessary. EPA has not often used its CWA authority to establish federal water quality standards—for example, it promulgated toxic pollutant standards in 14 states and territories in 1992 and toxics standards for waters of the Great Lakes system in 1995 —but doing so has been controversial. An important function of ambient water quality criteria is to manage the risk associated with chemicals that are released into the environment through human activity in such a way that human health is protected. Human health criteria represent the highest concentration of a pollutant in water that is not expected to pose a significant risk to human health. They are set so that fish in a waterbody have levels of targeted pollutants low enough such that when they are consumed by people, or are consumed by people who also are drinking water from the same waterbody, they do not pose unacceptable health risks to individuals. A water quality criterion is calculated as the product of risk-specific toxicity (i.e., the type of health effect—cancer or non-cancer) times exposure. Exposure encompasses multiple factors, such as body weight of individuals, daily intake of fish and water, and bioaccumulation of the pollutant. Over time, the methodology and exposure inputs underlying EPA's national recommended human health criteria have evolved, based on better science, population data, and models. EPA's 2015 Update of Human Health Ambient Water Quality Criteria reflects several revised standard exposure inputs: (1) default body weight of 80 kilograms for adults ages 21 and older (about 176 pounds; previously, EPA's default body weight was 70 kilograms, or about 154 pounds), (2) default drinking water consumption rate of 2.4 liters per day for adults (previously, 2 liters per day), and (3) default fish consumption rate (FCR) for the general population of 22 grams per day (g/d) that is protective of 90% of adults (about ¾ of an ounce; previously, EPA's national default rate was 17.5 g/d, or 0.6 ounce). EPA's national default subsistence FCR is 142 g/d, representing subsistence fishers whose daily consumption is greater than the general population. Fish consumption rates are among the important exposure factors in determining risk level in a criterion, because the more fish that people consume that contain toxic pollutants, the more individuals are at risk for developing cancer and other illnesses. What is considered safe for someone who eats fish once per month might be harmful to someone who eats fish every day. This is important to Indian tribes, who generally eat more fish than average consumers because fish consumption has important cultural and religious significance for tribal members. Consequently, some have long argued that water quality standards should give greater weight to considerations that include FCRs of certain subpopulations, such as Native Americans. Also important is the assumed cancer risk level in a criterion. EPA and other regulatory agencies consider that there is some risk with even the lowest exposure to carcinogens (i.e., there is no threshold exposure below which risk is zero). To establish regulatory criteria for carcinogens, the level of acceptable risk must be determined. Chronic (lifetime) exposure to carcinogenic chemicals is associated with an increased likelihood of developing cancer at some point in an individual's lifetime. This likelihood is sometimes referred to as the incremental excess lifetime cancer risk. That increased likelihood is sometimes referred to as a probability, such as one in 1,000 (expressed as 1 x 10 -3 ) risk above the "background" risk of developing cancer. EPA calculates CWA human health criteria for carcinogenic effects as pollutant concentrations corresponding to lifetime increases in the risk of developing cancer. Because exposure to surface water or other environmental media cannot be risk-free, the challenge is to find some level of risk that most people will find acceptable. For exposure to carcinogens, the risk-based point of departure for many environmental rules has been a risk management decision of selecting a threshold probability of cancer, typically an excess risk of one in 1 million, or 1 x 10 -6 . Risks at this level or lower (e.g., 10 -8 ) are regarded as acceptable, while higher risks (e.g., 10 -3 ) may or may not be considered acceptable, depending on the regulatory program involved. EPA's methodology for developing ambient water quality criteria to protect human health recommends cancer risk levels of 10 -5 (one in 100,000) or 10 -6 as generally acceptable risk management levels to protect the general population and notes that states and authorized tribes can choose a more stringent risk level, such as 10 -7 (one in 10 million), when deriving human health criteria. EPA's methodology also states that the risk to more highly exposed populations (sports fishers or subsistence fishers)—who inherently face greater risk by consuming more fish—should not exceed a 10 -4 risk level (one in 10,000). EPA believes that states have flexibility under the CWA to determine appropriate risk levels in their water quality standards, subject to EPA review and approval or disapproval, but requires that the state has identified the most highly exposed subpopulation and has demonstrated that the chosen risk level is adequately protective of that population. The CWA requires states and authorized tribes to review their water quality standards and revise them, if appropriate, at least once every three years. Increasingly, during the triennial review process, EPA has been encouraging states with populations known to consume large amounts of fish to develop criteria to protect highly exposed population groups and, in doing so, to use local or regional data on FCRs that are more representative of their target population group, in place of a default national value. In addition, the agency encourages states to adopt a cancer risk level of 10 -6 both for the general population and highly exposed groups. Recent controversies between EPA and several states have involved disputes over both the appropriate FCR and cancer risk level used by states in developing their water quality criteria, and the stringency of the resulting ambient water quality standards. Stringent water quality standards, in turn, can result in states issuing permits containing highly restrictive discharge limits that create compliance issues for industrial and municipal facilities. The challenge raised by these controversies is to develop achievable water quality criteria that are protective for the general population and for high-consuming subpopulations, whose risk will be greater, but still acceptable. In 2011, following its triennial review, Oregon adopted revisions to its water quality standards. Initially, Oregon's criteria were based on a fish consumption rate of 17.5 grams per day and 10 -6 lifetime cancer risk level. But EPA argued that information was available in the record that showed that more fish was being consumed than was accounted for in the 17.5 g/d standard. As a result, Oregon revised its criteria based on the new data and submitted its standards to include a 175 g/d FCR (about 6.2 ounces) and a lifetime cancer rate level of 10 -6 . EPA approved the revised standards in 2011. Evidence of how the state's stringent water quality standards may affect discharge permit limits is not available, because, according to available information, Oregon has issued few major permits based on the revised criteria. Washington State began work on revised water quality standards in 2013. Its then-existing human health criteria for toxic pollutants were promulgated by EPA in the 1992 National Toxics Rule (NTR), based on recommended exposure values considered appropriate at that time—including a default FCR of 6.5 g/d and a cancer risk level of 10 -6 . Washington intended to adopt criteria that EPA would approve in lieu of federal standards, reflecting both updated science and policy. The standards that the state adopted and submitted for EPA review in January 2015 were based on an FCR of 175 g/d (EPA had urged the state to adopt the same FCR as Oregon, in part to achieve regional consistency since the two states share certain waters) and a cancer risk level of 10 -5 . Washington State was attempting to develop human health criteria that would balance human health protection and achievability, but EPA indicated that it would disapprove Washington's standards, because of the less protective cancer risk level. When the state failed to adopt revised standards that EPA could approve, in September 2015 the agency proposed to promulgate federal water quality standards for Washington including more protective human health criteria that are consistent with EPA's position. This rule proposes to change the criteria that EPA promulgated for Washington in the 1992 NTR and establish new human health criteria for 14 additional chemicals for which EPA now has recommended criteria. EPA has not yet finalized its 2015 proposal (despite the 90-day requirement in CWA Section 303(c)(3)), preferring that Washington revise its standards, which the state did in August 2016. EPA is now reviewing the state's new standards. Washington's 2016 revisions incorporate criteria reflecting EPA's position regarding FCR and cancer risk level, but nevertheless reflect some differences in numeric criteria for specific pollutants. Idaho updated 167 human health criteria for 88 chemicals in 2006. In 2012, EPA disapproved the state's updated human health criteria and the use of 17.5 g/d as a fish consumption rate for calculating the criteria. This action was based on EPA's judgment that the FCR used in criteria derivation was not adequately protective of all Idahoans. Subsequently, Idaho notified EPA of its intention to initiate a negotiated rulemaking to revise the human health criteria for toxic pollutants; that rulemaking began in September 2012 and continues now. Based on a fish consumption survey of its general population and an EPA tribal survey, Idaho chose an FCR of 66.5 g/d and a 10 -5 cancer risk level to derive revised criteria for toxic pollutants. The state has not yet officially submitted its standards package to EPA for approval, but in official comments to the state, EPA indicated concern about Idaho's actions. In May 2016, EPA announced that within one year it will propose human health criteria applicable to waters under Idaho's jurisdiction. In April 2016, EPA proposed federal water quality standards containing human health criteria for 96 pollutants in certain waters in Maine, mainly waters on Indian lands in the state and waters subject to sustenance fishing rights under the Maine Implementing Act. EPA's proposal came after a federal court in 2014 had ordered EPA to act—through approval or disapproval—on a series of water quality standards that Maine had submitted to EPA for review over a period of years, but on which EPA had failed to act. In response to the court's order, EPA partially approved and partially disapproved Maine's pending standards in a series of letters early in 2015. The disapprovals were based in part on EPA's determination that the criteria do not adequately protect all designated uses, including sustenance fishing use in tribal waters. Maine believes that the standards were wrongly disapproved and has objected to revising its standards to adopt EPA's position. Maine's human health criteria are based on an FCR of 32.4 g/d, while EPA's April 2016 proposed federal criteria assume an FCR of 286 g/d. Both Maine's standards and EPA's proposed standards include a cancer risk level of 10 -6 . Within their overall water quality standards, states can incorporate a number of tools or mechanisms that can potentially provide implementation flexibility. For example, EPA rules allow states to establish a process for allowing time-limited variances and compliance schedules to allow permittees additional time to meet CWA and regulatory requirements. They also can grant intake credits or have processes that recognize naturally occurring or legacy sources of contaminants, air deposition, or pollutant releases from unregulated sources. States generally, but especially states that are developing or implementing stringent water quality criteria, view such implementation tools as necessary elements of their water quality standards. EPA's regulations acknowledge that intake credits, variances that allow more time for compliance, and other mechanisms are available to states, but the agency disapproves those that it determines do not meet requirements of the CWA. These actions, too, contribute to controversies between EPA and certain states. In all cases, EPA indicates that it prefers to work collaboratively with states and prefers that states take necessary actions to adopt or revise water quality standards to meet CWA requirements without federal intervention. At the same time, EPA argues that it has a duty under the CWA to ensure that water quality standards adequately protect designated uses of waters and are consistent with the law. Criticism of EPA's actions regarding state water quality standards has increased recently. Critics include affected states and organizations representing major dischargers that are directly affected by adoption of stringent water quality criteria. One such organization is the National Association of Clean Water Administrators (NACWA), whose members include public wastewater treatment agencies. In a December 2015 letter commenting on EPA's proposed federal water criteria for Washington State, NACWA criticized "EPA's tactics of influence and intimidation," which the organization said "are inconsistent with the CWA's cooperative federalism foundation and history that provides the states the responsibility for developing and approving water quality standards." In a separate letter concerning Idaho's development of revised water quality criteria, NACWA observed that EPA's engagement with states before formal criteria are submitted is intended to influence the content of state proposals. "Whether due to a lack of resources or political will, states have often succumbed to this 'informal' pressure from EPA and made revisions to their rules, even if the changes were counter to the state's policy and risk choice positions." Other critics contend that EPA's recommended national human health criteria are based on extreme and unrealistic assumptions, reflecting compounded conservatism, and that the agency has gone beyond the national criteria in its discussions with Maine and the Pacific Northwest states. Critics say that compounded conservatism results because the inputs used by EPA to derive human health water quality criteria assume that the concentration of a pollutant in all waters is always equal to the criteria and that everyone in the United States is of a standard weight; drinks 2.4 liters of unfiltered and untreated water from rivers, lakes, and streams every day for a lifetime; and eats 22 grams of locally caught fish every day for a lifetime, all of which are contaminated at the criteria level. Critics estimate that less than 1% of the population has these characteristics, while the compounded conservatism underlying such analysis leads to adoption of extreme values in states' criteria. EPA's recommended criteria in Maine and the Pacific Northwest are even more conservative, they say. Other stakeholders, including environmental advocates and tribal organizations, have a different view. Rather than considering human health water quality criteria as overly conservative or overprotective (i.e., by overestimating risk), these groups are more likely to argue that water quality criteria and standards are underprotective (i.e., by underestimating risk), especially in terms of protecting the health of highly exposed populations. In addition, these groups are more likely to fault EPA for what they view as not intervening in a timely manner when states do not meet the substantive and procedural requirements of the CWA, sometimes bringing legal challenges to EPA's actions. For example, when EPA failed to promulgate federal water quality standards for Washington State within 90 days after the agency's September 2015 proposal (as required by CWA Section 303(c)(3)), a coalition of environmental and fisherman associations sued EPA, asking a federal court to set deadlines for EPA to act. On August 3, 2016, the court directed EPA to promulgate revised water quality standards for Washington State no later than September 15, 2016, or, if Washington submits its own standards by September 15, 2016 (which the state did, on August 1), to either approve the state's submission or promulgate federal standards by November 15, 2016. Because EPA's mission is to protect public health and the environment, its practice is to seek to adequately protect public and environmental health by ensuring that risk is not likely to be underestimated, a position that prompts EPA to take a more "protective" stance, given the underlying uncertainty and variability of the factors and inputs that are being assessed. The agency believes that its approach to developing human health criteria is based on science and policies that have been thoroughly vetted publicly. Further, EPA believes that its responsibility is to ensure that state water quality standards meet the CWA's requirement "to protect the public health or welfare, enhance the quality of water and serve the purposes of this Act." In several of the recent controversies over water quality standards, EPA also has referenced concern over criteria that are not sufficiently protective of tribal treaty fishing rights. These issues arise because, when certain Native American tribes negotiated treaties with the U.S. government to cede or give up their lands, they insisted on maintaining their fishing rights, on and off reservation. Historically, and even today, these activities were important to Native American tribes as sources of food and trade, in addition to playing a central role in the spiritual and cultural framework of tribal life. EPA must consider tribal fishing rights because treaties between Native American tribes and the government have the same legal force as federal statutes and are defined as part of the supreme law of the land under the U.S. Constitution. EPA recognizes the importance of respecting tribal treaty rights and its obligation to do so when it takes actions such as approving water quality standards. The agency commented on this issue in the 2015 proposal for federal water quality standards in Washington State. A majority of waters under Washington's jurisdiction are covered by reserved rights, including tribal treaty-reserved rights.... In order to effectuate and harmonize these reserved rights, including treaty rights, with the CWA, EPA determined that such rights appropriately must be considered when determining which criteria are necessary to adequately protect Washington's fish and shellfish harvesting designated uses.... EPA proposes to consider the tribal population exercising their reserved fishing rights in Washington as the target general population for the purposes of deriving protective criteria that allow the tribes to harvest and consume fish consistent with their reserved rights. Tribal organizations have been among the most active and vocal supporters urging EPA to ensure that states develop water quality standards with stringent human health criteria. One analyst estimated that at least 10 states have tribes with treaties similar to those at issue in Washington State, and in total, 40 states are home to tribes with treaties, suggesting that similar water quality standards controversies could arise in other states, he said. At issue in these recent and ongoing controversies is finding the right balance in developing CWA human health criteria. One set of concerns about this balance has been expressed by industries and other regulated stakeholder groups, such as NACWA, who challenge what they view as EPA overreach of its CWA authority to oversee state water quality standards and ignoring flexibility that is provided in the agency's rules and guidance. For example, while EPA's methodology for developing water quality criteria states that a cancer risk level of either 10 -5 (one in 100,000) or 10 -6 (one in 1 million) is generally acceptable risk for the general population, the agency's strong recommendation is for states to use a 10 -6 risk level both for the general population and highly exposed groups. As described in this report, EPA argues that it has a duty under the CWA to ensure that water quality standards adequately protect designated uses of waters—including tribal treaty rights—and are consistent with the law. Environmental advocates and Native American organizations express a set of concerns that differ from those of regulated industries, favoring and encouraging more intervention by EPA, rather than less, and advocating the need to ensure that standards are protective of highly exposed subpopulations. States' interests reflect a range of concerns—desiring to ensure that public health of all populations is protected while providing flexibility for business and also preserving the appropriate role for states under the CWA. State standards must, by law and regulation, reflect the best available science, but when states are developing standards, they seek to ensure that legitimate state policy decisions are acknowledged. Congress has so far not directly addressed the recent controversies discussed in this report, but many in Congress have for some time been generally critical about perceived EPA overreach in a number of regulatory and policy areas. Although legislation intended to limit EPA's involvement in state development of water quality standards was introduced in the past ( H.R. 2018 , which the House passed, and S. 3558 in the 112 th Congress; and H.R. 1948 in the 113 th Congress), similar bills have not been introduced in the 114 th Congress. | Controversies have arisen in several states over establishment of ambient water quality standards. At issue is whether states are setting standards at levels that adequately protect public health from pollutants in waterways. Some groups argue that states are adopting overly stringent standards that are unattainable and unaffordable and are being pressured to do so by the U.S. Environmental Protection Agency (EPA). Others contend that the states are failing to protect population groups that consume large amounts of fish, such as members of Indian tribes that have treaty fishing rights. The issue involves complex scientific and technical questions about cancer risk levels and fish consumption rates, among others. States where these controversies have occurred recently include Maine and several in the Pacific Northwest (Washington, Oregon, and Idaho). Water quality standards are the fundamental building blocks of the Clean Water Act (CWA). Established by states and approved by EPA, they define a state's water quality goals, and they result in direct requirements for dischargers when states issue enforceable permits. In support of standard setting by states, EPA develops recommended risk-based water quality criteria that set a concentration for contaminants in water to ensure that public health and aquatic life will not be harmed. Most states use the EPA national criteria as the starting point for developing criteria as part of their water quality standards. Human health criteria are set so that fish in a waterbody have levels of targeted pollutants low enough such that when they are consumed by people, or are consumed by people who also are drinking water, they do not pose unacceptable health risks to individuals. Fish consumption rates are among the important exposure factors in determining human health risk level in a criterion, because the more fish that people consume that contain toxic pollutants, the more individuals are at risk for developing cancer and other illnesses. Also important is the assumed cancer risk level in a criterion. The CWA requires states and authorized tribes to review their water quality standards and revise them, if appropriate, at least once every three years. Increasingly, during the triennial review process, EPA has been encouraging states with populations known to consume large amounts of fish to develop criteria to protect highly exposed population groups and, in doing so, to use local or regional data on fish consumption rates that are more representative of their target population group, in place of a default national value. In addition, the agency encourages states to adopt a cancer risk level of 10-6 (i.e., one in 1 million incremental lifetime risk of developing cancer) both for the general population and highly exposed groups. Recent controversies have involved disputes over both the appropriate fish consumption rate and cancer risk level used by states in developing their human health water quality criteria, and the stringency of the resulting ambient water quality standards. Stringent standards, in turn, can result in states issuing permits with highly restrictive discharge limits that create compliance issues for industrial and municipal facilities. The challenge raised by these controversies is to develop achievable water quality criteria that are protective for the general population and for high-consuming subpopulations, whose risk will be greater, but still acceptable. Criticism of EPA's actions regarding state water quality standards has increased recently. Critics include affected states and organizations representing major dischargers that are directly affected by adoption of stringent water quality criteria, who challenge what they view as EPA overreach of its CWA authority to oversee state water quality standards. EPA responds that it has a duty under the CWA to ensure that water quality standards adequately protect designated uses of water and are consistent with the law. Other stakeholders, including environmental advocates and tribal organizations, have a different view from industry's. They argue that water quality criteria and standards are underprotective, especially in terms of protecting the health of highly exposed populations. States' interests reflect a range of concerns—desiring to ensure that public health of all populations is protected, while providing flexibility for business and also preserving the appropriate role for states under the CWA. Congress has so far not directly addressed the recent controversies discussed in this report, but many in Congress have for some time been generally critical about perceived EPA overreach in a number of regulatory and policy areas. |
Although Social Security Disability Insurance (SSDI) and Unemployment Insurance (UI) both provide income support to eligible individuals, the two programs serve largely separate populations. SSDI provides long-term benefits to statutorily disabled individuals who worked in jobs covered by Social Security and to their eligible dependents. In contrast, UI provides temporary benefits to involuntarily unemployed workers who meet the requirements of state law. Under certain circumstances, however, individuals are eligible for both programs. Several proposals have been introduced in the 114 th Congress to prevent or reduce concurrent receipt of SSDI and UI benefits. Proponents of these bills contend that concurrent receipt is "double dipping" or duplicative, inasmuch as each payment serves the same function of replacing lost earnings. Opponents argue that concurrent receipt of SSDI and UI benefits is consistent and appropriate under law, because the SSDI program actively encourages beneficiaries to return to work through various work incentives. This report provides background on SSDI and UI and explains how individuals may be eligible for both programs concurrently. It also summarizes the competing arguments for and against concurrent eligibility and examines the legislative proposals introduced in the 114 th Congress to deny or offset the SSDI benefits of individuals in receipt of UI. The report ends with a discussion of potential issues in implementing such proposals. Enacted in 1956 under Title II of the Social Security Act, SSDI is part of the Old-Age, Survivors, and Disability Insurance (OASDI) program administered by the Social Security Administration (SSA). OASDI is commonly known as Social Security. Like Old-Age and Survivors Insurance (OASI)—the retirement component of Social Security—SSDI is a form of social insurance that replaces a portion of a worker's income based on the individual's career-average earnings in covered employment. Specifically, SSDI provides benefits to insured workers under the full retirement age (FRA) who meet the statutory test of disability and to their eligible dependents. FRA is the age at which unreduced Social Security retirement benefits are first payable (currently 66). In June 2015, 10.9 million individuals received SSDI benefits, including 8.9 million disabled workers, 145,000 spouses of disabled workers, and 1.8 million children of disabled workers. SSA's Office of the Chief Actuary estimates that 167 million people will work in Social Security-covered employment in 2015. To qualify for SSDI, workers must be (1) insured in the event of disability and (2) statutorily disabled. To achieve insured status, individuals must have worked in covered employment for about a quarter of their adult lives before they became disabled and for at least 5 of the past 10 years immediately before the onset of disability. However, younger workers may qualify with less work experience based on their age. In 2014, SSDI provided disability insurance to more than 151 million workers. To meet the statutory test of disability, an insured worker must be unable to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for at least one year. In 2015, the SGA earnings limit is $1,090 per month for most workers and $1,820 per month for statutorily blind individuals. Disability determinations are based on a five-step sequential evaluation process that takes into account a worker's medical records, age, education, and work experience. In general, workers must have a severe impairment that prevents them from doing any kind of substantial work that exists in the national economy. Cash benefits begin five full months after a beneficiary's disability onset date. Initial benefits are based on a worker's career-average earnings, indexed to reflect changes in national wage levels. Benefits are subsequently adjusted to account for inflation through cost-of-living adjustments (COLAs), as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, benefits may be offset if a disabled worker also receives workers' compensation or certain other public disability benefits. In June 2015, the average monthly benefit was $1,165 for disabled workers, $317 for spouses of disabled workers, and $350 for children of disabled workers. In FY2014, SSDI paid out $141 billion in benefits to disabled workers and their dependents. In addition to cash benefits, disabled workers and certain dependents are eligible for health coverage under Medicare after 24 months of entitlement to cash benefits (29 months after the onset of disability). In 2012, Medicare spending per disabled beneficiary averaged about $9,900. Generally, disabled workers retain their benefits as long as they (1) are under FRA, (2) exhibit no substantial medical improvement, and (3) have average monthly earnings below the SGA limit. Although commonly viewed as a single program, Social Security (OASDI) is financed through two legally distinct sources known as trust funds. A trust fund is an accounting mechanism in the U.S. Treasury that records and keeps track of revenues, offsetting receipts, or collections earmarked for a specific purpose. The Federal Disability Insurance (DI) Trust Fund finances the benefits of disabled workers and their dependents, and the Federal Old-Age and Survivors Insurance (OASI) Trust Fund pays for the benefits of retired workers and their dependents as well as survivors of deceased workers. Administrative costs are also drawn from the trust funds. Each trust fund is a separate account in the U.S. Treasury, and under current law, the two trust funds may not borrow from one another. Most of the income of the two trust funds comes from dedicated payroll and self-employment taxes under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA). FICA taxes are split evenly between employees and employers, whereas SECA taxes are borne fully by self-employed individuals. The Social Security FICA tax rate for employees and employers each is 6.2% (12.4% combined), with 0.9% allocated to the DI trust fund and 5.3% to the OASI trust fund (1.8% and 10.6% combined, respectively). The Social Security SECA rate is 12.4%, with 1.8% allocated to the DI trust fund and 10.6% to the OASI trust fund. Social Security payroll taxes are levied on covered earnings up to a taxable maximum of $118,500 for 2015. Net payroll tax revenues credited to the DI trust fund totaled $109 billion in FY2014. The DI and OASI trust funds are also credited with income from the taxation of some Social Security benefits and interest earned on assets held by the trust funds. Occasionally, the trust funds receive income via reimbursements from the General Fund of the Treasury. In FY2014, revenues from those sources to the DI trust fund totaled $5 billion. All trust fund balances are invested in special-issue, interest-bearing U.S. government bonds. In their 2015 report, the Social Security trustees project that under current law, the DI trust fund will be exhausted in the fourth quarter of calendar year 2016. Upon depletion, the DI trust fund would have enough ongoing revenues to pay 81% of scheduled SSDI benefits. UI is a form of social insurance that provides temporary income support to covered workers who become unemployed through no fault of their own and meet certain other state eligibility requirements. The cornerstone of this income support is the joint federal-state Unemployment Compensation (UC) program, which may provide a partial wage replacement through the payment of UC benefits for up to a maximum of 26 weeks in most states. Authorized under Title III of the Social Security Act, the original intent of the UC program, among other things, was to help counter adverse economic shocks such as recessions. Although federal laws and regulations provide broad guidelines on UC benefit coverage, eligibility, and benefit determination, the specifics regarding UC benefits are determined by each state. This results in essentially 53 different programs. As of June 27, 2015, the UC program covered approximately 134 million jobs and provided benefits to more than 2.3 million unemployed workers. UC benefits may be extended at the state level by the permanent Extended Benefit (EB) program if high unemployment exists within the state. Once regular unemployment benefits are exhausted, the EB program may provide up to an additional 13 or 20 weeks of benefits, depending on worker eligibility, state law, and economic conditions in the state. Prior to its expiration on December 28, 2013 (December 29, 2013, in New York State), the temporary Emergency Unemployment Compensation (EUC08) program provided additional benefits of up to 47 weeks, also depending on state economic conditions. In general, UC eligibility is based on attaining qualified wages and employment in covered work over a 12-month period (called a base period) prior to unemployment. To be monetarily eligible to receive any UC benefits, all states require a worker to have earned a certain amount of wages and have worked for a certain period within the base period. The methods states use to determine monetary eligibility vary greatly. Additionally, to meet and maintain eligibility for UC benefits, states require most covered workers to have lost their job through no fault of their own, and to be able, available, and actively seeking work. UC benefits are based on wages for covered work over a 12-month base period. Most state benefit formulas replace approximately half a claimant's average weekly wage up to a weekly maximum. All states disregard some earnings during unemployment as an incentive to take short-term or part-time work while searching for a permanent position. In general, the worker's UC payment equals the difference between the weekly benefit amount and earnings. As of June 30, 2015, the 12-month average weekly UC benefit was $321. In FY2014, states spent $36 billion on regular UC benefits. Any EB (or expired EUC08) benefit amount is equal to the eligible individual's weekly regular UC benefits. The UC program is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Acts (SUTA), which are deposited in the appropriate accounts within the Unemployment Trust Fund (UTF). The 0.6% effective net FUTA tax paid by employers on the first $7,000 of each employee's earnings (no more than $42 per worker per year) funds both federal and state administrative costs, loans to insolvent state UC accounts, the federal share of EB payments, and state employment services. According to the Department of Labor (DOL), $5.5 billion in FUTA taxes were collected in FY2014. SUTA taxes on employers are limited by federal law to funding regular UC benefits and the state share of EB payments (50%). Federal law requires that the state tax be on at least the first $7,000 of each employee's earnings (it may be more) and requires that the maximum state tax rate be at least 5.4%. Federal law also requires the state tax rate to be based on the amount of UC paid to former employees, which is known as experience rating. Experience rating is a process for determining insurance premiums based on the cost of an insurance pool's past claims. In general, the more UC benefits paid out to its former employees, the higher the tax rate of the employer, up to a maximum established by state law. In FY2014, $47 billion in SUTA taxes were collected. The EB program is funded 50% by the federal government and 50% by the states, although the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 , as amended) temporarily provided for 100% federal funding of the EB program through December 31, 2013. The expired EUC08 benefit was 100% federally funded. Under certain circumstances, individuals are eligible for both SSDI and UI benefits. As noted earlier, disability-insured workers generally meet the statutory requirements for SSDI if they have a severe impairment that prevents them from earning above the SGA limit ($1,090 per month in 2015). Meanwhile, covered workers who are unemployed through no fault of their own must be actively seeking, able, and available for work in order to be eligible for UI (as determined under state law). Therefore, individuals who are statutorily disabled under federal law but have an earnings history that meets state UC earnings thresholds under state law may be eligible to receive SSDI and UI concurrently if they are still searching for work. Currently, there is no existing federal statute or regulation that prohibits concurrent receipt of SSDI and UI or offsets the SSDI benefits of individuals receiving UI payments. According to SSA, "receipt of unemployment benefits does not preclude the receipt of Social Security disability benefits. The receipt of unemployment benefits is only one of many factors that must be considered in determining whether the claimant is disabled." States, however, may elect to deny or reduce the UI benefits of individuals in receipt of SSDI benefits. For example, Wisconsin prohibits concurrent receipt of SSDI and UI, whereas Minnesota offsets the UI benefits (50%) of certain individuals with an effective date for beginning SSDI benefits after the start of their base period. Disabled-worker beneficiaries may become entitled to UI benefits before or after their SSDI benefits first become payable. Under a pre-entitlement to SSDI scenario, an individual in receipt of UI may be eligible for but not yet entitled to SSDI benefits due to the five-month waiting period. Individuals maintain their eligibility for both programs if they have earnings below the SGA limit and are able and available for at least part-time work. In an unpublished decision from the U.S. Court of Appeals for the Ninth Circuit, the court noted [The plaintiff's] receipt of unemployment benefits does not by itself support a conclusion that she is not credible. Generally, in order to be eligible for disability benefits under the Social Security Act, the person must be unable to sustain full-time work—eight hours per day, five days per week. However, under Oregon law, a person is eligible for unemployment benefits if she is available for some work, including temporary or part time opportunities. Therefore, [the plaintiff's] claim of unemployment in Oregon is not necessarily inconsistent with her claim of disability benefits under the Social Security Act. Some individuals may pursue this claiming strategy to maintain a certain level of income support during the five-month waiting period (through UI benefits) until they are awarded SSDI benefits. Upon entitlement to SSDI, these individuals receive concurrent SSDI and UI benefits until they no longer meet the eligibility requirements for both programs. Under a post-entitlement to SSDI scenario, SSDI beneficiaries with earnings below the SGA limit who are involuntarily terminated from their employment may be awarded UI benefits if they meet state-specific earnings thresholds. SSDI beneficiaries in this situation typically have some limited capacity to work, often in part-time employment. During the disability determination process, a disability examiner will assess a claimant's residual functional c apacity (RFC), that is, his or her remaining ability to do sustained work activities. According to SSA, sustained work activities are (1) in an ordinary work setting, (2) on a regular and continuing basis, and (3) for eight hours a day, five days a week, or an equivalent work schedule. Therefore, SSDI beneficiaries who are unable to perform sustained work activities on a full-time basis and have monthly earnings below the SGA threshold could potentially receive UI benefits should they subsequently lose their part-time job through no fault of their own. (In 2013, less than 15% of SSDI beneficiaries had any annual earnings from paid employment.) SSDI beneficiaries may also be eligible for UI based on monthly earnings above the SGA limit if they participated in an approved work incentive, such as a trial work period (TWP). A TWP allows beneficiaries to test their ability to work and still be considered statutorily disabled. During the TWP, beneficiaries may earn any amount for up to 9 months (not necessarily consecutive) within a 60-month rolling period without having their benefits reduced or terminated. In 2015, any month in which earnings exceed $780 is considered a month of "services" (i.e., work) and counted toward the beneficiary's nine-month TWP. (Note that the TWP amount is less than the SGA amount.) Upon completion of the TWP, SSDI beneficiaries enter a 36-month re-entitlement period, known as the extended period of eligibility (EPE). During the EPE, beneficiaries can have their benefits reinstated for months in which their work activity falls below the SGA threshold. The first month in which SGA is performed during the EPE and the two succeeding months are a grace period; SSA pays benefits during these months regardless of the level of earnings. For more information on work incentives for SSDI beneficiaries, see SSA's 2015 Red Book , at http://www.ssa.gov/redbook/index.html . In July 2012, the Government Accountability Office (GAO) released a report that examined the issue of overlapping SSDI and UI benefits. GAO found that in FY2010, 117,000 individuals received more than $850 million in concurrent benefit payments from the SSDI and UI programs. Individuals were determined to be in concurrent receipt if they received SSDI benefits in all three months of the quarter for which they received UI benefits. These individuals represented about 1% of the beneficiaries in each program, and the cash payments they received in FY2010 totaled more than $281 million from SSDI (0.2% of annual benefit outlays) and more than $575 million from UI (0.4% of annual benefit outlays). GAO also reviewed detailed SSDI and UI case files for a "nongeneralizable" selection of eight concurrent recipients. During its examination, the agency found that some individuals received earnings while in receipt of both SSDI and UI benefits. Moreover, some individuals who collected SSDI benefits had sufficient earnings—sometimes from physically demanding jobs—to qualify for UI payments. Based on these findings, GAO stated that concurrent receipt of SSDI and UI could be an indicator of improper payments. In response to a draft copy of the report, SSA stated that it performed a detailed review of the cases hand selected by GAO and found no improper payments issued due to concurrent receipt of SSDI and UI. Furthermore, SSA noted that receipt of income does not always mean that a person is working. As shown in Table 1 , SSA's Office of the Chief Actuary estimates that for each month in 2015, an average of about 0.34% of disabled-worker beneficiaries will be in concurrent receipt of SSDI and UI benefits. Between January and June of 2015, an average of about 8.9 million disabled-worker beneficiaries were entitled to SSDI. Therefore, based on OACT's projections, approximately 30,000 individuals were in receipt of SSDI and UI benefits in June 2015 (0.34% of 8.9 million). OACT also estimates that for each month in 2015, the average number of dual-eligible individuals receiving UI benefits who are in the five-month waiting period for SSDI benefits (i.e., near-concurrent recipients ) will be about 25,000 (0.28% of 8.9 million). OACT projects these numbers to decrease in future years. The decline in the number of concurrent (or near concurrent) SSDI and UI recipients is attributable largely to the decrease in the unemployment rate following the recent recession. When the economy is strong and the demand for labor is high, more individuals who could qualify for SSDI might decide to seek or continue employment because firms may be more willing to provide higher compensation or greater workplace accommodation for workers with disabilities. However, during economic downturns, these individuals are often less likely to find reemployment opportunities following a job loss. As a result, individuals with disabilities who might otherwise choose to work may apply for SSDI as a form of long-term support while receiving UI benefits in the short term. As the economy recovers from the recession, the incentives for some individuals with disabilities to apply for both UI and SSDI will decrease, resulting in fewer concurrent recipients (see Figure A-1 and Figure A-2 in Appendix A ). In addition, the falling unemployment rate has contributed to the decline in the number of concurrent beneficiaries by reducing the potential overlapping period of entitlement to UI and SSDI. When workers first experience a work limitation due to a disability, they typically do not immediately transition onto SSDI. Instead, workers gradually reduce their employment as their capacity to work declines. Upon finally experiencing a job loss, some individuals with disabilities apply for UI shortly thereafter. Disabled workers who are awarded UI benefits and who eventually apply for SSDI typically wait at least several months before doing so. Most studies find that the share of SSDI applicants in receipt of UI is markedly low. (Workers, including those with disabilities, generally do not qualify for UI if they voluntarily quit their job.) Under normal economic conditions, the potential overlapping period of entitlement to both UI and SSDI is relatively short because most states provide up to a maximum of 26 weeks (about six months) of regular UC benefits (see Figure A-3 in Appendix A ). Indeed, some dual-eligible individuals may experience a gap between their receipt of UI and their entitlement to SSDI. The gap is a function of, among other things, the (1) duration of UI benefits, (2) the timing of filing an SSDI application, (3) the duration of processing an SSDI application, and (4) the five-month waiting period. However, during adverse economic conditions such as a recession, the duration of UI benefits is extended—via EB and the temporary, now-expired EUC08—creating a greater potential overlapping period of entitlement to UI and SSDI. With the expiration of UI extensions, the maximum duration of UI benefits in many states has declined, resulting in a reduction in the potential overlapping period of entitlement. Furthermore, some states have legislatively shortened the maximum duration of regular UC to 20 weeks or less. Proponents of eliminating or abating concurrent receipt of SSDI and UI benefits argue that the practice is "double dipping" or duplicative, because both programs are intended to replace lost earnings. They often point to GAO's 2012 report, which noted that "while the DI and UI programs generally serve separate populations and provide separate services—thus not meeting our definition for overlapping programs—the concurrent cash benefit payments made to individuals eligible for both programs are an overlapping service for the replacement of their lost earnings." From their perspective, concurrent receipt of SSDI and UI pays workers twice for essentially the same reason. (In 2014, GAO suggested that Congress should consider "passing legislation to require SSA to offset DI benefits for any UI benefits received in the same period.") Proponents also maintain that receipt of one benefit is fundamentally contradictory with the eligibility requirements of the other, in that UI beneficiaries are required to be able and available for work (as determined under state law), whereas SSDI beneficiaries must be generally unable to work due to a severe physical or mental impairment. In their view, either a worker is (1) disabled and thus potentially eligible for SSDI or (2) able and therefore possibly eligible for UI—not both. They often characterize concurrent receipt of SSDI and UI as a "loophole" and point out that receipt of certain benefits may reduce a disabled worker's SSDI benefits, such as workers' compensation or other public disability benefits. In contrast, opponents of preventing or reducing concurrent receipt of SSDI and UI argue that the practice is consistent and appropriate under law, because SSDI allows beneficiaries who have some capacity to work to earn up to the SGA threshold ($1,090 per month in 2015). They also point out that SSA permits beneficiaries participating in work incentives, such as a TWP, to test their ability to work without losing their benefits. They contend that denying or offsetting the SSDI benefits of individuals in receipt of UI would discourage disabled-worker beneficiaries from attempting to return to work. In addition, many opponents contend that such proposals discriminate against individuals with disabilities who have lost their job through no fault of their own. They assert that, as a matter of fairness, individuals with disabilities who have paid into SSDI and UI should be able to collect benefits from both programs if they meet the respective eligibility requirements. Furthermore, opponents argue that, even when combined, concurrent benefits are "extremely modest," and that preventing or reducing concurrent receipt of SSDI and UI would adversely affect workers with disabilities and their families. They cite the 2012 GAO report, which estimated that the average quarterly amount of total overlapping SSDI and UI benefits in FY2010 was about $3,300—or $1,100 per month. Several proposals have been introduced in the 114 th Congress to deny or limit overlapping SSDI and UI benefits. These proposals take one of three approaches: The first approach treats receipt of UI payments as engaging in SGA for SSDI eligibility purposes ( H.R. 918 and S. 499 ); The second approach suspends SSDI benefits for any month in which a disabled-worker beneficiary receives UI payments ( S. 343 ); and The third approach reduces SSDI benefits, dollar for dollar, by the amount of UI payments (the President's FY2016 budget). Each of these approaches would result in savings to the SSDI program. Because UI payments are often less on a monthly basis than SSDI benefits, the Office of the Chief Actuary (OACT) and the Congressional Budget Office (CBO) estimate that some individuals would forgo UI payments to maintain receipt of SSDI benefits, resulting in savings to the UI programs as well. However, because these proposals reduce total benefit levels, they are also projected to increase spending on certain means-tested programs, such as Supplemental Security Income (SSI), as well as decrease revenues from the taxation of benefits. For an overview of similar proposals introduced in the 113 th Congress, see CRS Report R42936, Unemployment Insurance: Legislative Issues in the 113th Congress , by [author name scrubbed] and [author name scrubbed]. H.R. 918 and S. 499 , identical bills both titled the Social Security Disability Insurance and Unemployment Benefits Double Dip Elimination Act, were introduced on February 12, 2015, by Representative Sam Johnson and Senator Orrin G. Hatch, respectively. The bills would amend Section 223(d) of the Social Security Act to deem any month in which an individual receives a UI benefit (e.g., UC, EB, or Trade Adjustment Assistance [TAA]) as a month of engaging in SGA for purposes of determining SSDI eligibility. This amendment would be applicable to individuals who initially apply for SSDI on or after January 1, 2016. Treating receipt of UI payments as evidence of SGA would affect disabled workers differently, depending on their status. For individuals applying for SSDI on or after January 1, 2016, receipt of UI benefits would prevent applicants from meeting all the eligibility criteria for SSDI benefits. As noted earlier, claimants must complete a five-month waiting period before entitlement to cash benefits can begin. During the waiting period, individuals must meet the insured requirements for SSDI and be under a qualifying disability (i.e., statutorily disabled) for five full consecutive months. However, under H.R. 918 and S. 499 , claimants receiving UI benefits would be deemed to be engaging in SGA and would therefore not meet the definition of disability under Title II of the Social Security Act. As a result, months of UI receipt would not be counted toward the five-month waiting period. Because UI is temporary, the legislation would likely delay entitlement to SSDI for disabled workers in receipt of UI benefits and for their eligible dependents. For individuals entitled to SSDI on or after January 1, 2016, and participating in a TWP, any month for which a UI benefit is payable would be deemed to be a month of "services rendered" (i.e., work) and would therefore count toward the nine-month TWP. The TWP allows disabled-worker beneficiaries to test their ability to work without the risk of losing their benefits. Treating a month of UI receipt as a month of work would cause some SSDI beneficiaries to exit the TWP sooner than they otherwise would under current law. For individuals entitled to SSDI on or after January 1, 2016, who exhaust their TWP, any month in which a UI payment is received would result in a suspension or termination of entitlement to SSDI benefits for themselves and their dependents. Under H.R. 918 and S. 499 , disabled-worker beneficiaries in the 36-month EPE would be ineligible for reinstated SSDI benefits for any month after the grace period in which a UI payment is received. Beneficiaries who receive a UI payment after the 36-month EPE would be terminated from the program, because they would no longer meet the statutory definition of disability. OACT estimated that if H.R. 918 were implemented on January 1, 2016, it would reduce Social Security benefit payments by $5.7 billion in total for calendar years 2015 through 2024 (nearly all savings would stem from SSDI). The bill would also reduce UI payments by an estimated $1.2 billion over the same period. S. 343 , the Reducing Overlapping Payments Act, was introduced on February 3, 2015, by Senator Jeff Flake. The bill would amend Title II of the Social Security Act so that disabled-worker beneficiaries and their eligible dependents would have their SSDI benefits reduced to zero for any month in which the disabled-worker beneficiary receives a UI payment. Although workers and their dependents would be entitled to SSDI, their benefits would be effectively suspended until the disabled-worker beneficiary is no longer in receipt of UI. In 2014, OACT released a cost estimate for an identical bill to S. 343 that was introduced in the 113 th Congress by Senator Tom Coburn— S. 1099 , the Reducing Overlapping Payments Act. If S. 1099 had been implemented starting in July 2014, OACT estimated that it would have reduced SSDI benefit payments by $2.9 billion in total for calendar years 2014 through 2023. The bill would have also reduced UI payments by an estimated $2.0 billion over the same period. The President's FY2016 budget contains a proposal that would offset SSDI benefits, dollar for dollar, for any month in which an SSDI beneficiary is in receipt of UI payments. This means that each dollar of the UI benefit would reduce the SSDI benefit by one dollar. CBO estimated that the President's proposal would reduce SSDI outlays by $1.65 billion for FY2016 through FY2025. The proposal would also reduce UI outlays by an estimated $0.51 billion over the same period. As noted earlier, the only benefits that may reduce a disabled worker's SSDI payments under current law are workers' compensation or certain other public disability benefits (WC/PDB). Section 224 of the Social Security Act requires SSA to reduce the SSDI payments of disabled workers whose combined disability benefits from SSDI and WC/PDB exceed 80% of the worker's average earnings prior to the onset of disability. Congress first enacted this offset when it created SSDI in 1956 to provide "ample protection ... against duplicate public payments." However, administering the WC/PDB offset has proved challenging for SSA. In the past, both GAO and SSA's Office of the Inspector General (OIG) have been critical of SSA's ability to apply the WC/PDB offset in an accurate and consistent manner. The following section examines potential issues in implementing the proposals discussed in this report based on SSA's experience in administering the WC/PDB offset. One potential difficulty with denying or offsetting the SSDI benefits of individuals in receipt of another type of benefit is that it would increase the complexity of administering SSDI, which could result in improper payments. According to the Office of Management and Budget (OMB), an improper payment is "any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements." Improper payments are composed of both overpayments and underpayments. An overpayment is a payment that is higher than it should have been; an underpayment is a payment that is lower than it should have been. Improper payments stem from errors and other instances of waste, fraud, and abuse (not all improper payments are due to fraud). According to GAO, "the risk of improper payments increases in programs with … complex criteria for computing payments." Over the years, GAO and SSA's OIG have both highlighted complexity as a factor in improper payments associated with the WC/PDB offset. For example, in 2011, SSA's OIG estimated that 12% of the WC offset cases it examined had payment errors, with about half stemming from overpayments and the other half from underpayments. The OIG noted that the overpayments linked to the WC offset were due to a variety of factors, including verification errors, inaccurate WC payment data, and incorrect calculations. Under any of the proposals discussed in this report, improper payments could occur should SSA fail to verify receipt of UI for SSDI applicants and beneficiaries. Overpayments would occur when SSA improperly pays SSDI benefits to individuals in receipt of UI; underpayments would occur when individuals who are mistakenly deemed to be in receipt of UI by SSA are denied their full SSDI benefits. In FY2013, verification and local administration errors, which include errors related to non-verification of other income, accounted for 26% of the improper payments in the Social Security (OASDI) program. The dollar-for-dollar offset proposal would further complicate administrating SSDI because the offset would require SSA to not only verify receipt of UI but also determine the amount of UI payments for each month of concurrent entitlement. Any change in a disabled-worker beneficiary's UI payments would require SSA to re-compute the individual's monthly SSDI benefit. Problems with the timeliness or reliability of UI payment data or a miscalculation of the SSDI benefit amount could result in underpayments or overpayments. Administrative and documentation errors, which include errors related to incorrect computations, accounted for 66% of the improper payments in the Social Security program in FY2013. SSA's inability to verify WC payment data independently contributes to its problems in administering the WC offset. According to GAO, "SSA relies heavily on individuals to report their WC benefits and this has caused significant payment errors in the DI program." Although SSA has undertaken several initiatives over the years to obtain WC/PDB data from states, local governments, and private insurers, such efforts have resulted in limited access to the necessary data. To limit improper payments related to the implementation of the proposals discussed in this report, SSA would need to develop a method of reliably and accurately verifying the state UI payment information of SSDI applicants and beneficiaries. One option would be for SSA to match its administrative data with UI payment information contained in the National Directory of New Hires (NDNH). The NDNH is a national database of new hire (W-4), quarterly wage, and UI information administered by the Office of Child Support Enforcement (OCSE) at the Department of Health and Human Services (HHS). The original purpose of the NDNH was to assist state child support agencies in locating noncustodial parents and enforcing child support orders. Over the years, the NDNH has been extended to several additional programs and agencies to verify program eligibility, ensure payment accuracy, and collect overpayments. Federal law restricts access to the NDNH database to "authorized" persons. Under Section 453(j)(4) of the Social Security Act, the Secretary of HHS is required to share information from the NDNH with the Commissioner of Social Security. SSA currently has a Computer Matching and Privacy Protection Act (CMPPA) Agreement with OCSE, which allows the agency to online query access the wage and UI information of SSDI and SSI recipients for program eligibility and payment purposes. However, the current agreement is limited because it permits SSA to access the UI information of only certain SSDI beneficiaries. For the agency to verify receipt of UI for all SSDI beneficiaries, SSA would likely need to enter into a new agreement with OCSE. It remains to be seen whether the information in the NDNH (or any other database) would allow SSA to administer any of the aforementioned proposals in a reliable and accurate manner so as to minimize improper payments. Although UI information for individuals who applied for or received UI benefits is transmitted by state agencies to the NDNH on a quarterly basis, SSDI benefits are paid out monthly. The lag between the two periods, coupled with reporting delays, may result in SSA improperly paying benefits. One solution to this would be to require states to submit UI payment data on a monthly rather than quarterly basis. In addition to timeliness, the accuracy of the data contained in the NDNH may present SSA with certain problems in administering the aforementioned proposals. In 2013, the OIG reported that SSA was unable to verify the accuracy of about 26% of the names and Social Security numbers (SSNs) on quarterly wage reports in the NDNH due to incomplete or insufficient data reporting. The non-verifiable records required SSA staff to independently substantiate the names and SSNs of some beneficiaries, which resulted in less time spent on other administrative activities. Although the OIG noted that "the non-verifiable records did not negatively impact SSA's ability to identify improper payments in its SSI program," the resources used to verify such records may reduce potential savings from proposals that would prevent or limit concurrent receipt. Another potential issue in implementing the proposals discussed in this report is that some states already deny or reduce the UI benefits of individuals in receipt of SSDI benefits . As noted earlier, Wisconsin generally prohibits individuals in receipt of SSDI benefits from claiming UI benefits. At the same time, Minnesota offsets the UI benefits (50%) of certain individuals with an effective date for beginning SSDI benefits after the start of their base period. If one of the proposals in this report were enacted and implemented, dual-eligible individuals in these states could be subject to a "double offset." Under this scenario, both SSA and the state would deny their respective benefits or offset the benefits provided by the other, leaving dual-eligible individuals with little or no benefit income. (CRS does not have data on the number of states that deny or reduce the UI benefits of individuals in receipt of SSDI.) When lawmakers reestablished the WC offset in 1965, they created an exception in instances in which a state law or plan reduced the WC benefits of individuals entitled to SSDI benefits. Under current law, SSA will not reduce the SSDI benefit if the worker's WC/PDB payment is subject to a reduction under an approved reverse offset plan in effect on or before February 18, 1981. SSA currently recognizes the reverse offset plans of 17 states, the Commonwealth of Puerto Rico, and the Railroad Retirement Board (RRB). To prevent individuals eligible for SSDI and UI from having both their benefits denied or reduced, a similar reverse offset provision could be created to allow SSA to enter into agreements with states to ensure that such individuals receive at least one type of benefit. Congress could allow states with recognized plans to deny or reduce the UI benefits of individuals in receipt of SSDI. As with the reverse offset for WC/PDB, lawmakers could limit this provision to states with a reverse offset in effect before a specified date. In 1980, GAO issued a report recommending that the provision authorizing states with approved plans to reduce the WC benefits of SSDI recipients should be revoked. In the report, GAO stated that the reverse offset provision (1) reduced offset savings to the DI trust fund (2) and shifted the financial responsibility for occupational-related injuries from employers to Social Security taxpayers. In addition, GAO noted that the reverse offset provision caused "some inequities in benefits to disabled workers" because it did not require states to apply a similar 80% combined SSDI/WC limit. Consequently, disabled workers in states that applied a reverse offset may have received a larger amount of combined benefits compared with disabled workers in states without an approved reverse offset plan. Shortly after the release of the GAO report, Congress limited the reverse offset provision under the Omnibus Budget Reconciliation Act of 1981 ( P.L. 97-35 ). Allowing states to deny or offset the UI benefits of SSDI recipients under one of the proposals discussed in this report would raise similar issues to those highlighted by GAO in 1980. As with the reverse WC offset, a reverse UI offset would likely reduce potential savings to the DI trust fund. Because the majority of UI benefit outlays are from the UC program, a reverse UI offset would essentially subsidize state accounts in the UTF with federal dollars that would otherwise go to the DI trust fund under one of the aforementioned proposals. In other words, the flow of potential savings from a UI offset would be redirected (partially) from the SSDI program to the UI programs. In addition, a reverse UI offset may create variation across states in the total amount of benefits payable to dual-eligible individuals. Under the proposals discussed in this report, individuals eligible for both SSDI and UI would receive, regardless of their state of residence, either their UI benefit only or a combined SSDI and UI benefit equal to the higher of the two amounts. However, should Congress permit states with approved plans to deny or offset the UI benefits of individuals in receipt of SSDI, then the total amount of benefits payable to such individuals could be greater or less than the amount payable to similarly situated individuals residing in states that do not reverse offset. After all, states with approved plans could choose to apply different criteria to the reverse offset to make it more or less favorable to dual-eligible individuals. To ensure uniformity, SSA could require that each state adhere to pre-established offset criteria as a condition for approval of a state plan. A final point to consider is that UI and SSDI benefits are treated differently for federal income tax purposes; therefore, a reverse UI offset could also lead to variation in the amount of after-tax income of dual-eligible individuals across states. UI benefits are included in gross income and thus subject to the federal income tax. In contrast, only a portion of Social Security benefits are taxable for some higher-income Social Security beneficiaries. Higher-income beneficiaries pay tax on up to 85% of their benefits, but benefits for lower-income beneficiaries are not taxed. The share of Social Security benefits that is taxable depends on whether the individual's provisional income exceeds certain thresholds. Provisional income equals adjusted gross income plus otherwise tax-exempt interest income (i.e., interest from tax-exempt bonds), plus 50% of Social Security benefits. Around half of all Social Security beneficiaries pay tax on some of their benefits, but a smaller share of SSDI beneficiaries pay tax on benefits, because they tend to have little income outside of their Social Security benefits. For more information, see CRS Report RS21356, Taxation of Unemployment Benefits , by [author name scrubbed] and CRS Report RL32552, Social Security: Calculation and History of Taxing Benefits , by [author name scrubbed] and [author name scrubbed]. Under current law, concurrent SSDI and UI recipients pay federal income tax on their respective benefits when appropriate. However, if states were allowed to operate with approved reverse offset plans under one of the discussed proposals, then dual-eligible individuals would be subject to federal taxation on only one kind of benefit or on a reduced amount of combined benefits. Consequently, similarly situated dual-eligible individuals living across the country could pay different amounts of federal income tax, depending on the type or composition of their benefits. One solution to this would be to equalize the federal tax treatment of benefits paid to dual-eligible individuals affected by one of the proposals discussed in this report. Congress created a similar provision for the WC offset when it subjected Social Security benefits to federal taxation under the Social Security Amendments of 1983 ( P.L. 98-21 ). Appendix A. Supplemental Figures Appendix B. Acronyms | Social Security Disability Insurance (SSDI) and Unemployment Insurance (UI) are forms of social insurance that provide protection against the risk of economic loss due to specific adverse events. SSDI provides long-term benefits to nonelderly workers and their eligible dependents if the worker is unable to engage in substantial gainful activity (SGA) due to a qualifying impairment. UI provides temporary benefits to involuntarily unemployed workers who meet the requirements of state law. Although SSDI and UI serve largely separate populations, some individuals may be concurrently (simultaneously) eligible for benefits under both programs. In 2012, the Government Accountability Office (GAO) examined the issue of overlapping SSDI and UI benefits. GAO found that in FY2010, 117,000 individuals received more than $850 million in concurrent benefit payments from the SSDI and UI programs. These individuals represented about 1% of the beneficiaries in each program, and the benefit payments they received constituted 0.2% of SSDI benefit outlays and 0.4% of UI benefit outlays for that year. The Social Security Administration (SSA) estimates that for each month in 2015, an average of about 0.34% of disabled-worker beneficiaries will be in concurrent receipt of SSDI and UI (approximately 30,000 people). During the 114th Congress, several proposals have been introduced to deny or offset the SSDI benefits of disabled-worker beneficiaries who receive UI benefits. These proposals take one of three approaches. The first approach treats receipt of UI payments as engaging in SGA, which would prevent UI recipients from qualifying for SSDI. It could also lead to a suspension or termination of SSDI benefits for individuals already entitled to SSDI who receive UI payments based on work activity that occurred under an SSA-approved work incentive. The second approach suspends SSDI benefits for any month in which a disabled-worker beneficiary receives UI payments. The third approach reduces SSDI benefits, dollar for dollar, by the amount of UI benefits. Supporters of these proposals argue that concurrent receipt of SSDI and UI benefits is "double dipping" or duplicative, because both programs are intended to replace lost earnings. They also maintain that receipt of one benefit is fundamentally contradictory with the eligibility requirements of the other: UI beneficiaries are required to be able and available for work (as determined under state law), whereas SSDI beneficiaries must be generally unable to work due to a severe physical or mental impairment that prevents them from performing SGA. Opponents argue that concurrent receipt of SSDI and UI benefits is consistent and appropriate under law, because the SSDI program actively encourages beneficiaries to return to work through various work incentives. Many opponents also contend that denying or offsetting the SSDI benefits of individuals in receipt of UI discriminates against people with disabilities who have lost their job through no fault of their own. This report provides an overview of the SSDI and UI programs and explores the issue of overlapping payments. It also examines many of the proposals introduced during the 114th Congress to prevent or reduce concurrent receipt of SSDI and UI. The report ends with a discussion of potential issues for SSA in implementing such proposals. |
The V-22 Osprey is a tilt-rotor aircraft that takes off and lands vertically like a helicopter and flies forward like an airplane. Department of Defense (DOD) plans call for procuring a total of 458 V-22s—360 MV-22s for the Marine Corps; 50 CV-22 special operations variants for U.S. Special Operations Command, or USSOCOM (funded jointly by the Air Force and USSOCOM); and 48 HV-22s for the Navy. The proposed FY2012 budget requested funding for the procurement of 30 MV-22s and 7 CV-22s, with one CV-22 to be paid for from Overseas Contingency Operations (OCO) funding. The budget requested about $2.5 billion in procurement and advance procurement funding for procurement of MV-22s, and about $499.9 million in procurement and advance procurement funding for procurement of CV-22s. For FY2012, the V-22 program poses a number of potential oversight issues for Congress, including the aircraft's readiness rates, reliability and maintainability, operational suitability, and whether to approve a follow-on multiyear procurement contract. A Marine MV-22 crashed during a training exercise in Morcco on April 11, 2012. Two Marine crew chiefs were killed and the two pilots severely injured. A cause for the accident has not yet been established. According to the December, 2011 Selected Acquisition Report, the V-22's cost per flying hour in FY2011 was 13% less than the FY2010 equivalent. Also, The Mission Capability (MC) rate improved by 19% above the FY 2010 rate. These improvements are being achieved through team execution of a comprehensive plan, which has included reliability and maintainability improvements, maintenance concept changes, standup of additional repair capability, improved repair turnaround times, repair price reductions, and contract strategy changes. This comports with earlier projections by the head of Marine aviation, who said in September, 2011, that V-22 operational costs have been reduced by $3,000 per hour through operational procedure changes. In addition to lowering the operational costs, the readiness rate and part reliability have also been noted improvements as the previously troubled V-22 program is "right at turning the corner," Lt. Gen. Terry Robling said at a breakfast hosted by the Navy League. "Were finding better ways to fly it–-more cost effective ways," Robling said. The flight time cost has been shaved down from $12,000 per hour to $9,000 and lower in some cases, he said. Col. Greg Masiello, V-22 program manager for the Naval Air Systems Command, said the Marine Corps will stand up two V-22 squadrons of 12 aircraft each in Okinawa, and the Air Force Special Operations Command will establish one at Royal Air Force Mildenhall, England. The V-22 Osprey is a tilt-rotor aircraft that takes off and lands vertically like a helicopter and flies forward like an airplane. For taking off and landing, the aircraft's two wingtip-mounted engine nacelles are tilted upward, so that the rotors function like a helicopter's rotor blades. For forward flight, the nacelles are rotated 90 degrees forward, so that the rotors function like an airplane's propellers. The Navy states that the V-22 "performs VTOL [vertical takeoff and landing] missions as effectively as a conventional helicopter while also having the long-range cruise abilities of a twin turboprop aircraft." The MV-22 is designed to transport 24 fully equipped Marines at a cruising speed of about 250 knots (about 288 mph), exceeding the performance of the Marine Corps CH-46 medium-lift assault helicopters that MV-22s are to replace. The CV-22 has about 90% airframe commonality with the MV-22; the primary differences between the two variants are in their avionics. The CV-22 is designed to carry 18 troops, with auxiliary fuel tanks increasing the aircraft's combat radius to about 500 miles. Figure 1 shows a picture of an MV-22 with its engine nacelles rotated at about a 45-degree angle, or roughly halfway between the upward VTOL position and the forward-flight position. The V-22 is a joint-service, multi-mission aircraft. The Navy, which is the lead service for the V-22 program, states that "the Marine Corps version, the MV-22A, will be an assault transport for troops, equipment and supplies, and will be capable of operating from ships or from expeditionary airfields ashore. The Navy's HV-22A will provide combat search and rescue, [as well as] delivery and retrieval of special warfare teams along with fleet logistic support transport. The Air Force CV-22A will conduct long-range special operations missions." Specific CV-22 missions include "long range, high speed infiltration, exfiltration, and resupply to Special Forces teams in hostile, denied, and politically sensitive areas." Marine Corps leaders believe that the MV-22 provides significant operational advantages compared to the CH-46, particularly in terms of speed in forward flight. The V-22 has been the Marine Corps' top aviation priority for many years. [Marice Corps Commandant James] Amos cites the Tactical Recovery of Aircraft Personnel mission that an Osprey performed during Libyan operations to rescue an Air Force pilot after his F-15 was downed. The Osprey launched from the USS Kearsarge amphibious assault ship and returned with the pilot within about 90 min.—a feat, Amos says, no other aircraft could have completed. Without the Osprey, he said during an Oct. 26 Washington Meetings Event hosted by the Council on Foreign Relations, "We'd be negotiating with Gadhafi for the release of that pilot." In 2013, HMX-1, the squadron that flies support missions for the White House, including operating the Marine One helicopter, will begin receiving 12 Ospreys to carry cargo and passengers—including Secret Service agents, White House staff, and the news media—during presidential trips. Regarding the V-22's role as a combat search and rescue aircraft, particularly as a possible replacement for a canceled CSAR helicopter program called CSAR-X, an October 9, 2009, press report stated: Boeing officials last week insisted that their V-22 Osprey is a viable aircraft for risky combat search-and-rescue missions despite findings in a recent Pentagon report claiming the tiltrotor was outclassed in the rescue mission by other special operations helicopters. "We still see [the Osprey] as very effective" in the CSAR role, said Gene Cunningham, Boeing's V-22 program manager, during an Oct. 2 telephone interview. "I think, in a CSAR configuration, the aircraft fulfills all of the requirements" for the mission…. Meanwhile, the Air Force and Marines are working to boost the V-22's firepower with the addition of a removable, belly-mounted 360-degree minigun linked to a sensor package that will give the crew chief a complete view of the outside environment. A limited number of the BAE-built weapon is set to deploy with Marine Corps Ospreys to Afghanistan this fall. Cunningham also noted the aircraft's impressive speed—277 miles per hour in cruise mode—as giving it an advantage in the rescue role. The V-22 is also under consideration to replace the C-2 Greyhound in the carrier onboard delivery mission. Advocates note that unlike the C-2, which is a fixed-wing turboprop airplane, the V-22 could land on ships that do not have a runway or arrester gear. The V-22 is undergoing carrier qualifications now. The Navy's official target date for replacing its C-2As is 2026, but realistically it will have to act sooner given its COD fleet's age. The service recently finished an Analysis of Alternatives that included comparing the V-22 to other options, such as remanufacturing its 35 C-2As to extend their service life or buying new ones from Northrop Grumman Corp., but the results of the AoA haven't been released. The V-22 was developed and is being produced by Bell Helicopter Textron of Fort Worth, TX, and Boeing Helicopters of Philadelphia, PA. The aircraft's engines are produced by Allison Engine Company of Indianapolis, IN, a subsidiary of Rolls-Royce North America. Fuselage assembly is performed in Philadelphia, PA. Drive system rotors and composite assembly is performed in Fort Worth, TX, and final assembly and delivery is performed in Amarillo, TX. Department of Defense (DOD) plans call for procuring a total of 458 V-22s—360 MV-22s for the Marine Corps; 50 CV-22 special operations variants for U.S. Special Operations Command, or USSOCOM (funded jointly by the Air Force and USSOCOM); and 48 HV-22s for the Navy. Through FY2011, a total of 247 V-22s have been procured—211 MV-22s for the Marine Corps, and 36 CV-22s for USSOCOM. These totals include several V-22s that have been procured in recent years through supplemental appropriations bills. No HV-22s have yet been procured for the Navy. Table 1 shows annual procurement quantities of MV-22s and CV-22s funded through DOD's regular (aka "base") budget. The table exclude s the several V-22s that have been procured in recent years through wartime supplemental appropriations bills as replacements for legacy helicopters lost as a result of wartime operations. Production in calendar 2011 was 34 aircraft (28 MV-22/6 CV-22). V-22s are currently being procured under a $10.4-billion, multiyear procurement (MYP) arrangement covering the period FY2008-FY2012. The MYP contract, which was awarded on March 28, 2008, covers the procurement of 167 aircraft—141 MV-22s and 26 CV-22s. DOD expects the multiyear contract to save $427 million when compared to the use of annual contracting. In December 2011, its most recent Selected Acquisition Report, DOD estimated the total acquisition cost of a 459-aircraft V-22 program at about $50.0 billion in base year 2005 dollars, including about $11.9 billion for research and development, about $37.9 billion for procurement, and $107.7 million for military construction (MilCon). The program was estimated to have a program acquisition unit cost, or PAUC (which is total acquisition cost divided by the number of aircraft), of about $108.9 million and an average procurement unit cost, or APUC (which is procurement cost divided by the number of aircraft), of about $83.0 million. These figures are lower than the previous year's report. In then-year dollars, the V-22 program from FY1982 through FY2012 received a total of about $37.9 billion in funding, including about $9.9 billion for research and development, about $27.9 billion for procurement, and about $102.6 million for MilCon. These figures exclude wartime supplemental funding that has been provided in addition to DOD's regular (aka "base") budget. As mentioned earlier, this supplemental funding has, among other things, funded the procurement of several V-22s. The proposed FY2013 budget requests funding for the procurement of 17 MV-22s and 4 CV-22s. The budget requests about $1.2 billion in procurement and advance procurement funding for procurement of MV-22s, and about $309.2 million in procurement and advance procurement funding for procurement of CV-22s. The V-22 program began in the early 1980s. The aircraft experienced a number of development challenges relating to affordability, safety, and program management. Crashes of prototypes occurred in June 1991 (no fatalities) and July 1992 (seven fatalities). Two additional crashes occurred in April 2000 (19 fatalities) and December 2000 (4 fatalities). The V-22's development challenges were a topic of considerable oversight and debate during the 1990s. The acquisition program baseline (APB) for the V-22 has been revised numerous times over the program's history. The V-22 program has undergone restructuring to accommodate recommendations from outside experts and DOD managers. The George H. W. Bush Administration proposed terminating the V-22 program in 1989 as part of its proposed FY1990 budget, and continued to seek the cancellation of the program through 1992. Congress rejected these proposals and kept the V-22 program alive. The Marine Corps' strong support for the program was reportedly a key reason for Congress's decision to keep the program going. The MV-22 achieved Initial Operational Capability (IOC) in June 2007. The CV-22 achieved IOC in March 2009. For additional discussion of the history of the V-22 program, see Appendix A . The first deployment of MV-22s began in September 2007, with the deployment of 10 MV-22s to Al Anbar province in Iraq. The Marine Corps has lauded the extended range, speed, and payload that the Osprey possesses in comparison to helicopters it is intended to replace as instrumental to the success of time-critical interdiction and medical evacuation missions during the deployment. The first deployment of CV-22s, which involved four aircraft sent to Mali, occurred in December 2008. The aircraft participated in a multinational exercise. Those involved in the deployment report successfully self-deploying the squadron to a remote and austere location and conducting simulated long-range, air-drop, and extraction missions. MV-22s arrived in Afghanistan in November 2009 and continue to operate there today. The MV-22s used in Afghanistan have added armament; a 7.62-mm gun is mounted below the belly of the aircraft, and the standard rear-mounted 7.62 is replaced by a .50-caliber gun. CV-22s arrived in early 2010. One CV-22 crashed in Afghanistan in April 2010, with the loss of four lives. To date, there have been no sales of the V-22 to foreign military forces. "[T]he industry team is also in talks with several countries about potential V-22 sales, including the UK, Japan and Israel. Bell and Boeing have already responded to Canada's request for information for a new fixed-wing search and rescue aircraft." India has reportedly asked for formal briefings on the V-22. Israeli personnel conducted several weeks of training and flight evaluation on the MV-22 in 2011. Israeli "interest in the V-22 is for fast deployment of Special Forces troops and medical evacuation." "Lieutenant General Terry Robling, deputy Marine Corps commandant for aviation, said ... Israel, Canada and the UAE had expressed interest in the aircraft, but had not received formal pricing and technical information for the Osprey." Japan's military also has expressed interest in the Osprey in the past. Other unnamed nations were reported to have expressed interest following a 2010 "embassy day" flight demonstration. "My expectation is the U.S. government will be lower in 2015 and on, and that's why we are out working foreign military sales opportunities" and "other applications of the product," Scott Donnelly, chairman and chief executive officer of Providence, Rhode Island-based Textron, said during a conference call with analysts Jan. 25. A March 2010 Government Accountability Office (GAO) report on the V-22 program stated: Technology Maturity Although the program office considers V-22 critical technologies to be mature and its design stable, the program continues to correct deficiencies and make improvements to the aircraft. For example, the engine air particle separator (EAPS), which keeps debris out of the engines, and has been tied to a number of engine fires caused by leaking hydraulic fluids contacting hot engine parts. Previous design changes did not fully correct this problem or other EAPS problems. According to program officials a root cause analysis is underway and they are exploring ways to improve reliability and safety of EAPS. Further, they believe that improved EAPS performance could reduce EAPS shutdowns and help to extend engine service life beyond its current average of 600 hours. According to program officials the program has purchased eight belly mounted all quadrant (360 degrees) interim defensive weapon system mission kits. Five kits are currently on deployed V-22 aircraft. The aircraft has a key performance parameter (KPP) requirement to carry 24 combat equipped troops. The MV-22's shipboard pre- deployment exercise found that planning for fewer troops is needed to allow for additional space for equipment, including larger personal protective equipment. When retracted, the belly-mounted gun would reduce internal space and it will not meet the KPP of 24 combat equipped troops. According to program officials, incremental upgrades to the IPS are being fielded in concert with an overall strategy to improve IPS reliability. These incremental upgrades are now being fielded on some deployed aircraft, including the V-22s attached to the squadron deployed to Afghanistan, where icing conditions are more likely to be encountered. The program expects to make additional improvements to the IPS which could require retrofits to existing aircraft. Production Maturity The V-22 is in the third year of a 5-year contract for 167 aircraft. According to the program office, the production rate will be 35 aircraft per year for fiscal years 2010 through 2012. The program is planning and budgeting for cost savings that would result from a second multiyear procurement contract that would begin in fiscal year 2013. Other Program Issues The MV-22's shipboard pre-deployment training revealed challenges related to required aircraft maintenance and operations. Due to the aircraft's design, many components of the aircraft are inaccessible until the aircraft is towed from its parking spot. Shipboard operations were adjusted to provide 24 hour aircraft movement capability. Temporary work-arounds were also identified to mitigate competition for hangar deck space, as well as to address deck heating issues on smaller ships caused by the V-22's exhaust. Operational restrictions were also in place that required one open spot between an MV-22 when landing or taking off and smaller aircraft to avoid excessive buffeting of the lighter helicopters caused by the downwash of the Osprey. According to program officials, another restriction that limited takeoffs and landings from two spots on LHD-class ships has since been corrected with the installation of a new flight control software upgrade. Despite the restrictions, the amphibious assault mission was concluded with half the total number of aircraft, in less time, and over twice the distance compared to conducting the mission using traditional aircraft. However, the speed, altitude, and range advantages of the MV-22 will require the Marine Corps to reevaluate escort and close air support tactics and procedures. According to the program office, during the first sea deployment in 2009, the MV-22 achieved a mission capable rate of 66.7 percent. This still falls short of the minimum acceptable (threshold) rate of 82 percent. The mission capable rate achieved during three Iraq deployments was 62 percent average. The program is also taking various steps to improve the system's overall operational availability and cost to operate by addressing premature failure of selected components and establishing a steering committee to analyze factors that affect readiness and impact operations and support costs. A May 2009 Government Accountability Office (GAO) report on the V-22 program stated: As of January 2009, the 12 MV-22s (Marine Corps variant of the V-22) in Iraq successfully completed all missions assigned in a low threat theater of operations—using their enhanced speed and range to engage in general support missions and deliver personnel and internal cargo faster and farther than the legacy helicopters being replaced. Noted challenges to operational effectiveness raise questions about whether the MV-22 is best suited to accomplish the full repertoire of missions of the helicopters it is intended to replace. Additionally, suitability challenges, such as unreliable component parts and supply chain weaknesses, led to low aircraft availability rates. MV-22 operational tests and training exercises identified challenges with the system's ability to operate in other environments. Maneuvering limits and challenges in detecting threats may affect air crew ability to execute correct evasive actions. The aircraft's large size and inventory of repair parts created obstacles to shipboard operations. Identified challenges could limit the ability to conduct worldwide operations in some environments and at high altitudes similar to what might be expected in Afghanistan. Efforts are underway to address these deficiencies, but some are inherent in the V-22's design. V-22 costs have risen sharply above initial projections—1986 estimates (stated in fiscal year 2009 dollars) that the program would build nearly 1000 aircraft in 10 years at $37.7 million each have shifted to fewer than 500 aircraft at $93.4 million each—a procurement unit cost increase of 148 percent. Research, development, testing, and evaluation costs increased over 200 percent. To complete the procurement, the program plans to request approximately $25 billion (in then-year dollars) for aircraft procurement. As for operations and support costs (O&S), the Marine Corps' V-22's cost per flight hour today is over $11,000—more than double the targeted estimate. DOD proposes to complete its V-22 program after acquiring another 122 aircraft. Ninety-eight of those (91 MV-22s and 7 CV-22s) would be included in a five-year fixed-price multiyear purchase beginning in FY2013. A final 24 V-22s would follow. "[Acting Under Secretary for Acquisition Frank] Kendall found a block purchase would save at least $852 million, or 12 percent, over $7.35 billion in annual buys." "A Navy purchase would be expected to lower the cost of the remaining 24 V-22s the Marines and Air Force want and bolster the logistics chain for both as well." John Rader, vice president for tiltrotor programs for Boeing, said that while the production rate will plunge from a peak of 40 Ospreys under the existing contract to a first-year rate of 21 under the new deal, Bell and Boeing "have committed to the government" to keep prices low enough to produce the 10 percent savings over equivalent annual contracts Congress requires in such multiyear deals. The Pentagon now intends to buy 21 V-22 aircraft in each of the next two budget years, down from 27 planned previously for fiscal 2013 and 26 for fiscal 2014. The military would buy 19 aircraft a year in 2015 and 2016 instead of the planned 23 each year, and 18 in 2017. No number had been set previously for that year. Some in Congress have opposed continuation of the V-22 program. On February 15, 2011, the House voted 326 to 105 against a proposed cut to the FY2011 V-22 budget ( H.Amdt. 13 to H.R. 1 , Full-Year Continuing Appropriations Act, 2011, roll call vote 43). The amendment proposed to eliminate FY2011 funding for the V-22 by reducing the amount for Aircraft Procurement, Navy, by $22 million and for Aircraft Procurement, Air Force, by $393 million. Proponents cited cost overruns and argued that the V-22 did not meet operational requirements, citing the 2009 GAO report. Opponents noted the V-22's performance in Iraq and Afghanistan and highlighted advances made since the aircraft's development period. On December 3, 2010, the National Commission on Fiscal Responsibility and Reform released its report on ways to decrease the United States' national debt. The commission chairs' illustrative suggestions included: End procurement of the V-22 Osprey. The V-22 Osprey was designed to meet the amphibious assault needs of the Marine Corps, the strike rescue needs of the Navy, and the needs of long range special operations forces (SOF) missions of U.S. Special Operations Command. However, the V-22 has had a troubled history with many developmental and maintenance problems, including critical reports by GAO and others…. The proposed change to terminate acquisition of V-22 at 288 aircraft, close to two-thirds of the planned buy, would substitute MH-60 helicopters to meet missions that require less range and speed, and could save $1.1 billion in 2015. Readiness rates for both the CV-22 and MV-22 are lower than those for more traditional aircraft. Overall, according to the Pentagon testing office, "the plane generally met reliability and maintainability requirements, but its average mission capable rate was 53 percent from June 2007 to May 2010, well below the required rate of 82 percent." However, the same report indicated that "(t)he Marine Corps V-22 Osprey's safety, combat effectiveness and reliability have improved in the past year." The FY2010 mission-capable rate for the Air Force CV-22 fleet was reported as 54.3%. No common problem such as a software glitch or engine malfunction led to the Osprey's low rate, said Col. Peter Robichaux, who oversees the health of Air Force Special Operations Command aircraft. For Robichaux, the Osprey's low rate is a statistical quirk—not an indicator of its long-term viability. "The numbers are a result of our small fleet size," said Robichaux…"That can drive the numbers down." The Air Force has 16 CV-22s…. Taking one plane off the flight schedule for a day pushes down the mission-capable rate for that day by about 6 percentage points. The Marine Corps MV-22 has maintained a higher readiness rate, with deployed Ospreys "in the low 70 th percentile." [Marine Assistant Commandant for Aviation George] Trautman said the service's other assault-support airplanes had readiness rates in the low 70s. And he said it can't be overlooked that Afghanistan has "the most harsh air environment in the world," because it is filled with fine talcum-powder-like dust that is very hard on airplanes. "We've been able to maintain those readiness rates by sparing the airplane out, by putting spare parts in place at a higher rate than we would like," Trautman said. "The global readiness of the V-22 is something that still concerns both Bell Boeing and myself as we work through some of the supplier issues and some of the other reliability issues that haven't turned out to be exactly as the engineers predicted several years ago. But we're holding our own." A related oversight issue for Congress concerns the reliability and maintainability of in-service V-22s, factors that bear directly on readiness. At a May 19, 2009, hearing on Navy and Marine Corps aviation procurement programs before the Seapower and Expeditionary Forces Subcommittee of the House Armed Services Committee, Navy and Marine Corps officials testified that: As we continue to explore the tremendous capabilities of tilt-rotor aircraft and look forward to employing Osprey both aboard ship and in new theaters of operation, we are learning valuable lessons with respect to reliability and maintainability. Like other types of aircraft in the early operational phase of their lifecycles, the MV-22 has experienced lower-than-desired reliability of some components and therefore higher operations and support costs. With the cooperation and support of our industry partners, we are tackling these issues head on, with aggressive logistics and support plans that will increase the durability and availability of the parts needed to raise reliability and concurrently lower operating costs of this aircraft. The May 2009 GAO report on the V-22 program cited earlier stated the following regarding the aircraft's reliability and maintainability: Availability challenges continue to affect the MV-22. In Iraq, the V-22's mission capability (MC) and full mission capability (FMC) rates fell significantly below required levels and significantly below rates achieved by legacy helicopters. The MV-22 has a stated MC threshold (minimum acceptable) requirement of 82 percent and an objective (desired) of 87 percent. In Iraq, the three MV-22 squadrons averaged mission capability rates of about 68, 57, and 61 percent respectively. This experience is not unique to the Iraq deployment, as low MC rates were experienced for all MV-22 squadrons, in and out of Iraq. The program has modified the MC requirement by stating that this threshold should be achieved by the time the fleet completes 60,000 flight hours, which officials expect to occur sometime near the end of 2009. Figure 4 illustrates the MC rates between October 2006 and October 2008. By comparison, the mission capability rates of the Iraq-based CH-46Es and CH-53s averaged 85 percent or greater during the period of October 2007 to June 2008. Although FMC is no longer a formal requirement, it continues to be tracked as an indicator of aircraft availability. The Osprey's FMC rate of 6 percent in Iraq from October 2007 to April 2008 was significantly short of the 75 percent minimum requirement established at the program's outset. According to MV-22 officers and maintainers, the low FMC rate realized was due in part to unreliability of V-22 Ice Protection System (IPS) components. Although the faulty IPS had no effect on the MV-22's ability to achieve missions assigned in Iraq, in other areas, where icing conditions are more likely to be experienced—such as Afghanistan—IPS unreliability may threaten mission accomplishment. Although MV-22 maintenance squadrons stocked three times as many parts in Iraq as the number of deployed MV-22 aircraft called for, they faced reliability and maintainability challenges. Challenges were caused mostly by an immature parts supply chain and a small number of unreliable aircraft parts, some of which have lasted only a fraction of their projected service life. The MV-22 squadrons in Iraq made over 50 percent more supply-driven maintenance requests than the average Marine aviation squadron in Iraq. A lack of specific repair parts was a problem faced throughout the Iraq deployments despite deploying with an inventory of spare parts to support 36 aircraft, rather than the 12 MV-22 aircraft actually deployed. Despite the preponderance of parts brought to support the MV-22s in Iraq, only about 13 percent of those parts were actually used in the first deployment. In addition, some aircraft components wore out much more quickly in Iraq than expected, which led to shortages. Thirteen MV-22 components accounted for over half the spare parts that were not available on base in Iraq when requested. Those components lasted, on average, less than 30 percent of their expected life, with six lasting less than 10 percent of their expected life. The shortages caused MV-22 maintainers to cannibalize parts from other MV-22s to keep aircraft flying, and significantly increased maintenance hours. Parts were cannibalized not only from MV-22s in Iraq but also from MV-22s in the United States and from the V-22 production line. The shortages also contributed to the low mission capability rates, as an aircraft in need of maintenance or spare parts may not be considered mission capable. Figure 5 depicts both the percentage of predicted mean flight hours before failure achieved by these 13 parts and their average requisition waiting time during the Iraq deployments. The engines on the MV-22s deployed in Iraq also fell short of their estimated "on-wing" service life, lasting less than 400 hours before having to be replaced. The program estimated life is 500-600 hours. The program office noted that there is no contractually documented anticipated engine service life. Figure 6 illustrates the average engine time on wing for the three MV-22 squadrons that have been deployed to Iraq. Squadron maintainers explained that the lower engine life span has not affected aircraft availability, as spare engines are readily available and easily replaced. Program officials plan to replace the existing power-by-the-hour engine sustainment contract with Rolls Royce, which expires in December 2009, with a new sustainment contract.17 According to the program office, the new engine sustainment contract is likely to result in higher engine support costs—an issue further discussed later in this report. Subsequent to the GAO report, The U.S. Marine Corps says MV-22 performance and reliability are improving, but operators are still pushing for further enhancements, including improving the system's firepower…. Service officials say they are also benefiting from reliability improvements now being introduced. The engine air particle accelerator, for instance, has been upgraded to have less failures and do a better job filtering sand. Blades have also been upgraded, as have swashplate actuators. Another potential oversight issue for Congress for the V-22 program concerns the degree to which the V-22 has demonstrated certain operational capabilities. The May 2009 GAO report cited earlier states: As of January 2009, the 12 MV-22s stationed in Iraq had successfully completed all missions assigned to them in what is considered an established, low-threat theater of operations. The deployments confirmed that the V-22's enhanced speed and range enable personnel and internal cargo to be transported faster and farther than is possible with the legacy helicopters it is replacing. The aircraft also participated in a few AeroScout missions and carried a limited number of external cargo loads. However, questions have arisen as to whether the MV-22 is best suited to accomplish the full mission repertoire of the helicopters it is intended to replace. Some challenges in operational effectiveness have been noted.... The Marine Corps considers the MV-22 deployments in Iraq to have been successful, as the three squadrons consistently fulfilled assigned missions. Those missions were mostly general support missions—moving people and cargo—in the low-threat operational environment that existed in Iraq during their deployments. The aircraft's favorable reviews were based largely on its increased speed and range compared with legacy helicopters. According to MV-22 users and troop commanders, its speed and range "cut the battlefield in half," expanding battlefield coverage with decreased asset utilization and enabling it to do two to three times as much as legacy helicopters could in the same flight time. In addition, the MV-22's ability to fly at higher altitudes in airplane mode enabled it to avoid the threat of small arms fire during its Iraq deployment.... Commanders and operators have noted that the speed and range of the Osprey offered some significant advantages over the legacy platforms it replaced during missions performed in Iraq, including missions that would have been impossible without it. For example, it enabled more rapid delivery of medical care; missions that had previously required an overnight stay to be completed in a single day; and more rapid travel by U.S. military and Iraqi officials to meetings with Iraqi leaders, thus allowing greater time for those meetings. While in Iraq, the MV-22 also conducted a few AeroScout raid and external lift missions. These types of missions were infrequent, but those that were carried out were successfully completed. Such missions, however, were also effectively carried out by existing helicopters. AeroScout missions are made by a combination of medium-lift aircraft and attack helicopters with a refueling C-130 escort that, according to Marine Corps officers, find suspicious targets and insert Marines as needed to neutralize threats. In participating in these missions, the MV-22 was limited by operating with slower legacy helicopters—thus negating its speed and range advantages. Similarly, external lift missions do not leverage the advantages of the V-22. In fact, most Marine equipment requiring external transport is cleared only for transit at speeds under 150 knots calibrated airspeed (kcas), not the higher speeds at which the MV-22 can travel with internal cargo or passengers. According to Iraq-based MV-22 squadron leadership, the CH-53, which is capable of lifting heavier external loads, was more readily available than the MV-22 to carry out those missions and, as such, was generally called on for those missions, allowing the MV-22 to be used more extensively for missions that exploit its own comparative strengths. The introduction of the MV-22 into Iraq in combination with existing helicopters has led to some reconsideration of the appropriate role of each. Battlefield commanders and aircraft operators in Iraq identified a need to better understand the role the Osprey should play in fulfilling warfighter needs. They indicated, for example, that the MV-22 may not be best suited for the full range of missions requiring medium lift, because the aircraft's speed cannot be exploited over shorter distances or in transporting external cargo. These concerns were also highlighted in a recent preliminary analysis of the MV-22 by the Center for Naval Analysis, which found that the MV-22 may not be the optimal platform for those missions. The MV-22's Iraq experience also demonstrated some limitations in situational awareness that challenge operational effectiveness. For example, some MV-22 crew chiefs and troop commanders in Iraq told us that they consider a lack of visibility of activity on the ground from the V-22's troop cabin to be a significant disadvantage—a fact previously noted in operational testing. They noted that the V-22 has only two small windows. In contrast, combat Marines in Iraq stated that the larger troop compartment windows of the CH-53 and CH-46 offer improved ability to view the ground, which can enhance operations. In addition, CH-53s and CH-46s are flown at low altitude in raid operations. According to troop commanders this low altitude approach into the landing zones combined with the larger windows in CH-53s and CH-46s improves their (the troop commanders) situational awareness from the troop compartments, compared with the situational awareness afforded troop commanders in the MV-22s with its smaller windows and use of high altitude fast descent approach into the landing zone. The V-22 program is in the process of incorporating electronic situational awareness devices in the troop cabin to off-set the restricted visibility. This upgrade may not fully address the situational awareness challenges for the crew chief, who provides visual cues to the pilots to assist when landing. Crew chiefs in Iraq agree that the lack of visibility from the troop cabin is the most serious weakness of the MV-22. Reports indicate that commanders are pleased with the performance of V-22s in Afghanistan. However, as operations there are still underway, no comprehensive look has yet been undertaken to compare the Osprey's actual performance to projections and studies. CRS anticipates including such evaluations in future versions of this report. A June 23, 2009, hearing before the House Oversight and Government Reform Committee reviewed a number of issues concerning the V-22 program, including those discussed above. Details of the hearing are presented in Appendix B . H.R. 1540 , the National Defense Authorization Act for Fiscal Year 2012 as passed by the House, cut Overseas Contingency Operations funding by $70 million for one CV-22 and $15 million for V-22 modifications. The House cited the funds as having been provided earlier, in H.R. 1473 , the Department of Defense and Full-Year Continuing Appropriations Act, 2011. The Senate Armed Services Committee report on the FY2012 Defense Authorization Act ( S.Rept. 112-26 accompanying S. 1253 ) cut Overseas Contingency Operations funding by $70 million for one CV-22 and $15 million for V-22 modifications. The conference report accompanying H.R. 1540 , H.Rept. 112-329 , authorized $2.2 billion in Aircraft Procurement, Navy, for the V-22. Compared to the request, the report cut $15 million for "support funding carryover" and $10.5 million to "reduce ECO" (engineering change orders.) The request for $84.0 million in advance procurement was reduced by $20.24 million for "advance procurement equipment cost growth." The request for $60.3 million in support equipment was reduced by $2.5 million for "Deficiencies modifications other support growth" and $2.0 million for "Reliability modifications other support growth." The request for $30 million in Overseas Contingency Operations funding was also reduced by $2.5 million for "Deficiencies modifications other support growth" and $2.0 million for "Reliability modifications other support growth." Overseas Contingency Operations funding was also cut by $15 million for V-22 modifications. Air Force V-22 R&D was cut by $7.5 million for "Contract delay." The House Appropriations Committee report ( H.Rept. 112-110 , accompanying H.R. 2219 ) stated: V-22 Osprey - Fiscal year 2012 marks the final year of the successful V–22 multiyear procurement effort conducted by the Navy and Air Force. Multiyear procurements are advantageous in that they provide savings and program stability to platforms when compared to annual procurements. The drawback is that they reduce available budgetary flexibility. The Committee believes that if a platform meets the established criteria for a multiyear procurement and there is a high probability that the platform will be purchased for the period of the multiyear procurement, a multiyear procurement provides the best value for the taxpayer. The Committee believes that the performance of the V–22 Osprey aircraft has laid to rest all doubts about its operational effectiveness. The aircraft has been successfully deployed to forward operating areas since 2007 and most recently was instrumental in the recovery of a downed Air Force pilot during the Libya conflict. In view of the continuing need for sustained procurement of the V–22, the Committee urges the Department of Defense to consider a request for authority for a new multiyear procurement contract in the fiscal year 2013 budget. In its report accompanying H.R. 2219 ( S.Rept. 112-77 , accompanying H.R. 2219 ), the Senate Appropriations Committee added $2.8 million in Navy V-22 procurement funds for "voice recorders and Navy-identified shortfall," cut Navy procurement $10.5 million for engineering change orders and $4.5 million for "deficiencies modifications other support growth" and "reliability modifications other support growth," and cut $10 million from Air Force V-22 R&D. The Senate Appropriations Committee report stated: V-22 Osprey - The Committee understands the Department of Defense is considering a fiscal year 2012 follow-on multi-year procurement contract for the V-22 program. The multi-year procurement contract covering fiscal years 2008 through 2012 provided stability to the program and savings to the taxpayer of over $420,000,000 compared to single-year contracts. Given the continuing need for additional V-22 platforms, the Committee urges the Department of Defense to consider requesting authority to award a new multi-year procurement contract in the fiscal year 2013 President's budget. Engineering Change Orders [ECO] Growth - The Committee notes a number of Navy aircraft programs requested substantial amounts of Engineering Change Order funding. These aircraft programs enjoy either stable production or are maturing to stable production levels. In most cases, these programs have excess unexecuted prior year funds and have been used as sources for higher priority Navy requirements. The Committee recommendation reduces Engineering Change Order funding to reflect actual prior year levels. The Joint Explanatory Statement of the Committee of Conference on H.R. 2055 detailed the $2.2 billion appropriated for V-22 procurement as follows: In Aircraft Procurement, Navy, reductions of $15 million for "support funding carryover" and $10.5 million to "reduce ECO" (engineering change orders). $2.8 million was added for "V-22 voice recorder-Navy identified shortfall." The request for $84.0 million in advance procurement was reduced by $20.24 million for "advance procurement equipment cost growth." The request for $60.3 million in support equipment was reduced by $2.5 million for "Deficiencies modifications other support growth" and $2.0 million for "Reliability modifications other support growth." Air Force V-22 R&D was cut by $7.5 million for "Slow execution/contract delay." Appendix A. V-22 Program History This appendix provides additional discussion of the history of the V-22 program. May 2009 GAO Report A May 2009 GAO report provided the following summary of the history of the V-22 program: The Osprey program was started in December 1981 to satisfy mission needs for the Army, Navy, and Air Force. Originally spearheaded by the Army, the program was transferred to the Navy in 1982 when the Army withdrew from the program citing affordability issues. The program was approved for full-scale development in 1986, and the first aircraft was flown in 1989. A month after the first flight, the Secretary of Defense stopped requesting funds for the program due to affordability concerns. In December 1989, DOD directed the Navy to terminate all V-22 contracts because, according to DOD, the V-22 was not affordable when compared to helicopter alternatives, and production ceased. Congress disagreed with this decision, however, and continued to fund the project. Following a crash in 1991 and a fatal crash in 1992 that resulted in seven deaths, in October of 1992 the Navy ordered development to continue and awarded a contract to a Bell Helicopter Textron and Boeing Helicopters joint venture (Bell-Boeing) to begin producing production-representative aircraft. In 1994, the Navy chartered a medium lift replacement COEA, which reaffirmed the decision to proceed with the V-22. It also provided an analytical basis for KPPs to be proposed for the system. This analysis defined the primary mission of a medium-lift replacement aircraft to be the transport of combat troops during sea-based assault operations and during combat operations ashore. Secondary missions included transporting supplies and equipment during assault and other combat operations as well as supporting Marine Expeditionary Unit (MEU) special operation forces, casualty and noncombatant evacuation operations, tactical recovery of aircraft and personnel operations, combat search and rescue operations, and mobile forward area refueling and re-arming operations. These original mission descriptions and aircraft employment were reaffirmed by the Marine Corps in 2003 and again in 2007. The existing medium-lift aircraft fleet needed to be replaced due to inventory shortfalls and reduced aircraft reliability, availability, and maintainability—needs accentuated by the increasing age and limited capabilities of its current fleet of helicopters. The analysis concluded that the V-22 should be the Marine Corps' choice. The analysis considered a number of helicopter candidates—including the CH-46E and CH-53D—and the V-22 tiltrotor—judging each candidate based on their performance characteristics and expected contribution to tactics and operations. A sensitivity analysis was conducted which measured candidate aircraft against specific performance parameters—including KPPs. The analysis used models to assess research and development, production or procurement, and operations and support cost and concluded that for non-assault missions, such as medical evacuation missions, the V-22 was the most effective option because of its greater speed, increased range, and ability to deploy in one-third the time of the alternative candidates. For assault missions, the analysis concluded the V-22 would build combat power in the form of troops and equipment most quickly, was more survivable, would maximize the arrival of forces and minimize casualties, and would halve helicopter losses. In terms of affordability, the analysis concluded that, holding V-22 and helicopter force sizes equal, the V-22 would be the most effective but at a higher cost. The analysis further noted that while the major factor in favor of the V-22 was its speed, at short distances greater speed offers little advantage. Subsequently, Low-Rate Initial Production (LRIP) began with five aircraft in 1997, increasing to seven each year in 1998 and 1999. In 2000, the program undertook operational evaluation testing, the results of which led the Navy's operational testers to conclude that the MV-22 was operationally suitable for land-based operations and was operationally effective. Later evaluations resulted in testers concluding that the MV-22 would be operationally suitable on ships as well. Based on the same tests, DOD's independent operational testers concluded that the MV-22 was operationally effective but not operationally suitable, due in part to reliability concerns. Despite the mixed test conclusions, a Program Decision Meeting was scheduled for December 2000 to determine whether the V-22 should progress beyond LRIP production and into full-rate production. Following two fatal crashes that occurred in 2000 and resulted in 23 deaths, the last one occurring just before the full-rate production decision, the V-22 was grounded and, rather than proceeding to full-rate production, the program was directed to continue research and development at a minimum sustaining production rate of 11 aircraft per year. Before the V-22 resumed flight tests, modifications were made to requirements and design changes were made to the aircraft to correct safety concerns and problems. The aircraft nacelles were redesigned to preclude line chafing; a robust software qualification facility was built; and Vortex Ring State, a dangerous aerodynamic phenomenon that all rotor wing aircraft are subject to and was reported to have contributed to one of the fatal V-22 crashes in 2000, was further investigated. Requirements for landings in helicopter mode in which engine power had failed ("autorotation") and nuclear, chemical and biological weapons protection among others were eliminated, and some KPPs were modified, prior to conducting a second round of operational testing with modified aircraft in June 2005. Testers then recommended that the aircraft be declared operationally effective and suitable for military use. The Defense Acquisition Board approved it for military use as well as full-rate production in September 2005. DOD is procuring the V-22 in blocks. Block A is a training configuration, while later blocks are being procured and fielded as the operational configurations. Tables 1 and 2 provide a summary of the upgrades to be incorporated in each block configuration. Additional Discussion Early Development The first of six MV-22 prototypes was flown in the helicopter mode on March 19, 1989, and as a fixed-wing airplane on September 14, 1989. Prototype aircraft numbers three and four successfully completed the Osprey's first Sea Trials on the USS Wasp (LHD-1) in December 1990. The fifth prototype crashed on June 11, 1991, on its first flight, because of incorrect wiring in a flight-control system; the fourth prototype crashed on July 20, 1992, while landing at Quantico Marine Corps Air Station, VA, killing seven people and destroying the aircraft. This accident was caused by a fire resulting from hydraulic component failures and design problems in the engine nacelles. Flight tests were resumed in August 1993 after changes were incorporated in the prototypes. Flight testing of four full-scale development V-22s began in early 1997 when the first pre-production V-22 was delivered to the Naval Air Warfare Test Center in Patuxent River, MD. The first Engineering and Manufacturing Development (EMD) Flight took place on February 5, 1997. The first of four low-rate initial production (LRIP) aircraft, ordered on April 28, 1997, was delivered on May 27, 1999. Osprey number 10 completed the program's second Sea Trials, this time from the USS Saipan (LHA-2), in January 1999. Operational evaluation (OPEVAL) testing of the MV-22 began in October 1999 and concluded in August 2000. On October 13, 2000, the Department of the Navy announced that the MV-22 had been judged operationally effective and suitable for land-based operations. On November 15, 2000, the Marine Corps announced that the Osprey had successfully completed sea trials and had been deemed operationally effective and suitable for both land and sea-based operations. Successfully completing OPEVAL should have cleared the way for full rate production. This decision was to have been made in December 2000, but was postponed indefinitely, because of a mixed report from DOD's director of operational test and evaluation, and two fatal accidents. On April 8, 2000, another Osprey crashed near Tucson, AZ, during an exercise simulating a noncombatant evacuation operation. All four crew members and 15 passengers died in the crash. An investigation of the accident found that the pilot was descending in excess of the recommended flight envelope, which may have caused the aircraft to experience an environmental condition known as "power settling" or "vortex ring state." According to Lieutenant General Fred McCorkle, the pilot was descending more than 1,000 feet per minute. The recommended descent rate is 800 feet per minute. Following a two-month suspension of flight testing, the Osprey recommenced OPEVAL in June 2000, with pilots flying a slightly tighter flight envelope. A July 27, 2000, report by the Marine Corps Judge Advocate General (JAG) (which had access to all non-privileged information from the safety investigation) confirmed that a combination of "human factors" caused the crash. This mishap appears not to be the result of any design, material or maintenance factor specific to tilt ... rotors. Its primary cause, that of an MV-22 entering a Vortex Ring State (Power Settling) and/or blade stall condition is not peculiar to tilt rotors. The contributing factors to the mishap, a steep approach with a high rate of descent and slow airspeed, poor aircrew coordination and diminished situational awareness are also not particular to tilt rotors. A DOD Inspector General study concluded that the V-22 would not successfully demonstrate 23 major operational effectiveness and suitability requirements prior to the December 2000 OPEVAL Milestone III decision to enter full rate production in June 2001. The Marine Corps agreed with DOD's assessment of the deficiencies, but said that they had been aware of these deficiencies before the beginning of OPEVAL. Furthermore, the Marine Corps said that they had an approved plan designed to resolve the deficiencies prior to the Milestone III decision. On November 17, 2000, DOD's Director of Operational Test and Evaluation issued a mixed report on the Osprey; saying although "operationally effective" the V-22 was not "operationally suitable, primarily because of reliability, maintainability, availability, human factors and interoperability issues." The report recommended that more research should be conducted into the V-22's susceptibility to the vortex ring state blamed for the April 8, 2000, crash. On December 11, 2000, an MV-22 Osprey crashed near Jacksonville, NC, killing all four Marines on board. This was the fourth Osprey crash since 1991 and the third lethal accident. The aircraft's pilot, Lieutenant Colonel Keith M. Sweeney was the program's most experienced pilot and was in line to command the first squadron of Ospreys. The aircraft's copilot, Major Michael Murphy was second only to Sweeney in flying time on the Osprey. The Marine Corps grounded the Osprey fleet pending a mishap board investigation. On April 5, 2001, the Marine Corps reported that the crash was caused by a burst hydraulic line in one of the Osprey's two engine casings, and a software malfunction that caused the aircraft to accelerate and decelerate unpredictably and violently when the pilots tried to compensate for the hydraulic failure. The Marine Corps report called for a redesign of both the hydraulics and software systems involved. Maintenance and Parts Falsifications In December 2000, an anonymous letter was mailed to the media by someone claiming to be a mechanic in the Osprey program. The letter claimed that V-22 maintenance records had been falsified for two years, at the explicit direction of the squadron commander. Enclosed in the letter was an audio tape that the letter's author claimed was a surreptitious recording of the squadron commander directing maintenance personnel to lie about the aircraft until the V-22 LRIP decision was made. On January 20, 2001, it was reported that the V-22 squadron commander admitted to falsifying maintenance records. The Marine Corps subsequently relieved him of command and reassigned him to a different position. At a May 1, 2001, hearing, members of the Senate Armed Services Committee expressed their concern that false data might impede DOD's ability to accurately evaluate the V-22 program and identify problem areas and potential improvements. The Department of Defense's Inspector General (IG) conducted an investigation. On September 15, 2001, it was reported that three Marines were found guilty of misconduct and two were reprimanded for their actions. In June 2005, a U.S. grand jury indicted a company that had supplied titanium tubing for the V-22 program. The indictment charged the company with falsely certifying the quality of the tubes. The V-22 test program was halted for 11 days in 2003 because of faulty tubes. Replacing deficient tubes cost the V-22 program $4 million. Navy officials do not believe that these deficient tubes caused fatal mishaps. Reviews and Restructuring On April 19, 2001, a Blue Ribbon panel formed by then-Secretary of Defense William Cohen to review all aspects of the V-22 program, reported its findings and recommendations. These findings and recommendations were also discussed during congressional testimony on May 1, 2001. The panel recommended that the program continue, albeit in a restructured format. The panel concluded that there were numerous problems with the V-22 program—including safety, training, and reliability problems—but nothing inherently flawed in basic tilt-rotor technology. Because of numerous safety, training, and reliability problems, the V-22 was not maintainable, or ready for operational use. The panel recommended cutting production to the "bare minimum" while an array of tests were carried out to fix a long list of problems they identified with hardware, software, and performance. Cutting near-term production was hoped to free up funds to pay for fixes and modifications. Once the changes had been made and the aircraft was ready for operational use, the Panel suggested that V-22 out-year purchases could be made in large lots using multi-year contracts to lower acquisition costs. Program officials estimated that the minimal sustainable production rate is 12 aircraft per year, which would be less than half the Ospreys once planned for FY2002. In P.L. 107-107 Section 123, congressional authorizers codified the Blue Ribbon Panel's recommendation to produce V-22s at the minimum sustainable rate until the Secretary of Defense can certify that the Osprey is safe, reliable, maintainable, and operationally effective. DOD appeared to take managerial and budgetary steps to incorporate the Blue Ribbon Panel's recommendations. For example, DOD's FY2001 supplemental funding request asked for a reduction of $475 million in procurement and an increase of $80 million in R&D funds. The additional R&D funding was to be used to support initial redesign and testing efforts to address deficiencies, logistics, flight test, and flight test support for V-22 aircraft. The reduction in procurement funding reflected the need to reduce production to the minimum rate while the aircraft design changes are being developed and tested. Secretary of Defense Rumsfeld's FY2002 budget amendment, unveiled June 27, 2001, included a request for the procurement of 12 Ospreys. DOD comptroller Dov Zakheim and Marine Corps Commandant General James Jones both stated that the procurement of 12 aircraft in FY2002 would allow them to sustain the V-22 subcontractor base while simultaneously addressing the Osprey program's needs. V-22s were procured at a rate of 11 per year from FY2002 to FY2006. Following the Blue Ribbon panel's recommendations, former DOD Under Secretary for Acquisition Edward "Pete" Aldridge assumed acquisition authority for the V-22 program. Under Secretary Aldridge changed the V-22 program's status from an ACAT 1C program—which gives the Department of the Navy the highest required authority for production decisions—to an ACAT 1D program. Under the latter category, the Defense Acquisition Board (DAB) would decide if and when the program is ready to enter full rate production. A NASA-led review of the V-22 program, released November 6, 2001, concluded that there were no known aero-mechanical phenomena that would stop the tilt-rotor aircraft's development and deployment. The study focused on several aero-mechanics issues, including Vortex Ring State, power problems, auto-rotation, and hover performance. In a December 21, 2001, memo to the Secretaries of the Air Force and the Navy, and the Commander, Special Operations Command, Under Secretary of Defense Aldridge gave his authorization for the V-22 to resume flight testing in the April 2002 time frame. Secretary Aldridge expressed support for range, speed, and survivability goals of the V-22. He noted, however that the program still had numerous technical challenges to overcome, and emphasized that the V-22 must demonstrate that "1) it can meet the needs of the warfighter better than any other alternative, 2) it can be made to be reliable, safe, and operationally suitable, and 3) it is worth its costs in contributing to the combat capability of U.S. forces." Secretary Aldridge approved the flight test program under the condition that the production rate be slowed to the minimum sustaining level, that it be comprehensive and rigorous, and that the restructured program is fully funded in accordance with current estimates. Under Secretary Aldridge estimated that the V-22 would require at least two years of flight testing before DOD could conclude that the aircraft is safe, effective, and "worth the cost." Mechanical adjustments slowed the V-22 test schedule, and the MV-22 took its first test flight on May 29, 2002. The Air Force CV-22 resumed flight tests on September 11, 2002. Flight tests were designed to explore both technical and operational concerns. Technical concerns include flight control software and the reliability and robustness of hydraulic lines. Operational concerns explored included whether the Osprey is too prone to Vortex Ring State to make it a safe or effective aircraft, whether this potential problem is further exacerbated by multiple Osprey's flying in formation, and how well the V-22 handles at sea. The principal differences between the aircraft that were grounded in 2000 and the aircraft that began testing 17 months later (called "Block A" aircraft) are re-routed hydraulic lines and an improved caution and warning system. Technical glitches were experienced during tests. Hydraulic failures, for example, continued during the reinstated flight test program, once on August 4, 2003, (due to a mis-installed clamp) and again on September 5, 2003. In June 2004 a V-22 was forced twice to make an emergency landing. During one landing, the aircraft suffered a "Class B" mishap (one causing between $200,000 and $1 million in damage). An investigation revealed that the V-22 suffered from widespread problems with an engine component that required replacement every 100 flight hours. In conjunction with resuming flight testing, the Navy Department modified certain V-22 requirements. For instance, the V-22 is no longer required to land in helicopter mode without power (also known as "autorotation"), and protection from nuclear, chemical, and biological weapons has been eliminated. The V-22 is no longer required to have an "air combat maneuvering" capability; instead it must demonstrate "defensive maneuvering." Also, the requirement that troops be able to use a rope or rope ladder to exit the cabin at low altitudes has been eliminated. Also concurrent with the resumption of V-22 flight testing, DOD began an in-depth study of alternatives to pursue in case the aircraft does not pass muster. Options reportedly include purchasing the S-92, or upgrading CH-53, or EH101 helicopters. After one calendar year and 466 hours of flight testing, DOD reviewed the Osprey's progress. On May 15, 2003, Thomas Christie, DOD's Director of Operational Test and Evaluation (DOT&E), graded Bell-Boeing's improvements to the Osprey's hydraulics as "reasonable and appropriate" and "effective." Christie also at that time approved of the testing that had been completed and was satisfied with what had been learned about the V-22's susceptibility to Vortex Ring State. On May 20, 2003, the Defense Acquisition Board also reviewed the program and approved of the flight test program's progress. Marine Corps officials recommended increasing the production rate in FY2006 from the minimum sustainable rate of 11 to 20 aircraft. However, in an August 8, 2003, memorandum, Under Secretary of Defense for Acquisition Michael Wynne announced that this acceleration "presents more risk than I am willing to accept." Instead, Wynne restructured the planned procurement, reducing the FY2006 purchase to 11 aircraft. "For subsequent years' procurement planning, production rates should increase by about 50% per year for a total of 152 aircraft through FY09," according to the August 8 memo. Wynne directed that the savings resulting from the reduced procurement (estimated at $231 million) be invested in improving the V-22's interoperability, by funding the Joint Tactical Radio System, Link 16 and Variable Message Format communication. Wynne also directed that a multi-year procurement (MYP) of the V-22 be accelerated. While some suggest that this restructuring will more quickly deliver high-quality aircraft to the Marines and Special Operations Forces, others fear that slowing procurement will inevitably raise the platform's cost. In December 2004 the V-22 budget and schedule were restructured again. Program Budget Decision 753 (PBD-753) cut 22 aircraft from the V-22's production schedule and $1.3 billion from the budget between FY2006 and FY2009. On June 18, 2005, the MV-22 program completed its second round of operational evaluation (OPEVAL) flight. The test program was marked by two emergency landings, a Class B mishap, a small fire in an engine compartment, and problems with the prop-rotor gear box. However, Navy testers recommended that DOD declare the V-22 operationally suitable, and effective for military use. This recommendation was based, in part, on observations that the MV-22 had complied with the objectives of P.L. 107-107 Section 123: hydraulic components and flight control software performed satisfactorily, the aircraft was reliable and maintainable, the MV-22 operated effectively when employed with other aircraft, and the aircraft's downwash did not inhibit ground operations. On September 28, 2005, the V-22 program passed a major milestone when the Defense Acquisition Board approved it for military use and full rate production. The MV-22 continues testing to assess survivability and to develop tactics. The CV-22 is in developmental test and evaluation. The program continues to experience technical and operational challenges, and mishaps. For example, an inadvertent takeoff in March 2006 caused wing and engine damage in excess of $1 million. An engine component has been replaced because its failure in flight has caused seven unexpected flight terminations. In October 2005, a V-22 experienced engine damage during flight due to icing. An engine compressor failure during the V-22's first overseas deployment (July 2006) forced the aircraft to make a precautionary landing before reaching its destination. An engine fire on December 7, 2006, caused more than $1 million to repair, and the Marine Corps grounded all of its V-22s in February 2007 after it was found that a faulty computer chip could cause the aircraft to lose control during flight. Appendix B. June 23, 2009, Hearing on V-22 Program The hearing was originally scheduled for May 21, 2009, but the hearing was adjourned after a few minutes and later rescheduled for June 23, 2009. The chairman of the committee, Representative Edolphus Towns, stated the following at the opening of the May 21 hearing: Good morning. Thank you all for being here. We had hoped to conduct today a thorough examination of the Defense Department's V-22 Osprey, an aircraft with a controversial past, a troubled present, and an uncertain future. However, the Defense Department has evidently decided to stonewall our investigation. On May 5, 2009, I wrote to Secretary of Defense Gates to request information on the Osprey, including copies of two reports on the performance of the Osprey in Iraq, called "Lessons and Observations." I also requested a list of all V-22 Ospreys acquired by the Defense Department, including their current locations and flight status. However, to this date, the Defense Department has failed to provide this information, despite repeated reminders from the Committee. This is simply unacceptable. General Trautman, I want you to carry this message back to the Pentagon: We will pursue this investigation even harder than we have so far. We will not be slow-rolled. We will not be ignored. I intend to conduct a full investigation of the Osprey, not just an investigation of the information that you want me to see. We hope you will provide it voluntarily, but if you do not, we will compel your compliance. To ensure a thorough investigation and to allow the Defense Department additional time to provide us with these records, we will continue this hearing in two weeks and I am asking the witnesses to return to present their testimony at that time. This hearing is now adjourned, to be resumed in two weeks at the call of the chair. Thank you. On May 22, 2009, it was reported that: The Pentagon is denying the House Oversight and Government Reform Committee's accusations that it is stonewalling lawmakers' requests for information about the V-22 Osprey. "The Department of Defense coordination process is highly complex," Pentagon spokeswoman Cheryl Irwin told InsideDefense.com. "We are diligently working to fulfill this request and will have it to the proper officials in order that the hearing process can continue." House Oversight Committee Chairman Edolphus Towns (D-NY) yesterday accused the Pentagon of stonewalling his request for V-22 documents and vented his displeasure by abruptly ending a hearing after mere minutes, telling a three-star Marine Corps general to return in two weeks. Towns said the panel had hoped to conduct a "thorough examination" of the V-22 program, which he said has "a controversial past, a troubled present, and an uncertain future." But the Defense Department has "evidently decided to stonewall our investigation," he complained. The panel's ranking Republican, Rep. Darrell Issa (CA), also complained about DOD's failure to provide the documents, stressing the committee needs such information well in advance of any hearing. In a statement released later, he faulted a "bureaucratic failure of the Office of the Secretary of Defense," not the Marine Corps. After about three minutes, Towns ended the hearing. He said it would be continued in two weeks to give DOD additional time to provide the records. The witnesses were not invited to speak during the brief hearing nor did they attempt to do so. After the hearing, Lt. Gen. George Trautman, the Marine Corps' top aviation official and one of a handful of witnesses who had been scheduled to testify, declined to speak to reporters. Later that day, Marine Corps spokesman Maj. Eric Dent told InsideDefense.com the service understands Towns' decision to postpone the hearing. But the Marine Corps was disappointed "that we did not get the opportunity to discuss with the committee the Osprey's remarkable performance in Iraq over the past 19 months," he added. The V-22 program has nothing to hide, according to Dent. "As we were today, we remain prepared to discuss every aspect of the Osprey program with Congress," he said. "We are fully committed to openness and transparency; in fact, we've been working hand-in-hand with the Government Accountability Office for the past year in its own review of the Osprey program."... Dent insisted the Marine Corps is making a good-faith effort to address the request. "We forwarded, at the committee's request, more than 500 pages of maintenance records, after-action reports, and additional information on every MV-22 we have," he said. "Essentially, this was an aircraft-by-aircraft daily record of location and maintenance discrepancies. Collecting this information was a monumental task. Although we cannot speak to why the committee did not receive the information the Marine Corps prepared, we must emphasize that we have a process by which information, including classified material that was asked for by the committee, must be vetted before being released." | The V-22 Osprey is a tilt-rotor aircraft that takes off and lands vertically like a helicopter and flies forward like an airplane. Department of Defense plans call for procuring a total of 458 V-22s, including 360 MV-22s for the Marine Corps; 50 CV-22 special operations variants for U.S. Special Operations Command, or USSOCOM (funded jointly by the Air Force and USSOCOM); and 48 HV-22s for the Navy. Through FY2012, a total of 282 V-22s have been procured—241 MV-22s for the Marine Corps and 41 CV-22s for USSOCOM. These totals include several V-22s that have been procured in recent years through supplemental appropriations bills. V-22s are currently procured under a $10.4 billion, multiyear procurement arrangement covering the period FY2008-FY2012. The proposed FY2013 budget requests about $1.2 billion in procurement and advance procurement funding for procurement of 17 MV-22s, and about $309.2 million in procurement and advance procurement funding for procurement of 4 CV-22s. For FY2013, the V-22 program poses a number of potential oversight issues for Congress, including whether to approve a follow-on multiyear procurement contract and the aircraft's readiness rates, reliability and maintainability, and operational suitability. FY2012 defense authorization bills: The conference report accompanying H.R. 1540, H.Rept. 112-329, authorized $2.2 billion in Aircraft Procurement, Navy, for the V–22. Compared to the request, the report cut $15 million for "support funding carryover" and $10.5 million to "reduce ECO" (engineering change orders.) The request for $84.0 million in advance procurement was reduced by $20.24 million for "advance procurement equipment cost growth." The request for $60.3 million in support equipment was reduced by $2.5 million for "Deficiencies modifications other support growth" and $2.0 million for "Reliability modifications other support growth." The request for $30 million in Overseas Contingency Operations funding was also reduced by $2.5 million for "Deficiencies modifications other support growth" and $2.0 million for "Reliability modifications other support growth." Overseas Contingency Operations funding was also cut by $15 million for V-22 modifications as having been funded in FY2011. Air Force V-22 R&D was cut by $7.5 million for "Contract delay." FY2012 DOD appropriations bills: The Joint Explanatory Statement of the Committee of Conference on H.R. 2055 detailed the $2.2 billion appropriated for V-22 procurement as follows: In Aircraft Procurement, Navy, reductions of $15 million for "support funding carryover" and $10.5 million to "reduce ECO" (engineering change orders.) $2.8 million was added for "V-22 voice recorder-Navy identified shortfall." The request for $84.0 million in advance procurement was reduced by $20.24 million for "advance procurement equipment cost growth." The request for $60.3 million in support equipment was reduced by $2.5 million for "Deficiencies modifications other support growth" and $2.0 million for "Reliability modifications other support growth." Air Force V-22 R&D was cut by $7.5 million for "Slow execution/contract delay." $15 million of modifications requested as Overseas Contingency Operations funding was cut as having been funded in FY2011. |
Since the breakdown of the Six-Party Talks over verification issues in December 2008, North Korea has carried out a series of increasingly provocative acts that have challenged the Obama Administration and the world community. In January and February, North Korea presented the newly inaugurated Obama Administration with a tough set of negotiating positions. North Korea reportedly did not respond to subsequent overtures by the United States to restart talks. On April 5, 2009, North Korea launched a long-range ballistic missile, the Taepo Dong 2, over Japan, but failed to achieve a complete test of the system or place a satellite into orbit. This test led to United Nations Security Council (UNSC) condemnation. In response, North Korea said it would abandon the Six-Party Talks, restart its nuclear facilities and conduct a nuclear test. It asked international and U.S. inspectors to leave the country. On May 25, 2009, North Korea conducted an underground nuclear explosion. In response, the UNSC on June 12 unanimously passed Res. 1874, which puts in place a series of sanctions on North Korea's arms sales, luxury goods, and financial transactions related to its weapons programs and calls upon states to inspect North Korean vessels suspected of carrying such shipments. The resolution does allow for shipments of food and nonmilitary goods. As was the case with an earlier resolution, 1718, that was passed in October 2006 after North Korea's first nuclear test, Res. 1874 seeks to curb financial benefits that go to North Korea's regime and its weapons program. This report summarizes and analyzes Resolution 1874. In summary, the economic effect of Resolution 1874 is not likely to be great unless China cooperates extensively and goes beyond the requirements of the resolution and/or the specific financial sanctions cause a ripple effect that causes financial institutions to avoid being "tainted" by handling any DPRK transaction. In June 2009, the Obama Administration formed an interagency team to coordinate sanctions efforts against North Korea with other nations. The team is led by Philip S. Goldberg, a former ambassador to Bolivia, and consists of representatives from the State Department, the White House, the National Security Agency, the Treasury Department, and others. (See " Implementation of Sanctions " below.) Many observers cited the designation of a high-level coordinator as a way the United States could produce more success in implementing Res. 1874 than was had in implementing its predecessor. In February 2010, Ambassador Goldberg also took over as Assistant Secretary of the State Department's Bureau of Intelligence and Research (INR). He will continue in his role as Coordinator for Implementation of UNSC Resolution 1874 on North Korea. Resolution 1874 condemns the May 25 nuclear test, demands that North Korea not conduct additional nuclear tests or ballistic missile tests, says North Korea should suspend its ballistic missile program and re-establish the missile launch moratorium, calls on the DPRK to abandon all nuclear weapons and existing nuclear programs in a "complete, verifiable and irreversible manner" and calls on North Korea to return to the Non-Proliferation Treaty (NPT) and the Six-Party Talks. The resolution includes a ban on all arms transfers from the DPRK and all arms except exports of small arms or light weapons to the DPRK. As with past UNSC resolutions, this ban includes weapons of mass destruction (WMD) or missile-related technology. The resolution also provides for new economic and financial sanctions on the DPRK. It calls on states not to provide grants, assistance, loans, or public financial support for trade if such assistance could contribute to North Korea's proliferation efforts. It also calls on states to deny financial services, including freezing assets, where such assets could contribute to prohibited DPRK programs. The resolution is not an embargo, however, and explicit exclusions are made for humanitarian and denuclearization aid. These are broad and far-reaching sanctions, if effective, but several problems arise in implementation (discussed below). Due to concerns over North Korea's past track record on proliferation of nuclear and missile technology, the Security Council deliberations focused on ways to interdict North Korean shipments of banned items. Past Security Council resolutions (1718 (2006) and 1695 (2006)) have tackled this issue, but the new resolution includes specific guidelines for inspecting and interdicting ships that transport banned materials. Resolution 1874 calls on all states to "inspect, in accordance with their national legal authorities and consistent with international law, all cargo to and from the DPRK, in their territory, including seaports and airports," if that state has information that the cargo is prohibited by UNSC Resolutions. Res. 1874 does not, however, provide the authority to do so without the flag state's consent. Reportedly due to objections by Russia and China, the resolution does not authorize the use of force if the inspection is refused. In that case, the requesting state is asked to report the matter to the Security Council. 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 refused, the resolution obligates the flag state to direct their vessel to port for inspection. The resolution "authorizes" seizure of banned items. The resolution prohibits "bunkering services" such as refueling or servicing of a ship with suspected cargo. This is significant because North Korea reportedly ships most goods under its own flag and typically uses small vessels that would need refueling. The sanctions committee under U.N. Security Council Resolution 1718 first designated three North Korean companies at the end of April 2009. Resolution 1874 required designations to be reviewed within 30 days, and the Security Council sanctions committee on July 16, 2009, designated for sanctions three North Korean trading companies, an Iran-based company, 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. (For a full discussion see " Implementation of Sanctions " below.) No additional designations have been made since July 2009. Resolution 1874 also established reporting mechanisms on the implementation of the resolution. Within 45 days of the resolution's adoption, all U.N. member states were to report to the Security Council on "concrete measures" they have taken to implement the arms embargo and financial measures. The Sanctions Committee, originally established by UNSC Res. 1718, submitted a proposed agenda for its work covering "compliance, investigations, outreach, dialogue, assistance and cooperation." The newly established Panel of Experts is to contribute expertise to the Committee's work, particularly in evaluating cases of noncompliance. The resolution also asks the U.N. Secretary-General to establish a Panel of Experts, with a maximum of seven experts to analyze reports and make recommendations regarding implementation of Res. 1874 and 1718 for an initial one-year period ending with a report to the Security Council in spring 2010. The Secretary General appointed a panel with members from the United States, China, France, Japan, Russia, South Korea, and the United Kingdom. Victor Comras is the panel's U.S. expert. According to the resolution, the panel is to "gather, examine and analyze information from States, relevant U.N. bodies, and other interested parties regarding implementation" and make recommendations to the Council, Committee, or member states on improved implementation. It is also tasked with producing an interim and final report summarizing its findings and recommendations. Despite this mandate, it is still unclear the extent to which the panel will make judgments about U.N. member states' compliance with the resolution. However, the panel is playing a role in investigating seized shipments and noncompliance cases. The panel provided an interim report to the Security Council in November 2009, as required by the resolution. According to press reports, the experts panel noted that the sanctions have had an impact on North Korea's trading activity. However, the reports also said the panel assessed that North Korea was actively circumventing the sanctions through masking of transactions by use of intermediaries, false manifests, and false description of cargo. It also reportedly said that North Korea's use of trading companies continued. Several cases of alleged noncompliance with UNSC Resolution 1874 sanctions surfaced in press reports in 2009. Each shipment involved multiple countries and other evasion techniques. Only one publicized interdiction to date involved an air shipment. In July 2009, Italian authorities seized yachts, banned luxury items under UNSC Resolution 1874, bound for North Korea. In August 2009, the ANL Australia 's cargo of conventional weapons was seized in the UAE. In September 2009, a shipment of protective clothing was intercepted in South Korea on its way to North Korea. An Ilyushin Il-76 cargo plane was seized at an airport in Thailand in December 2009. The cargo included conventional weapons allegedly exported from North Korea. In November 2009, South Africa interdicted a shipment of tank components from North Korea en route to the Republic of Congo. (Detailed discussion of these cases is below.) The Obama Administration faces several key decisions regarding the U.S. role in enforcing Resolution 1874 and applying new U.S. sanctions against North Korea. The Administration faces a decision on how assertive to be in confronting North Korean ship traffic to attempt searches. It also faces a decision on the U.S. role in enforcing the ban on WMD-related North Korean financial transactions. U.S. officials have said that the Obama Administration is emphasizing the Resolution's call on states to deny financial services to North Korea, especially access to foreign banks by North Korean trading companies. Administration officials also have said that they are considering reinstating North Korea on the U.S. list of state sponsors of terrorism; the Bush Administration removed North Korea from the list in October 2008. Finally, the Administration may have to calculate the degree of pressure to apply to China if Beijing does little to enforce the Security Council sanctions, as was the case following Resolution 1718. The Hyundai Economic Research Institute of South Korea has estimated that if U.N. members enforce the sanctions in Resolution 1874 against North Korea, North Korea could lose between $1.5 billion and $3.7 billion. Other estimates place the loss close to $4 billion. However, Resolution 1874 does not make enforcement of sanctions mandatory but instead "calls on" U.N. members to take enforcement steps. If sanctions are to have this kind of impact, several key countries will have act forcefully and will have to interpret the sanctions language of the resolution liberally. There appear to be four key areas of sanctions enforcement: 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. The trading companies are particularly active in China and undoubtedly have accounts throughout the Chinese banking system. In order to shut down these financial transactions, governments and banks in a number of countries will have to freeze these bank accounts. However, they face the dilemma that the trading companies conduct other transactions through the same accounts. These include the financing of legitimate commerce but also laundering money acquired through North Korea's smuggling of counterfeit products, including counterfeit U.S. dollars and U.S. products. Neither of these activities are banned by Resolution 1874. Governments will have to interpret the financial sanctions ban of the resolution liberally in order to apply sanctions to the bank accounts of the trading corporations. Obama Administration officials have indicated that they are urging other governments to apply such a liberal interpretation to the activities of the trading companies. In early July 2009, Ambassador Philip Goldberg and Under Secretary of the Treasury Stuart Levey visited China and Malaysia. Goldberg was appointed as a special envoy to coordinate sanctions against North Korea. They emphasized to Chinese and Malaysian officials the need to restrict activities of North Korean trading companies. They reportedly raised with Malaysian officials the use of a Malaysian bank by North Korea to facilitate the sale of North Korean arms to Burma. Ambassador Goldberg and his delegation also visited South Korea, Japan, Thailand, and Singapore. U.S. officials have said that the Obama Administration is emphasizing the Resolution's call on states to deny financial services to North Korea, especially access to foreign banks by North Korean trading companies. Ambassador Goldberg and an interagency team also visited Egypt and the United Arab Emirates in October 2009, to urge compliance with 1874 provisions. The U.N. Security Council's sanctions committee designated three North Korean companies at the end of April 2009. Japan and the United States had recommended 10 and 14 trading companies to be sanctioned at points in the sanctions committee's deliberation, but China and Russia reportedly objected. The number finally was scaled back to three, two trading companies and one North Korean bank. In line with Resolution 1874, the Security Council sanctions committee on July 16, 2009, designated for sanctions three North Korean trading companies, an Iran-based company, 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 previously had imposed U.S. sanctions on one of these North Korean trading companies, the Namchongang Trading Corporation, and the Iran-based Hong Kong Electronics. Treasury Department officials disclosed in late June 2009 that the Department was targeting 17 North Korean trading companies and banks for U.S. and international sanctions. In its interim report, the UNSCR Panel of Experts reportedly discussed North Korea's continued use of trading companies. For example, one news report said the experts had found that "The Korea Mining Development Trading Corp, sanctioned for involvement in ballistic missile sales, continued to operate through subsidiaries. The Kwangson Banking Corp and Amroggang Development Bank had been determined to be acting for the listed Tanchon Commercial Bank and Korea Hyoskin Trading Corp." The specific provisions set out in Resolution 1874 appear to give the United States and allies the means to gain access to North Korean ships and thus shut down WMD-related ship traffic. This will be dependent on a number of countries cooperating with the United States, particularly in applying the resolution's provision for searching North Korean ships in their ports and denying provisions of fuel and supplies to North Korean ships that refuse to be searched. China is particularly important, since North Korean ships frequently visit Chinese ports. Singapore, Indonesia, and Malaysia would be important with respect to North Korean ships that seek to pass through the Singapore and Malacca Straits that connect the Pacific and Indian Ocean, the route to the Middle East and Burma. Middle East-bound ships also stop at ports in India and Pakistan. India has searched North Korean ships in the past. Pakistan's cooperation may be more uncertain, since it has had close relations with North Korea in past years, including purchases of North Korean missiles and missile technology. The first test case of sea-borne traffic was the North Korean ship, the Kang Nam. The Kang Nam was shadowed by the U.S. Navy as it headed south from North Korea, hugging the coast of China as it approached the South China Sea. South Korean officials believed that the Kang Nam was bound for Burma with a shipment of arms. However, before reaching the international waters of the South China Sea, the Kang Nam turned back and returned to North Korea on July 7, 2009. While attending a regional meeting in Thailand in late July, Secretary of State Hillary Clinton as well as Japanese officials stated that Burmese Foreign Minister Nyan Win had pledged that Burma would abide by U.N. sanctions on North Korea. An important application of sanctions against sea-borne traffic came in the form of several intercepted shipments of North Koreans bound for Iran in the second half of 2009. Three vessels were intercepted, which contained North Korean weapons that Western intelligence and Israeli intelligence officials and non-government experts believe were bound for Hezbollah and Hamas, terrorist groups on the official U.S. list of international terrorist organizations. The largest of these shipments was aboard a ship that was searched in Dubai before departing for Iran in July 2009. All three ships reportedly contained North Korean components for 122 mm Grad rockets and rocket launchers. The shipment intercepted in Dubai contained 2,030 detonators for the Grad rockets and related electric circuits and solid fuel propellant for rockets. The Iranian Revolutionary Guards is known to have supplied significant quantities of these rockets and rocket launchers to Hezbollah and Hamas, which have frequently fired them into Israel. In addition, the South African government seized a shipment of large tank components bound for the Republic of Congo in November 2009. Press reports have said that the shipment originated in North Korea and passed through the Chinese port of Dallan. Resolution 1874 is vague in how its air cargo provisions are to be implemented, in contrast to the specific procedures set forth regarding inspecting sea-borne cargo. However, many experts believe that North Korea uses air traffic much more than sea traffic in order to transfer and exchange WMDs, WMD technology, and WMD scientists and technicians. The key to inspections of North Korea's air cargo is the air traffic between North Korea and Iran. North Korea and Iran have extensive collaboration in the development of ballistic 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. Iran and North Korea reportedly use the Pyongyang-Tehran air route for the transfer of missiles and weapons of mass destruction technology and for 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. Aircraft use Chinese air space and reportedly refuel at Chinese airports. A weakness of Resolution 1874 is that it does not specify procedures for the inspection of North Korea-related air cargo similar to the procedures outlined for sea-borne cargo. China would have the prime responsibility for searches of aircraft on the Pyongyang-Tehran air route. The Obama Administration 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 not spoken publicly about the air traffic issue, but they have urged caution regarding searches of North Korean ships. The seizure of an Ilyushin-T76 transport aircraft filled with North Korean arms in Bangkok, Thailand, in December 2009 was another successful application of sanctions but also pointed up the apparent lack of Chinese cooperation in intercepting North Korea-Iran air traffic. The Ilyushin had flown from Pyongyang to Bangkok through hundreds of miles of Chinese air space with no Chinese effort to direct the aircraft to land and be searched. The Ilyushin reportedly had been leased a few days before the flight, on December 2, 2009, by Union Top Management, a firm based in Chinese Hong Kong. The sea-borne cargo of North Korean arms seized in Dubai in July 2009 had visited several Chinese ports and was transported from Dalian, China, to Shanghai aboard a Chinese ship, again without a Chinese effort to conduct a search. The flight plan of the Ilyushin reportedly showed that its ultimate destination was Iran. The weapons reportedly included two 1958 multiple 240 mm rocket launchers, rocket launching tubes, 24,240 mm rockets, shoulder-launched missiles, and components of surface-to-air missiles. Israeli and Lebanese newspapers quoted Western intelligence sources as concluding that most of these weapons likely were bound for Hezbollah. Charles Vick, a noted expert on arms and the arms trade, observed that the rocket-related weapons in the shipment are used often by Hezbollah and Hamas against Israel. It is unknown how much income North Korea lost from Iran by the interception of the Ilyushin and the three earlier seizures at sea. The value no doubt is in the tens of millions of dollars, perhaps more. Resolution 1874 reaffirmed Resolution 1718 of October 2006, including the ban on the export of luxury goods to North Korea. Luxury consumer goods are a key benefit to North Korea's elite, the core support group of the Kim Jong-il regime. In the past, the major sources of luxury goods have been Europe and China. Chinese traders report a high demand for Chinese consumer goods by the North Korean elite. An analysis of Chinese trade statistics for 2008 indicates that Chinese exports of luxury consumer goods to North Korea was between $100 million and $160 million, about 5%-8% of China's total 2008 exports of $2 billion to North Korea. Moreover, most of China's exports are reportedly financed by Chinese trade credits to North Korea, which have generous long-term repayment provisions. In short, there is evidence that a sizeable portion of Chinese goods come into North Korea largely cost-free to the North Korean government. Thus, this sanction will not be enforced unless China's begins to deny North Korea these lucrative trade credits. The DPRK is really two economies. The first is that of the military, the Korean Workers Party, and the governing elite. This economy has considerable industrial capacity and first priority for resources. This part of the economy appears to be growing as the military reportedly has taken over some trading companies that previously were private. In many products, particularly food, the first economy tends to be parasitic. It lives off the production from the second economy, the rest of the country. This second economy consists mostly of agriculture, services, light manufacturing, and the range of economic activity typical of a less developed nation. As a whole, the DPRK economy is one of the world's most isolated and moribund. It is in dire straits with a considerable share of its population on the edge of starvation and in need of outside food aid. Without humanitarian aid and trade with China, many of its people would starve. For 2009, the Food and Agriculture Organization and World Food Program estimated that the DPRK faced a cereal deficit of about 836,000 tons—enough to leave 8.7 million people in need of food assistance. The industrial side of the economy also faces problems with antiquated equipment, lack of raw materials, and unreliable electrical supply. The challenge in implementing the new U.N. economic and financial sanctions lies in separating funds and transactions that are related to the military from the normal economic and financial transactions of the country. Even though the economy as a whole is in shambles, the military and ruling elite are able to command sufficient resources to pursue their nuclear and ballistic missile programs. For example, officials from the Korean Peoples Army (KPA) reportedly have been authorized to acquire any material, resource or item from other commercial projects for use in North Koreas' nuclear programs. A broad interpretation of the sanctions would apply to any transaction that could be interpreted to assist the military. The irony of Pyongyang's nuclear and missile program is that its 2009 nuclear test and series of missile launches likely cost the government enough to cover much of its need for fertilizer and basic food imports for the year. What seems clear is that if providing an essential level of food to the country's population were a priority goal for the regime, it would have the economic resources to do so. North Korea finds itself in a stereotypical "guns and butter" dilemma. By diverting scarce resources to pay for "guns" it is robbing the greater economy of "butter" (or in North Korea's case, rice) and, in the process, creating a humanitarian disaster. The additional sanctions in U.N. Resolution 1874 target outside resources flowing into the DPRK that are associated with its prohibited activities. Outside resources include development assistance, loans, finance, and certain exports and imports. Since most official development assistance is to meet basic human needs, countries and international organizations may continue to provide humanitarian aid to North Korea should they desire to do so. In the 1990s, Pyongyang's policies (along with bad weather) pushed as many as 2 million of its citizens into death by starvation. In more recent years, other countries have stepped in to provide humanitarian aid even though the ruling regime arguably caused the humanitarian crisis in the first place. This time it appears that Pyongyang's gamble may not work. The Western world seems to be suffering from a combination of "aid fatigue," the effects of the global financial crisis, declining budgetary resources, plus a reluctance to "buy the same horse twice" (i.e., to provide food and fuel aid in exchange for denuclearization steps that are later reversed). Even though Resolution 1874 does not preclude humanitarian aid, this confluence of events, history, and negative responses to the DPRK's attempt to become a nuclear power could cut into inflows of essential food and fuel for the large segment of the population living on the edge of starvation. Data on total aid to North Korea for 2008 has not been reported yet, but for 2007, the DPRK received $97.6 million in official development assistance (mostly humanitarian aid) from major aid donors that report to the Organisation for Economic Cooperation and Development (excludes South Korea, China, and Russia). Of this, $32.5 million came from the United States; $16.6 million from the European Community; $26.7 million bilaterally from Germany, France, Australia, Norway, Sweden, and Switzerland; and $10.4 million from the United Nations and other multilateral agencies. U.S. assistance has now stopped. The European Community has limited its funds to humanitarian aid and food security assistance and has progressively shifted from relief and emergency response to providing support to and/or rehabilitation of agriculture in two North Korean provinces. The United Nations World Food Programme has scaled back its humanitarian food assistance for the DPRK after several months of funding shortfalls. In March 2009 (before the nuclear test), it reported that operations were at 15% of planned levels. Approximately 2 million out of the 6.2 million people targeted by their operation were receiving rations (incomplete) of fortified foods. South Korea provided $54.1 million in humanitarian aid to North Korea in 2008, down from $395.7 million in 2007. Virtually all ($50.2 million) of the aid in 2008 was through non-governmental organizations. How much of this NGO assistance may continue is problematic. Given the declines in humanitarian aid to the DPRK, Pyongyang may be counting on increased production from its agricultural sector to feed its people. Prospects for this, however, are not favorable. According to estimates by the Bank of Korea, in 2008, the North Korean economy grew at 3.7% following two years of negative growth of -1.1% in 2006 and -2.3% in 2007. The economy as a whole is regaining some of the ground lost during the past two years. Agricultural output grew by an estimated 8.2% in 2008 attributable mainly to better weather, but this did not offset the disastrous declines in farm production that amounted to -9.4% in 2007 and -2.6% in 2006. In short, the agricultural sector in the DPRK has recovered somewhat, but the adequacy of basic nutrition still is questionable for millions of people. U.N. Resolution 1874 called upon all member states not to provide public financial support for trade with the DPRK (including the granting of export credits, guarantees or insurance to their nationals or entities involved in such trade) where such financial support could contribute to the DPRK's nuclear-related or ballistic missile-related or other WMD-related programs or activities. In 2008, China exported $2.0 billion in goods to the DPRK (see Table 2 ). With respect to the U.N. sanctions, only a small proportion of this total would seem to be associated with prohibited activities. Other links between exports of "dual use" items such as food, fuel, machinery, and electronics would be difficult to trace. Nevertheless, the $100 million to $160 million in Chinese exports of "luxury" goods to North Korea may be essential to help maintain elite loyalty to the regime and to the military policies that have led to the nuclear and missile programs. The amount of China's financial support for trade with the DPRK is not reported. In most of the world, except for cash transactions, most international trade is financed through trade credits issued by banks or other financial institutions. A news report from along the Sino-DPRK border indicates that much of the trade is financed by credits from Beijing. Since North Korea's nuclear and missile programs have such a high priority in Pyongyang, it does not seem likely that the military would finance specific inputs into such programs with Chinese trade credits. After U.N. Resolution 1874, this seems even more unlikely. Imports not specific to the nuclear or missile programs ("dual use items") probably enter as general imports and are subsumed into standard non-prohibited categories of purchases that would go primarily for civilian uses. Without cooperation from Chinese officials, attempting to ferret out Chinese trade finance supporting exports of prohibited items only would be nearly futile. As for concessionary finance by Beijing, most of the $1.3 billion deficit in the DPRK's trade with China in 2008 must have been financed by long-term credits or loans (presumably from Beijing), though other sources of financing presumably would include rising Chinese foreign direct investment in North Korea, DPRK export earnings, illicit activities, or from foreign exchange generated from activities such as the Kaesong Industrial Complex. Note also that in 2008, North Korea's deficit in trade with Russia was $83 million. Since the DPRK is not a member of the World Bank or Asian Development Bank, it is not eligible to borrow for trade finance from these international financial institutions. National Export-Import banks also do not fund trade in prohibited items. Over the period 2005-2007, the 21 industrialized nations that form the Development Assistance Committee of the Organisation for Economic Cooperation and Development reported no bank credits for trade for the DPRK. Gross non-bank trade credits, however, amounted to $6 million in 2005, $110 million in 2006, and $17 million in 2007. These data also do not include credits from China or Russia. As for loans, the extent of borrowing from western commercial banks by the DPRK is relatively small. In December 2008, consolidated claims on the DPRK by banks that report to the Bank for International Settlements totaled $2.0 billion, down from a peak of $4.2 billion in June 2008. All reporting banks with claims on North Korean entities were from Europe, with France accounting for nearly half of the total. These figures, however, do not include Russia or China. How much of this lending activity is purely commercial and how much went to North Korea's prohibited activities is unknown. Also, funds are fungible. A loan to a commercial activity in one sector may free up resources that then can be used for military purposes. The potential impact of the U.N. sanctions on this activity, therefore, is also unknown, but its upper limit would be around $2 billion in lending from Western nations. On the surface, therefore, financial sanctions aimed solely at the DPRK's prohibited activities are not likely to have a large monetary effect. The total amounts of such activity are not large, and what can be attributed to nuclear or missile activity would be even smaller. Still, as can be deduced from the 2005 Banco Delta Asia sanctions (see text box below), if financial institutions are put in a position in which they have to choose between dealing with the United States or dealing with the DPRK, they often will close the North Korean accounts, even if those accounts are for legitimate purposes. The BDA sanctions also showed that even amounts as relatively small as $25 million are important to Pyongyang. A BDA-type strategy, therefore, might be to let financial institutions know that any prohibited financial activity related to the U.N. sanctions could bring their whole institution under scrutiny and possible sanctions similar to those imposed on the BDA. The financial institution may then terminate all transactions with the DPRK because it feels unable to separate out the legitimate and prohibited transactions. On June 18, 2009, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department issued an advisory for all U.S. financial institutions to take risk mitigation measures against the possibility that the DPRK would use deceptive financial practices to hide illicit conduct. Specifically, FinCEN noted that with respect to correspondent accounts held for North Korean financial institutions, as well as their foreign branches and subsidiaries, there is now an increased likelihood that such vehicles may be used to hide illicit conduct and related financial proceeds in an attempt to circumvent existing sanctions, particularly those of U.N. Resolution 1874. FinCEN advised financial institutions to apply enhanced scrutiny to any such correspondent accounts and to avoid providing financial services for North Korea's procurement of luxury goods. In order to assist in applying enhanced scrutiny, FinCEN supplied a list of North Korean banks. It also encouraged financial institutions worldwide to take similar precautions. The U.N. sanctions also ban exports of North Korean arms, including small arms and light weapons. Stopping exports of large armaments will depend on the effectiveness of interdictions and threats of interdictions of shipments by cooperating countries discussed elsewhere in this memorandum. DPRK trade in small arms and ammunition is relatively insignificant. Recently reported purchases of such items from the DPRK included imports of $45.5 thousand by Brazil in 2007, of $3.1 million by the United Arab Emirates in 2006, and $364.4 thousand by Ethiopia and $121.4 thousand by Mexico in 2005. The small arms export ban, therefore, is not likely to have a large effect on the economy of the DPRK, but it could affect the ability of certain military-owned factories to buy needed raw materials and technology. Between one-half and three-quarters of the DPRK's imports and exports are with China. More than one-half of North Korea's exports and one-third of its imports have been with South Korea, primarily through activities in the Kaesong Industrial Complex located in North Korea just north of the DMZ. The United States and Japan have virtually no trade with North Korea. The vast majority of China's imports from the DPRK is in non-prohibited items such as ores, coal, iron/steel, apparel, fish, and minerals. The top six imports in Table 1 account for about 85% of China's total imports from North Korea. The ores, coal, and fish/seafood originate primarily from Chinese investments in enterprises in the DPRK. As shown in Table 2 , China's major exports to the DPRK include mineral fuels (petroleum), machinery/boilers, electrical machinery, knit apparel, plastic, vehicles, man-made filaments, and cereals. With the exception of knit apparel, these exports are essential to the functioning of the North Korean economy. It is noteworthy that China exports less in cereals to North Korea than it imports in fish and seafood, contradicting the general impression that trade in food is primarily one-way from China to the DPRK. China recognizes the leverage it wields through its exports of petroleum to the DPRK. According to a news report from Japan, following the DPRK's second nuclear test, China imposed its own "sanctions" on the DPRK by reducing crude oil shipments through its pipeline with North Korea. Previously, following the DPRK's missile test on April 5, 2009, China had tightened inspections of weapons-related exports to North Korea. China also cancelled a joint venture with North Korea to produce vanadium (used to toughen steel alloys used in missile casings) and has intercepted a shipment of 70 kg of vanadium hidden in a truckload of fruit crossing the border into North Korea. Since the sanctions under Resolution 1874 are narrowly focused on items related to the North Korean nuclear and missile programs, pressure from China would entail using broader trade tools. The U.N. sanctions also include exports of luxury goods. Figure 1 shows China's exports of luxury goods to the DPRK by month from July 2005 to November 2009 using international trade categories corresponding closely to the lists of banned goods. As indicated in the figure, there seems to be little change in Chinese exports of luxury goods following either of the two U.N. resolutions. Figure 1 also shows that in December of each year, Pyongyang seems to go on a buying spree in China. There was a surge in imports of luxury items in that month, particularly in 2006 ($15.1 million) and in 2008 ($50.4 million). In 2008, the imports included $16.6 million in articles of leather, $6.3 million in articles of fur, $5.7 million in crustaceans and shell fish, $4.6 million in exercise and pool equipment, and $4.5 million in motor vehicles. In December 2009, there was a smaller spike in purchases of luxury goods followed by a drop in January 2010 and a slight recovery in February. Whether this decline in 2010 is due to a lack of foreign exchange or the U.N. sanctions is not determinable at this time. In summary, the economic effect of Resolution 1874 is not likely to be great unless China cooperates extensively and goes beyond the requirements of the resolution and/or the specific financial sanctions create a ripple effect that causes financial institutions to avoid being "tainted" by handling any DPRK transaction. At a press conference on June 16, President Obama stated that "North Korea also has a track record of proliferation that makes it unacceptable for them to be accepted as a nuclear power. They have not shown in the past any restraint in terms of exporting weapons to not only state actors but also non-state actors." North Korea is known to have sold ballistic missiles and associated materials to "several Middle Eastern countries, including Iran, and, in our assessment, assisted Syria with the construction of a nuclear reactor," according to DNI Admiral Dennis Blair's testimony to Congress. North Korea appears not to simply export missile technology, but to collaborate with Iran and perhaps others in missile development. Resolution 1874 may bolster the ability of the international community to prevent North Korea from proliferating its WMD and missile technologies to other countries and to halt supply of North Korea's programs only to the extent that countries are willing to sanction relevant entities, share sensitive information and stop suspicious shipments. Some analysts point out that the measures authorized under the resolution will not prevent the proliferation of nuclear material or sensitive information such as test data or weapons design due to their portability. However, other analysts and the Obama Administration contend that if all countries implement what is called for in the resolution, at the minimum North Korea would be discouraged from attempting to ship or procure sensitive goods. Others point out that, generally, increased monitoring and sharing of information about North Koreans' activities abroad may improve U.S. intelligence related to WMD programs. As evidenced in the reports to the UNSC Sanctions Committee for Res. 1718, many countries have existing laws or participate in multilateral export control regimes that prohibit trade in WMD and missile-related technology. The Proliferation Security Initiative (PSI) has facilitated international cooperation on WMD interdiction issues. However, the extent to which countries are now willing to sanction their own companies involved in such transactions by placing them on the UNSC sanctions list (as discussed above) will be a key determinant. Pyongyang has had an active procurement network for its nuclear program for decades. Pyongyang may need to procure items from abroad for further advances. Therefore, increased international vigilance, stopping of shipments and financial pressures combined may have a limiting effect on North Korea's own programs as well as on its proliferation to others. This may largely depend on China's willingness to curb traffic, as discussed in the " Implementation of Sanctions " section above. As with all analysis that involves the secretive regime in Pyongyang, the impact of the resolution on North Korea's domestic situation is nearly impossible to gauge with any degree of precision. However, North Korea's actions surrounding the nuclear test have provided observers with some clues about the internal dynamics of Kim's government. In the past, North Korea's provocations tended to be viewed by the majority of analysts as ploys to strengthen its negotiating position at the Six-Party Talks. Pyongyang's more recent behavior, however, has generally shifted the predominant view among Korea-watchers: it now seems that North Korea is determined to be a nuclear state, even at the price of angering its closest allies. Financial sanctions were designed to target the country's elite and military enterprises. Most analysts suggest that the regime has proven quite resourceful at remaining firmly in power despite a bevy of sanctions in past years. Even at the expense of large swathes of the general population, the inner circle of elites has been kept happy with limited resources. However, some argue that if sanctions are carried out effectively, they may have an impact on internal power struggles as elites vie for resources. Some suggest that the sanctions levied against Banco Delta Asia in 2005 appeared to be effective at targeting the regime, and that the pain inflicted by those sanctions led to North Korea's return to the nuclear negotiations. Others point out, however, that this return was preceded by North Korea's first nuclear test, indicating that effective sanctions may simply strengthen the hardliners' resolve. Further complicating assessments of how the resolution may affect North Korea's internal policies is the assumption that officials in Pyongyang are contemplating a transfer of power. Kim Jong-il's reported stroke in August 2008 elevated attention among international observers to the question of succession in the North Korean regime. Pyongyang's behavior while Kim was ill was characterized as provocative and aggressive, suggesting that hardline elements held sway in decisions such as the missile launch, nuclear test, and withdrawal from the Six-Party Talks. Kim has apparently recovered and re-asserted his authority over the regime. Now back in power, Kim himself is thought to be overseeing the anticipated succession. The strengthening of the National Defense Commission and suspected constitutional adjustments, together with stepped-up propaganda in praise of his third son Kim Jong Eun, suggest that Pyongyang is attempting to manage a transition to a new leader. Because decision-making within the regime remains opaque, it is not clear how elites in Pyongyang may be considering Beijing's reaction in their calculations. In the past, it seems that North Korean elites were able to depend on China ultimately to ensure their survival. If North Korea has actually alienated some influential players in Beijing with this round of provocations, enhanced Chinese enforcement of the sanctions regime could inflict more pain than earlier attempts. However, some analysts believe that China, recognizing that different parties within North Korea are competing for influence, may feel even more restrained from pressuring North Korea for fear of alienating a future power base. UNSC Resolution 1874 tightens, expands, and adds to many of the existing restrictions that were included in UNSC Resolution 1718, which the Security Council unanimously passed on October 14, 2006, five days after North Korea's first nuclear test. As with Resolution 1874, Resolution 1718 was passed in the hope that it would curb financial inflows that went to North Korea's regime and its weapons programs, while imposing minimal humanitarian hardships on the broader North Korean population. Less than three weeks after the UNSC passed Resolution 1718, North Korea announced it would return to the Six-Party Talks that it had been boycotting for nearly a year. The announcement came after secret meetings with U.S. and Chinese officials. While it is possible that Kim Jong-il's government planned to quickly return to the talks after its nuclear test, it is also possible that the speedy passage and unanimous support of 1718 spurred the regime's decision. However, most analysts consider Resolution 1718 ineffective in economically penalizing North Korea. The coverage of the provisions was relatively limited, provisions enforcing transparency on sanctioning countries were relatively weak, military enforcement options were not included in the resolution, and there was no defined list of the prohibited products. Instead, creating the lists was left to individual countries, who then reported them to the U.N. Sanctions Committee. This administrative feature of the sanctions regime allowed countries to avoid or soften implementation of the resolution. China and South Korea appeared to soften implementation with North Korea's decision to return to the Six-Party Talks. Neither country, for instance, published detailed lists of the luxury goods they planned to sanction. Together, the two accounted for 61% and 75% of DPRK trade in 2006 and 2007, respectively. There is strong evidence that China did not rigorously implement the resolution's provisions. According to an analysis by the Peterson Institute's Marcus Noland, for instance, it appears that exports from China increased after 2006. In 2007, North Korea-China trade in general increased by 13%, followed by a 41% increase in 2008. In those years, Chinese exports to North Korea rose by 13% and 46%, respectively. While this rise in overall trade is not necessarily indicative of an increase in luxury goods shipments, it appears to indicate that the sanctions either had no or little deterrent effect on Chinese enterprises' normal commerce with their North Korean counterparts. Even more damaging, informed sources have told CRS that most of the North Korean trading companies and banks sanctioned by the Security Council continued to operate in China at the end of 2009. As for South Korea, in the aftermath of North Korea's test, it halted humanitarian assistance. Food aid shipments from Seoul dropped from 400,000 in 2005 to 100,000 in 2006. However, overall trade between the Koreas jumped by 33% in the calendar year after Resolution 1718 was adopted. Much of this increased trade was due to the expansion of the Kaesong Industrial Complex (KIC), a facility in North Korea in which South Korean manufacturers employ North Korean workers. The North Korean government derives tens of millions of dollars from the complex, from rental fees and the portion of the workers' wages it collects. | The United Nations Security Council unanimously passed Res. 1874 on June 12, 2009, in response to North Korea's second nuclear test. The resolution puts in place a series of sanctions on North Korea's arms sales, luxury goods, and financial transactions related to its weapons programs, and calls upon states to inspect North Korean vessels suspected of carrying such shipments. The resolution does allow for shipments of food and nonmilitary goods. As was the case with an earlier U.N. resolution, 1718, that was passed in October 2006 after North Korea's first nuclear test, Resolution 1874 seeks to curb financial benefits that go to North Korea's regime and its weapons program. This report summarizes and analyzes Resolution 1874. In summary, the economic effect of Resolution 1874 is not likely to be great unless China cooperates extensively and goes beyond the requirements of the resolution and/or the specific financial sanctions cause a ripple effect that causes financial institutions to avoid being "tainted" by handling any DPRK transaction. On the surface, sanctions aimed solely at the Democratic People's Republic of Korea (DPRK, the official name of North Korea) and its prohibited activities are not likely to have a large monetary effect. Governments will have to interpret the financial sanctions ban of the resolution liberally in order to apply sanctions to the bank accounts of North Korean trading corporations. A key to its success will be the extent to which China, North Korea's most important economic partner, implements the resolution. A ban on luxury goods will only be effective if China begins to deny North Korea lucrative trade credits. Provisions for inspection of banned cargo on aircraft and sea vessels rely on the acquiescence of the shipping state. In the case of North Korean vessels, it is highly unlikely that they would submit to searches. Resolution 1874 is vague about how its air cargo provisions are to be implemented, in contrast to the specific procedures set forth regarding inspecting sea-borne cargo. While procedures are specified for sea interdictions, the authority given is ambiguous and optional. Further, DPRK trade in small arms and ammunition is relatively insignificant, and therefore the ban on those exports is unlikely to have a great impact. Other CRS Reports may be useful in conducting research on this issue: CRS Report RL30613, North Korea: Terrorism List Removal, by [author name scrubbed]; CRS Report RL33590, North Korea's Nuclear Weapons Development and Diplomacy, by [author name scrubbed]; CRS Report R40095, Foreign Assistance to North Korea, by [author name scrubbed] and Mary Beth NikitinCRS Report RL32493, North Korea: Economic Leverage and Policy Analysis, by [author name scrubbed] and [author name scrubbed]; CRS Report RL33324, North Korean Counterfeiting of U.S. Currency, by [author name scrubbed]; CRS Report RL34256, North Korea's Nuclear Weapons: Technical Issues, by Mary Beth Nikitin; and CRS Report RL32097, Weapons of Mass Destruction Counterproliferation: Legal Issues for Ships and Aircraft, by [author name scrubbed]. |
Mentor-protégé programs are designed to assist small business development, focusing on enhancing the protégé's capacity to serve as either a prime contractor or a subcontractor in federal contracts. These programs typically seek to pair new businesses and more experienced businesses in mutually beneficial relationships. Protégés may receive financial, technical, or management assistance from mentors in obtaining and performing federal contracts or subcontracts, or serving as suppliers under such contracts or subcontracts, whereas mentors may receive credit toward subcontracting goals, reimbursement of certain expenses, or other incentives for assisting protégés. Four federal agencies have SBA-approved mentor-protégé programs: Department of Energy, Department of Homeland Security (DHS), National Aeronautics and Space Administration, and U.S. Small Business Administration (SBA). Two federal agencies have mentor-protégé programs that do not require SBA's approval because their programs are not covered by the Small Business Act: Department of Defense (DOD) and Federal Aviation Administration. Three federal agencies have mentor-protégé programs that, in 2018, were awaiting SBA's approval: Department of Health and Human Services, Department of Transportation, and Department of the Treasury. Mentor-protégé programs seek to assist small businesses in various ways. For example, the 8(a) Mentor-Protégé Program assists "small businesses owned and controlled by socially and economically disadvantaged individuals" participating in the SBA's Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) program) in obtaining and performing contracts with executive-branch agencies; the SBA's all small business Mentor-Protégé Program is "a government-wide mentor-protégé program for all small business concerns, consistent with the SBA's mentor-protégé program for participants in the SBA's 8(a) Business Development program." the DOD Mentor-Protégé Program assists various types of small businesses and other entities in performing as subcontractors or suppliers on DOD contracts; and other agency-specific mentor-protégé programs, such as that of the DHS, provide mentor firms incentives to subcontract agency prime contracts with small businesses. Congressional interest in small business mentor-protégé programs has increased in recent years, in part because of reports that large businesses serving as mentors have improperly received federal contracting assistance intended for small businesses. The SBA's suspension (and later reinstatement) of a mentor in the 8(a) Mentor-Protégé Program for possible fraud, as well as reports of other fraud in several of the SBA's contracting programs, has also contributed to congressional interest. During the 111 th Congress, P.L. 111-240 , the Small Business Jobs Act of 2010, authorized the SBA to establish mentor-protégé programs for small businesses owned and controlled by service-disabled veterans, small businesses owned and controlled by women, and small businesses located in a HUBZone "modeled" on the 8(a) Mentor-Protégé Program. P.L. 111-240 also required the Government Accountability Office (GAO) to assess the effectiveness of mentor-protégé programs generally. GAO's findings were reported on June 15, 2011. During the 112 th Congress, P.L. 112-239 , the National Defense Authorization Act for Fiscal Year 2013, authorized the SBA to establish a mentor-protégé program for "all" small businesses that is generally "identical" to the 8(a) Mentor-Protégé Program. In an effort to promote uniformity, the act, with some exceptions, prohibits agencies from carrying out mentor-protégé programs that have not been approved by the SBA. Based on the authority provided by these two laws, the SBA published a proposed rule in the Federal Register on February 5, 2015, "to establish a government-wide mentor-protégé program for all small business concerns, consistent with SBA's mentor-protégé program for participants in the SBA's 8(a) Business Development program in order to make the mentor-protégé rules for each of the programs as consistent as possible." The SBA decided that it would not implement additional mentor-protégé programs for service-disabled veteran-owned and -controlled small businesses, women-owned and -controlled small businesses, and HUBZone small businesses because they "would be necessarily included within any mentor-protégé program targeting all small business concerns." The SBA also announced that "having five separate small business mentor-protégé programs could become confusing to the public and procuring agencies and hard to implement by the SBA." The SBA estimated at that time that approximately 2,000 small businesses could become active in the proposed mentor-protégé program for small businesses. On July 25, 2016, the SBA published a final rule in the Federal Register establishing, effective August 24, 2016, the new, government-wide mentor-protégé program for all small businesses. The final rule also modified the SBA's 8(a) Mentor-Protégé Program in an effort to make the two programs as consistent as possible. As a result, 8(a) small businesses may participate in either program. The SBA began to accept applications for the all small business Mentor-Protégé Program on October 1, 2016. The SBA noted in the final rule that because its new small business mentor-protégé program will apply to all federal small business contracts and federal agencies, "conceivably other agency-specific mentor-protégé programs would not be needed." In recognition that one or more agency-specific mentor-protégé programs may be discontinued and that several of these programs provide incentives in the contract evaluation process to mentor firms that provide significant subcontracting work to their protégés, the SBA allows procuring agencies, in appropriate circumstances, to provide subcontracting incentives to mentor firms participating in its mentor-protégé programs as well. This report provides an overview of the federal government's various small business mentor-protégé programs. As is discussed below, while all these programs are intended to assist small businesses in performing as contractors, subcontractors, or suppliers on federal or federally funded contracts, the programs differ in their scope and operations. Table A-1 in the Appendix provides an overview of key differences among the programs. The SBA administers three mentor-protégé programs, one for firms participating in the 8(a) program, another for firms in its Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, and one for all small businesses. Amendments made to the Small Business Act in 1978 directed the SBA to develop a program to "assist" small businesses owned and controlled by socially and economically disadvantaged individuals that are eligible to receive contracts under Section 8(a) of the act ("8(a) small businesses") in performing these contracts. The SBA implemented this direction, in part, by establishing a mentor-protégé program on July 30, 1998, wherein mentors "enhance the capabilities" of 8(a) firms and "improve [their] ability to successfully compete for contracts" by providing various forms of assistance. Such assistance may include technical or management assistance; financial assistance in the form of equity investments or loans; subcontracts; trade education; and assistance in performing prime contracts with the government through joint venture agreements. Although the SBA was directed to establish this mentor-protégé program and SBA rules govern participation in the program, as discussed below, the 8(a) Mentor-Protégé Program is government-wide in the sense that firms in the program may enjoy the benefits of participation in it while performing the contracts of any federal agency. In fact, when agencies that do not have their own mentor-protégé programs, such as those discussed below, are involved, the 8(a) Mentor-Protégé Program may be referred to as if it were that agency's program. The SBA's 8(a) Mentor-Protégé Program is administered by the SBA's Office of Business Development. This makes it somewhat different from the agency-specific mentor-protégé programs, discussed later, which generally are the responsibility of the agency's Office of Small and Disadvantaged Business Utilization (OSDBU) and may involve coordination with agency contracting offices. As of February 27, 2018, there were 493 active 8(a) mentor-protégé agreements. SBA regulations govern various aspects of the 8(a) Mentor-Protégé Program, including who may qualify as a mentor or protégé, the content of written agreements between mentors and protégés, and the SBA's evaluation of the mentor-protégé relationship. Under these regulations, "Any [for profit] concern that demonstrates a commitment and the ability to assist developing 8(a) Participants may act as a mentor," including large firms, other small businesses, firms that have graduated from the 8(a) program, and other 8(a) firms that are in the "transitional stage," or final five years of the 8(a) program. Only firms approved by the SBA may serve as mentors, and SBA regulations require that each mentor (1) demonstrate that it "is capable of carrying out its responsibilities to assist the protégé firm under the proposed mentor-protégé agreement"; (2) possess "good character"; (3) not be debarred or suspended from government contracting; and (4) be able to "impart value to a protégé firm due to lessons learned and practical experienced gained because of the [8(a) program], or through its knowledge of general business operations and government contracting." Protégés, in turn, are required by SBA regulations to be small businesses "owned and controlled by socially and economically disadvantaged individuals" that are in good standing in the 8(a) program. Protégés must also qualify as small for the size standard corresponding to their primary (or, under specified circumstances, their secondary) North American Industry code and demonstrate how the business development assistance to be received through the mentor-protégé relationship would advance the goals and objectives set forth in their business plans. Initially, mentors could only have one protégé, and protégés could have only one mentor. However, these restrictions were removed effective March 14, 2011. SBA's regulations now provide that mentors are generally expected to have no more than one protégé at a time. However, mentors may have up to three protégés at one time provided that they can demonstrate that "the additional mentor/protégé relationship[s] will not adversely affect the development of either protégé firm." Protégés are also generally expected to have no more than one mentor at a time. However, protégés may, under specified circumstances, have two mentors. The SBA requires that mentors and protégés enter a written agreement, approved by the SBA's Associate Administrator for Business Development, which sets forth the protégé's needs and describes the assistance the mentor will provide. This agreement generally obligates the mentor to furnish assistance to the protégé for at least one year, although it does allow either mentor or protégé to terminate the agreement with 30 days' advance notice to the other party and the SBA. In addition, the agreement provides that the SBA will review the mentor-protégé agreement annually to determine whether to approve its continuation. The SBA's evaluation is based, in part, on the protégé's annual reports regarding its contacts with its mentor and the benefits it has received from the mentor-protégé relationship, including (1) all technical or management assistance the mentor has provided to the protégé; (2) all loans to or equity investments made by the mentor in the protégé; (3) all subcontracts awarded to the protégé by the mentor; and (4) all federal contracts awarded to a joint venture of the mentor and protégé. Unless rescinded in writing, the mentor-protégé agreement will automatically renew for another year. The term of a mentor-protégé agreement is limited to three years but may be extended for a second three-year period. Protégés may have two three-year mentor-protégé agreements with different mentors, and each agreement may be extended an additional three years provided the protégé has received, and will continue to receive, the agreed-upon business development assistance. The SBA may terminate the mentor-protégé agreement at any time if it determines that the protégé is not adequately benefiting from the relationship or that the parties are not complying with any of the agreement's terms or conditions. Participation in the 8(a) Mentor-Protégé Program is intended to benefit both mentors and protégés. Serving as a mentor to an 8(a) firm counts toward any subcontracting requirements to which the mentor firm may be subject under Section 8(d) of the Small Business Act. Section 8(d) requires that all federal contractors awarded a contract valued in excess of $700,000 ($1.5 million for construction contracts) that offers subcontracting possibilities agree to a "subcontracting plan" which ensures that small businesses have "the maximum practicable opportunity to participate in [contract] performance." In addition, in certain circumstances, mentors may form joint ventures with their protégés that are eligible to be awarded an 8(a) contract or another contract set aside for small businesses. Mentor firms and joint ventures involving mentor firms would otherwise generally be ineligible for such contracts because they would not qualify as "small" under the SBA regulations. Mentor firms may also acquire an equity interest of up to 40% in the protégé firm in order to help the protégé firm raise capital. Because mentor firms are not 8(a) participants, they would generally be prohibited from owning more than 10%-20% of an 8(a) firm. However, their participation in the 8(a) Mentor-Protégé Program permits them to acquire a larger ownership share. Protégés not only receive various forms of assistance from their mentors, but also may generally retain their status as "small businesses" while doing so. If they received similar assistance from entities other than their mentors, they could risk being found to be other than "small" because of how the SBA determines size. The SBA combines the gross income of the firm, or the number of its employees, with those of its "affiliates" when determining whether the firm is small, and the SBA could potentially find that firms are affiliates because of assistance such as that which mentors provide to protégés. However, SBA regulations provide that "[n]o determination of affiliation or control may be found between a protégé firm and its mentor based on the mentor-protégé agreement or any assistance provided pursuant to the agreement." The 8(a) Mentor-Protégé Program has been the subject of congressional and agency attention for a number of reasons, including reports of fraud in the program. In addition, in 2010, GAO reported that the "SBA did not maintain an accurate inventory of 8(a) Mentor-Protégé Program participant data, which limited the agency's ability to monitor these firms," and concluded that the "SBA has not been able to properly oversee this program." Legislation adopted during the 111 th Congress ( P.L. 111-240 ) required GAO to conduct a study of the 8(a) program and "other relationships and strategic alliances pairing a larger business and a small business concern" to gain access to federal contracts. The study's purpose was "to determine whether the programs and relationships are effectively supporting the goal of increasing the participation of small business concerns in government contracting." GAO's report was submitted to the House and Senate Committees on Small Business on June 15, 2011. In this report, GAO examined mentor-protégé programs in 13 federal agencies it identified as having a mentor-protégé program, including the SBA. It reported that most federal mentor-protégé programs had "similar policies and procedures," but that some differences exist. For example, GAO noted that "different agencies have varying guidance regarding the length of mentor-protégé agreements and whether protégés are allowed to have more than one mentor," and the "DOD mentor-protégé program is the only mentor-protégé program mandated by law and receiving appropriated funding." GAO also reported that "most agencies have policies and reporting requirements to help ensure that protégés are benefiting from participation in their mentor-protégé programs." However, it found that only DOD, the National Aeronautics and Space Administration, and the U.S. Agency for International Development "have policies in place to collect information on protégé progress after the mentor-protégé agreements have terminated." GAO recommended that all of the agencies it examined "consider collecting and maintaining protégé post-completion information" because that information "could be used to help [the agencies] further assess the success of their programs and help ensure that small businesses are benefiting from participation in the programs as intended." Prior to the release of GAO's report, the SBA announced, on February 11, 2011, revisions to its regulations pertaining to the 8(a) program. Among the changes, which took effect on March 14, 2011, are some pertaining to the 8(a) Mentor-Protégé Program. These changes required that assistance provided through the mentor-protégé relationship be tied to the protégé's SBA-approved business plan; allowed mentors to have up to three protégés; allowed firms seeking to become mentors to submit audited financial statements or other evidence to demonstrate their "favorable financial health" (this provision was revised in 2016); explicitly recognized nonprofits as potential mentors (this provision was eliminated in 2016); permitted protégés to have a second mentor in certain circumstances; prohibited SBA from approving a mentor-protégé agreement if the proposed protégé has less than six months remaining in its term in the 8(a) program (this provision was eliminated in 2016); permitted firms to request reconsideration of SBA's denial of a proposed mentor-protégé agreement; required firms whose proposed mentor-protégé agreement is rejected to wait at least 60 calendar days before submitting a new mentor-protégé agreement with the same proposed mentor; authorized SBA to recommend the issuance of a "stop work" order on any executive branch contract performed by a mentor-protégé joint venture when it determines that the mentor has not provided the protégé with the development assistance set forth in the mentor-protégé agreement; and prohibited mentors who are terminated for failure to provide assistance under their mentor-protégé agreement from serving as a mentor for two years. The SBA also made several changes to the regulations governing joint ventures between 8(a) mentors and protégés to ensure that "non-sophisticated 8(a) firms" are not "taken advantage of by certain non-8(a) joint venture partners." Specifically, the SBA now requires that (1) the 8(a) firm receive profits from the joint venture commensurate with the work it performs; (2) the 8(a) firm perform at least 40% of the work done by the joint venture; and (3) each 8(a) firm that performs an 8(a) contract through a joint venture report to the SBA how it performed the required percentages of the work (i.e., how the joint venture performed at least 50% of the work of the contract, as well as how the 8(a) participant to the joint venture performed at least 40% of the work done by the joint venture). Further, under the amended regulations, non-8(a) firms that form joint ventures with 8(a) firms to perform sole-source contracts in excess of $4 million ($7.0 million for manufacturing contracts) are generally prohibited from serving as subcontractors (at any tier) on the contract. However, this latter provision is arguably most relevant to joint ventures involving 8(a) firms owned by Alaska Native Corporations or other entities which, until recently, were eligible for sole-source awards of any amount without any justifications or approvals required from the procuring agency. In addition, the final rule establishing the new SBA small business mentor-protégé program amended the current joint venture provisions to clarify the conditions for creating and operating joint venture partnerships. P.L. 112-239 also sought to reduce the variation that GAO found among agency-specific mentor-protégé programs by requiring that any such programs be approved by the SBA pursuant to regulations, "which shall ensure that such programs improve the ability of protégés to compete for Federal prime contracts and subcontracts." The SBA administrator was required to issue regulations with respect to mentor-protégé programs not later than 270 days after the bill's enactment, which was January 2, 2013 (the regulations were issued on July 25, 2016). At a minimum, these regulations must address 10 criteria, including (1) eligibility for program participants, (2) the types of developmental assistance provided to protégés, (3) the length of mentor-protégé relationships, (4) the benefits that may accrue to the mentor as a result of program participation, and (5) the reporting requirements during and following program participation. DOD's Mentor-Protégé Program and mentoring assistance under the Small Business Innovation Research Program and the Small Business Technology Transfer Program are exempt from the approval process. Effective August 24, 2016, federal agencies (other than DOD and the two exempt programs) were provided a year to submit a plan to the SBA Administrator for approval to continue a previously existing mentor-protégé program. Approval is contingent on whether the proposed program will assist protégés to compete for federal prime contracts and subcontracts and whether it complies with the rules and regulations of the SBA's mentor-protégé programs (as set forth in 13 C.F.R. §§125.9 and 124.520). As mentioned previously, four federal agencies currently have SBA-approved mentor-protégé programs (Department of Energy, Department of Homeland Security, National Aeronautics and Space Administration, and the SBA); two federal agencies have mentor-protégé programs that do not require SBA's approval because their programs are not covered by the Small Business Act (DOD and the Federal Aviation Administration); and three federal agencies have mentor-protégé programs that, in 2018, were awaiting the SBA's approval (Department of Health and Human Services, Department of Transportation, and Department of the Treasury). In addition, before starting a new mentor-protégé program, agency heads must submit a plan and receive the SBA Administrator's approval. Agencies sponsoring an agency-specific mentor-protégé program must report annually to the SBA specific information, such as the number and type of small business participants, the assistance provided, and the protégés' progress in competing for federal contracts. In 2000, Congress amended the Small Business Act by directing the SBA Administrator to establish the Federal and State Technology (FAST) Partnership Program in order to "strengthen the technological competitiveness of small business concerns in the States" by providing a wide range of assistance, including mentoring. Congress further authorized SBA to make grants and enter cooperative agreements with states and state-endorsed nonprofit organizations as part of the FAST program so as to enhance outreach, financial support, and technical assistance to technology-based small business concerns participating in or interested in participating in an SBIR program, including initiatives … to establish or operate a Mentoring Network within the FAST program to provide business advice and counseling that will assist small business concerns that have been identified by FAST program participants, program managers of participating SBIR agencies, the [SBA], or other entities that are knowledgeable about the SBIR and STTR program as good candidates for the SBIR and STTR programs, and that would benefit from mentoring. Such mentoring networks are to (1) provide business advice and counseling; (2) identify volunteer mentors to guide small businesses in proposal writing, marketing, etc.; (3) have experience working with small businesses participating in the SBIR and STTR programs; and (4) agree to reimburse volunteer mentors for out-of-pocket expenses related to service as a mentor. In FY2018, the SBA awarded 24 FAST partnership awards of $125,000 each to state and local economic development entities, small business technology development centers, women's business centers, incubators, accelerators, colleges, and universities. The program received an appropriation of $2 million each year from FY2010 to FY2015 and $3 million each year from FY2016 to FY2018. During the 114 th Congress, P.L. 114-88 , the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE After Disaster Act), directed the SBA Administrator to provide special consideration to a FAST applicant that is located in an area affected by a catastrophic incident. During the 115 th Congress, the Trump Administration recommended that funding for the FAST program be eliminated. The SBA's all small business mentor-protégé program is generally required to be "identical" to the SBA's 8(a) Mentor-Protégé Program, except that the SBA may make modifications to the extent necessary given the types of small businesses included in the program as protégés. For example, among other things, the small businesses mentor-protégé program requires a protégé to qualify as small for the size standard corresponding to its primary (or, under specified circumstances, its secondary) NAICS code. The 8(a) Mentor-Protégé Program also requires protégés to be small businesses unconditionally owned and controlled by socially and economically disadvantaged individuals, to demonstrate potential for success, and to be eligible to receive contracts under Section 8(a) of the Small Business Act. The SBA initially proposed to permit only firms that have been affirmatively determined by the SBA to be small to qualify as protégés for the small business mentor-protégé program because small businesses in the 8(a) program are certified as being small by the SBA. However, given the expected volume of applications for the small business mentor-protégé program, the SBA decided in the final rule to allow applicants to the new program to self-certify as small. The SBA will rely on size protest procedures to prevent ineligible businesses from unduly benefitting from its mentor-protégé relationship under the new program. In addition, the SBA's Office of Business Development administers the 8(a) Mentor-Protégé Program. Given that "the volume of firms seeking mentor-protégé relationships [under the new small business mentor-protégé program] could excessively delay SBA's processing of applications," the SBA decided, after considering various options, "to establish a separate unit within the Office of Business Development whose sole function [is] to process mentor-protégé applications and review the MPAs [mentor-protégé agreements] and the assistance provided under them once approved." The SBA indicated that "the efficiencies gained by having a dedicated staff for the small business mentor-protégé program will allow SBA to timely process applications … and [reduce] the need for open and closed enrollment periods." As of December 1, 2018, there were 644 active all small business mentor-protégé agreements. Congress authorized a pilot mentor-protégé program for DOD in 1990. The program's purposes are to (1) enhance the capabilities of disadvantaged small business concerns to perform as subcontractors and suppliers under Department of Defense contracts and other contracts and subcontracts; and (2) increase the participation of such business concerns as subcontractors and suppliers under Department of Defense contracts, other Federal Government contracts, and commercial contracts. DOD's Mentor-Protégé Program began on October 1, 1991, and was the first federal mentor-protégé program to become operational. Originally scheduled to expire in 1994, it has been repeatedly extended, most recently through FY2018 for the formation of new agreements, and FY2021 for the reimbursement of incurred costs under existing agreements. DOD's Mentor-Protégé Program differs from the SBA's 8(a) Mentor-Protégé Program and all small business Mentor-Protégé Program in that its primary focus is upon small businesses performing subcontracts and as suppliers on federal contracts, not upon small businesses performing federal contracts. In addition, mentors in the DOD program may provide assistance to their protégés that is somewhat different than that which mentors may provide to protégés in the 8(a) and new small business mentor-protégé programs. Notably, such assistance may include advance payments, which federal agencies are generally prohibited from making, and progress payments, which are generally discouraged under federal procurement law. Mentors may also (1) award subcontracts on a noncompetitive basis to their protégés even if they are otherwise subject to "competition in subcontracting" requirements; (2) make investments in protégé firms in exchange for an ownership interest in the firm (not to exceed 10% of the total ownership interest): (3) lend money; and (4) provide assistance in general business management, engineering and technical matters, etc. Mentor firms are prime contractors with at least one active subcontracting plan negotiated as required under Section 8(d) of the Small Business Act, or under the DOD Comprehensive Subcontracting Test Program. Initially, only small businesses owned and controlled by socially and economically disadvantaged individuals could qualify as protégés. However, the listing of eligible protégés was later expanded to include (1) businesses owned and controlled by Indian tribes or Alaska Native Corporations; (2) businesses owned and controlled by Native Hawaiian Organizations; (3) qualified organizations employing "severely disabled individuals"; (4) women-owned small businesses; (5) service-disabled veteran-owned small businesses; and (6) Historically Underutilized Business Zone (HUBZone) small businesses. Mentors generally may rely in good faith on their protégés' written representations that they are eligible. Under DOD regulations, mentors' participation in the program must be approved by DOD. While protégés are selected by the mentor, the SBA may, at any time, determine that a protégé is ineligible. Each mentor is allowed to have multiple protégés, but each protégé may have only one mentor at any time. As of January 1, 2018, there were 63 active mentor-protégé agreements involving 39 mentors and 63 protégés. One mentor had seven protégés, 1 mentor had 6 protégés, 1 mentor had 5 protégés, 2 mentors had 3 protégés, 5 mentors had 2 protégés, and 29 mentors had one protégé. Mentors and protégés are required, by regulation, to enter into an agreement establishing a developmental assistance program for the protégé. The agreement is to include (1) the type(s) of assistance the mentor will provide and how the protégé will benefit; (2) factors for assessing the protégé's progress; (3) an estimate of the dollar value and types of subcontracts to be awarded to the protégé; (4) a program participation term of up to three years; (5) procedures whereby the mentor or protégé may withdraw from the program on 30 days' advance notice; and (6) procedures for the mentor firm to terminate the mentor-protégé agreement for cause. DOD generally requires that this agreement be approved before the mentor incurs any costs. The mentor firm is responsible for making semiannual reports on progress during the term of the agreement, while the protégé is required to provide data on its progress at the end of each fiscal year during the term of the agreement, and for each of the two fiscal years following the agreement's expiration. In addition, the Defense Contract Management Agency (DCMA) is to conduct annual performance reviews of all mentor-protégé agreements, and determinations made in these reviews "should" be a major factor in determining the amount, if any, of reimbursement the mentor firm is eligible to receive in the remaining years of the program participation term under the agreement. Among the benefits that the DOD program provides for mentors are (1) reimbursement of specified assistance costs and (2) credit for unreimbursed costs toward applicable subcontracting goals. DOD and the mentor firm may agree that DOD will reimburse the mentor for certain advance payments or progress payments made to assist protégé firms in performing a subcontract or supplying goods or services under a contract. Alternatively, DOD may credit toward the mentor's subcontracting plan an amount equivalent to the amount of unreimbursed assistance that the mentor provides to its protégé(s). For example, if a contractor provides $10,000 in developmental assistance to its protégé, this $10,000 could count as if it were a $10,000 subcontract awarded to a small business. P.L. 114-92 , the National Defense Authorization Act for FY2016, extended the DOD Mentor-Protégé Program through FY2018 for the formation of new agreements and through FY2021 for the reimbursement of incurred costs under existing agreements. The act also changed eligibility requirements so that protégés can participate in the program only during the five-year period beginning on the date they enter into their first DOD mentor-protégé agreement; must be less than half the SBA size standard assigned to its corresponding NAICS code; and must either be a nontraditional defense contractor or currently provide goods or services in the private sector that are critical to enhancing the capabilities of the defense supplier base and fulfilling key DOD needs. These changes were designed to better align DOD's Mentor-Protégé Program's eligibility requirements with those of the SBA's 8(a) Mentor-Protégé Program (as they were at that time) and to further ensure that DOD's program focused on providing assistance to mentors and protégés that were meeting key DOD needs. The act also specified that the mentor must not be affiliated with the protégé firm prior to the approval of the mentor-protégé agreement; disallowed reimbursement for business-development activities and explicitly stated that DOD "may not reimburse any fee assessed by the mentor firm for services provided to the protégé firm pursuant to subsection (f)(6) [assistance from small business development centers, entities providing procurement technical assistance or a historically black college or university or a minority institution of higher education] or for business development expenses incurred by the mentor firm under a contract awarded to the mentor firm while participating in a joint venture with the protégé firm"; and added reporting requirements for mentor firms and review requirements for DOD's Office of Small Business Programs. These changes were designed to ensure that DOD "was not paying mentors to help protégés bid on contracts the protégé would have bid on in any case ... and to stop reimbursing mentors for sending their protégés to obtain assistance from other federal funded resources." Previously, in 2007, GAO conducted an analysis of this program. As part of its analysis, GAO administered a web-based survey of former DOD protégé firms and received responses from 48 of the 76 protégé firms that completed or left the program during FY2004 and FY2005. GAO concluded that most former protégé firms valued their experience in the DOD program, with 93% of respondents reporting that their participation enhanced, at least to some degree, their firm's overall capabilities; 87% of respondents reporting that support from their mentors helped their business development; and about 84% of respondents reporting that mentor support helped their engineering or technical expertise. In addition, 71% of protégés responding to the survey reported that they "were at least generally satisfied with their experience with the program, with their reasons ranging from enhanced capabilities and heightened exposure in the marketplace, to quantifiable business growth." However, about 15% of protégés reported dissatisfaction with their participation in the program, and about 21% reported that they did not receive the level of mentoring that they had anticipated. DOD has provided $401.4 million to mentor firms since the program's inception through FY2017. DOD provided $28.3 million to mentor firms in FY2016 and $23.2 million in FY2017. It anticipated that it would provide $33.5 million in FY2018, and it expects to provide $29.8 million in FY2019. Other agencies, like DHS, have established independent mentor-protégé programs to encourage their large prime contractors to work with small business subcontractors when performing agency contracts. Because these programs are not based in statute, unlike the SBA and DOD programs discussed above, they generally rely upon existing authorities (e.g., authorizing use of evaluation factors) or publicity to incentivize mentor participation. Such programs generally supplement the 8(a) Mentor-Protégé Program, in that firms in the 8(a) program may also participate in agency-specific programs. However, small businesses that are not 8(a) firms and other entities may also be eligible to participate. DHS's Mentor-Protégé Program is discussed here as a representative example of such programs. Several other agencies have similar programs, which are described in Table 1 . Note that while this report describes these programs as they presently exist, certain changes may be made to these programs in light of the requirements of the National Defense Authorization Act for FY2013 ( P.L. 112-239 ). This legislation generally requires that agency-specific mentor-protégé programs be approved by the SBA pursuant to regulations that would require such programs to address, among other things, (1) eligibility for program participants, (2) the types of developmental assistance provided to protégés, (3) the length of mentor-protégé relationships, (4) the benefits that may accrue to the mentor as a result of program participation, and (5) the reporting requirements during and following program participation. DHS established its mentor-protégé program in 2003 to "motivate and encourage large business prime contractor firms to provide mutually beneficial developmental assistance" to small businesses. Mentor firms may provide various types of assistance to their protégés, including temporary assignment of personnel to the protégé firm for the purpose of training, rent-free use of facilities or equipment, overall business management/planning, financial and organizational management, business development, technical assistance, property, loans, and other types of assistance. As of August 1, 2018, DHS had 44 active mentor-protégé agreements involving 36 mentors and 43 protégés. One mentor had 3 protégés, 6 mentors had 2 protégés, and 29 mentors had 1 protégé. The DHS program does not receive a separate funding appropriation. Mentors are "large prime contractors capable of providing developmental assistance." Protégé firms can be small businesses, veteran-owned small businesses, service-disabled veteran-owned small businesses, HUBZone small businesses, "small disadvantaged businesses," and women-owned small businesses. Although mentors and protégés apparently do not need to be approved by DHS, they are required, by regulation, to have their mentor-protégé agreement approved by the DHS Office of Small and Disadvantaged Business Utilization (OSDBU). This mentor-protégé agreement is evaluated on the extent to which the mentor plans to provide developmental assistance. If accepted into the program, the mentor-protégé relationship generally lasts for 36 months. The mentor and protégé are required to submit a jointly written mid-term progress report at 18 months, and, at the end of the 36 months, the mentor and protégé are required to submit a final report and complete a "lessons learned" evaluation separately. Protégés are also required to submit a post-award report annually for two years. Participation as a mentor in the DHS Mentor-Protégé Program may serve as a source selection factor or subfactor in certain negotiated procurements, potentially giving mentor firms an advantage over nonmentors and, thereby, encouraging firms to become mentors. In addition, mentors may credit costs incurred in providing assistance to their protégés toward their goals for subcontracting with small businesses. Mentors are also eligible for an annual award presented by DHS to the firm providing the most effective developmental support to a protégé. Department of Transportation (DOT) regulations authorize recipients of certain federal transportation funding to establish mentor-protégé programs "in which another [disadvantaged business enterprise (DBE)] or non-DBE firm is the principal source of business development assistance to a DBE firm." These programs are designed "to further the development of DBEs, including but not limited to assisting them to move into nontraditional areas of work or compete in the marketplace outside the DBE program, via the provision of training and assistance." For example, mentors in the Ohio Department of Transportation Mentor/Protégé Program may assist protégés by (1) setting targets for improvement; (2) setting time tables for meeting those targets; (3) assisting with the protégé's business strategies; (4) assisting in evaluating outcomes; (5) assisting in developing protégés' business plans; (6) regularly reviewing protégés' business and action plans; and (7) monitoring protégés' key business indicators, including their cash flow, work in progress, and recent bids. Those in the Illinois Department of Transportation Mentor-Protégé Program similarly may provide training and development, technical and management assistance, personnel, financial assistance, and equipment to their protégés. According to DOT, data concerning the number and performance of DBE mentor-protégé agreements are retained at the state level and are not reported to the DOT. The DOT program does not receive a separate funding appropriation. DOT is seeking SBA-approval for its mentor-protégé programs. DBEs may participate in DOT mentor-protégé programs as either mentors or protégés. However, under DOT regulations, all DBEs involved in a mentor-protégé agreement must be independent business entities that meet the requirements for certification as a DBE. These regulations also require that firms be certified before participating as a protégé in a mentor-protégé arrangement. The relationship between mentor and protégé is based on a written development plan, approved by the recipient of the DOT funding, "which clearly sets forth the objectives of the parties and their respective roles, the duration of the arrangement and the services and resources to be provided by the mentor to the protégé." The formal mentor-protégé agreement may establish a fee schedule to cover the direct and indirect cost of services provided by the mentor to the protégé. Services provided by the mentor may be reimbursable if these services and any associated costs are "directly attributable and properly allowable." Mentor firms may generally count the amount of assistance they provide to their protégés toward their goals for contracting or subcontracting with DBEs. However, under DOT regulations, a non-DBE mentor firm cannot receive credit for meeting more than half of its goal on any contract by using its own protégé. These regulations also prohibit a non-DBE mentor firm from receiving DBE credit for using its own protégé on more than every other contract performed by the protégé. For example, if Mentor Firm X uses Protégé Firm Y to perform a subcontract, Mentor Firm X cannot get DBE credit for using Protégé Firm Y on another subcontract until Protégé Firm Y first works on an intervening prime contract or subcontract with a different prime contractor. There are no comparable restrictions for other mentor-protégé programs. Congressional interest in small business mentor-protégé programs has increased in recent years for a variety of reasons, including reports that these programs are being used by large businesses to perform federal contracts, in violation of small business procurement laws and regulations and contrary to the intent of the mentor-protégé programs. The SBA's suspension (and later reinstatement) of a mentor in the 8(a) Mentor-Protégé Program for fraud, as well as reports of fraud in several of the SBA's contracting programs, has also contributed to congressional interest. In addition, GAO found in 2011 that the SBA "has not been able to properly oversee [the 8(a) mentor-protégé] program," and the SBA issued new regulations for the 8(a) program generally, and for the 8(a) Mentor-Protégé Program in particular, to better ensure that its benefits "flow to the intended recipients" and "help prevent waste, fraud and abuse." GAO has also recommended that federal agencies collect and maintain protégé post-completion information "to help ensure that small businesses are benefiting from participation in the programs as intended." Given these developments, and SBA's recent addition of a mentor-protégé program for non-8(a) small businesses, it seems likely that mentor-protégé programs will remain subject to congressional oversight or proposed legislation during the 115 th Congress. Effective August 24, 2016, federal agencies sponsoring an agency-specific mentor-protégé program must report annually to the SBA specific information, such as the number and type of small business participants, the assistance provided, and the protégés' progress in competing for federal contracts. This information could prove useful to Congress as it conducts oversight of these programs. In addition, Congress could specify additional information that the SBA, and other federal agencies, must maintain and report annually to Congress concerning their mentor-protégé programs. For example, DOD has historically been required to report the following information regarding its mentor-protégé program: (1) the number of mentor-protégé agreements entered into during the fiscal year; (2) the number of mentor-protégé agreements in effect during the fiscal year; (3) the total amount reimbursed to mentor firms during the fiscal year; (4) each mentor-protégé agreement, if any, approved during the fiscal year that provided a program participation term in excess of three years, together with the justification for the approval; (5) each reimbursement of a mentor firm in excess of the program's limits made during the fiscal year, together with the justification for the approval; and (6) trends in the progress made in employment, revenues, and participation in agency contracts by protégé firms participating in the program during the fiscal year and protégé firms that completed or otherwise terminated participation in the program during the preceding two fiscal years. | Mentor-protégé programs typically seek to pair new businesses with more experienced businesses in mutually beneficial relationships. Protégés may receive financial, technical, or management assistance from mentors in obtaining and performing federal contracts or subcontracts, or serving as suppliers under such contracts or subcontracts. Mentors may receive credit toward subcontracting goals, reimbursement of certain expenses, or other incentives. The federal government currently has several mentor-protégé programs to assist small businesses in various ways. For example, the 8(a) Mentor-Protégé Program is a government-wide program designed to assist small businesses "owned and controlled by socially and economically disadvantaged individuals" participating in the Small Business Administration's (SBA's) Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) program) in obtaining and performing federal contracts. Toward that end, mentors may (1) form joint ventures with protégés that are eligible to perform federal contracts set aside for small businesses; (2) make certain equity investments in protégé firms; (3) lend or subcontract to protégé firms; and (4) provide technical or management assistance to their protégés. The Department of Defense (DOD) Mentor-Protégé Program, in contrast, is agency-specific. It is designed to assist various types of small businesses and other entities in obtaining and performing DOD subcontracts and serving as suppliers on DOD contracts. Mentors may (1) make advance or progress payments to their protégés that DOD reimburses; (2) award subcontracts to their protégés on a noncompetitive basis when they would not otherwise be able to do so; (3) lend money to or make investments in protégé firms; and (4) provide or arrange for other assistance. Other agencies also have agency-specific mentor-protégé programs designed to assist various types of small businesses or other entities in obtaining and performing subcontracts under agency prime contracts. The Department of Homeland Security (DHS), for example, has a mentor-protégé program wherein mentors may provide protégés with rent-free use of facilities or equipment, temporary personnel for training, property, loans, or other assistance. Because these programs are not based in statute, unlike the SBA and DOD programs, they generally rely upon preexisting authorities (e.g., authorizing use of evaluation factors) or publicity to incentivize mentor participation. See Table A-1 for a summary comparison. P.L. 111-240, the Small Business Jobs Act of 2010, authorized the SBA to establish mentor-protégé programs for small businesses owned and controlled by service-disabled veterans, small businesses owned and controlled by women, and small businesses located in a HUBZone. P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013, authorized the SBA to establish a mentor-protégé program for all small businesses, and generally prohibits agencies from carrying out mentor-protégé programs that have not been approved by the SBA. Based on the authority provided by these two laws, the SBA published a final rule in the Federal Register on July 25, 2016, modifying the 8(a) Mentor-Protégé Program and establishing, effective August 24, 2016, "a government-wide mentor-protégé program for all small business concerns, consistent with the SBA's mentor-protégé program for participants in the SBA's 8(a) Business Development program." The all small business Mentor-Protégé Program began accepting applications on October 1, 2016. The SBA noted in the final rule that because the new all small business mentor-protégé program applies to all federal small business contracts and federal agencies, "conceivably other agency-specific mentor-protégé programs would not be needed." Since then, several federal agencies have ended their mentor-protégé programs and encouraged interested parties to consider the SBA's all small business Mentor-Protégé program. |
Policymaking at the federal level reflects a growing awareness that improving educational outcomes depends greatly upon increasing the quality of classroom instruction. In establishing the student performance standards and accountability provisions in the No Child Left Behind Act of 2001 (NCLB, P.L. 107-110 ), legislators recognized that the success of these reforms rests largely on improving teachers' knowledge and skills. Thus, in enacting NCLB, Congress amended the Elementary and Secondary Education Act (ESEA) to establish a requirement that all teachers be highly qualified and authorized the Title II, Teacher and Principal Training and Recruiting Fund to assist schools' efforts to meet this new requirement. More recently, Congress enacted additional programs to improve the teacher workforce including the Teacher Incentive Fund (TIF), Teacher Education Assistance for College and Higher Education (TEACH) Grants, and amendments to the Higher Education Act (HEA). The NCLB highly qualified teacher requirement has now been the cornerstone of federal teacher policy for nearly a decade. In that time, the requirement has come to be seen by many as a minimum standard for entry into the profession (rather than a goal to which teachers might aspire) and a growing body of research has revealed its underlying credentials to be weakly correlated with student achievement. Meanwhile, congressional interest has begun to shift from a focus on teacher input (i.e., quality) to teacher output (i.e., effectiveness). Congress passed provisions in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ) which required states applying for State Fiscal Stabilization Funds to provide assurances that they will take actions to improve teacher effectiveness. The Secretary of Education used ARRA authority to encourage states to better link student achievement and teacher effectiveness. The Secretary also promoted teacher effectiveness with an ESEA flexibility package that makes available waivers exempting states from certain NCLB accountability provisions, but requires the adoption of teacher evaluation policies. Congress is currently considering ESEA reauthorization proposals. Further, policy makers at all levels are considering how such issues as teacher compensation, licensure or certification, and tenure may relate to teacher performance in the classroom. The authorization for ESEA programs expired at the end of FY2008; however, these programs continue to operate as long as appropriations are provided. The 113 th Congress is likely to consider whether to amend and extend the ESEA. This report provides background information for the legislative debates likely to occur if Congress considers these programs and issues. The first part of this report gives a brief overview of the context in which federal teacher policy is situated, including such issues as the demographics of the teaching workforce, supply and demand, attrition and retention, compensation systems, certification/licensure policies, tenure rules, and unionization. The second part of this report describes the evolving federal role in teacher policy. Part three describes the major federal programs designed to support the quality and effectiveness of teachers, including Title II of the ESEA, TIF, TEACH Grants, and Title II of the HEA. The final part of this report discusses policy changes and ESEA reauthorization issues that might be considered by Congress. The organization and size of the public K-12 educational enterprise pose a significant challenge to formulating federal teacher policy. Nationwide, nearly 4 million teachers are employed in almost 100,000 public schools located in about 14,000 school districts. This is a decentralized system; states and localities have legal and administrative responsibility for K-12 education. School districts control most of the major aspects of this system, including the recruitment, hiring, evaluation, professional development, compensation, and retention of teachers. Some aspects of the system—like certification procedures and tenure rules—are dictated at the state level. Pre-service teacher preparation and in-service training often take place at higher education institutions. Teacher assignments and evaluations are often the domain of schools. This section discusses how these factors shape the teacher policy context. The elementary and secondary teaching force is large. There are just under 3.9 million public school teachers in the United States. Of these teachers, 2.4 million are elementary school teachers, 1.2 million are secondary school teachers, and the remaining teachers (slightly more than 358,000) teach in settings that are a combination of the two. The teaching workforce is split about evenly between urban schools (1.1 million teachers), suburban schools (1.4 million), and rural or small town schools (1.4 million). Over three-fourths (76%) of K-12 teachers are female. For teachers whose main field of assignment is in kindergarten or general elementary education, nearly 9 out of 10 are female; compared to 6 out of 10 in secondary schools. The large majority (84%) of the teaching force is white, while 7% of teachers are black, 7% are Hispanic, slightly more than 1% are Asian or Pacific Islander, and less than 1% are American Indian, Alaskan Native, Native Hawaiian, or other Pacific Islander. The teaching workforce is aging. The average age of school teachers is 43; an increase of three years over the last two decades. One-third (33%) of teachers are age 50 or older; compared to 25% in 1993-1994 and 18% in 1987-1988. On average, school teachers have 13 years of teaching experience; over a third (37%) have 15 or more years of experience and 20% have taught 15 or more years in their current school . Nearly two-fifths (19%) have less than four years of teaching experience and over a third (36%) have been in their current school less than four years. The impending retirement of Baby Boom generation teachers who made lifelong commitments to education may pose both challenges and opportunities for teacher policy. There are those who warn of a potential shortage of teachers in the coming years, precipitated by projected increases in student enrollment and an anticipated rise in teacher retirements. Public school enrollment increased 12% between 1993 and 2006 and is expected to continue to grow, at a slightly lower rate, to be about 8% larger by 2018. Further, the average age of public school teachers has risen and, as more teachers are eligible to retire, it is anticipated that the attrition rate will increase over time. Between 1998 and 2008, "annual attrition from the teaching force rose by 41 percent, from 6.4 percent to 9 percent." Some estimate that the nation may lose as much as half of its teachers to retirement over the next decade. Others question the possibility or existence of an overall teacher shortage. One of the primary reasons is that the supply side of the equation is particularly difficult to quantify. More than half of all newly hired teachers are former teachers returning to the classroom after taking some time away from the profession and about a quarter are delayed entrants who had prepared to teach at some earlier point but did not enter teaching directly. It is very difficult to estimate the size of this latter group, the so-called reserve pool of teachers who either delay entry or return after a time away. Roughly two-out-of-five (41%) teachers are delayed entrants (i.e., they started teaching between one and four years after receiving their bachelor's degree). About 100,000 bachelor's degrees in education are awarded each year. Research suggests that as many as one-half of these graduates do not teach their first year out of school and the oversupply of teachers at the elementary level may be even greater. Another reason why the notion of a systemic teacher shortage may be misguided is that much of the demand for teachers results from teacher turnover; especially at so-called hard-to-staff schools and subjects. This turnover has more to do with failure to retain newly hired teachers as opposed to retirements. Some schools have such low teacher retention that most of the demand and hiring is simply to replace teachers recently departed from their positions. While it is true that teacher retirements are increasing, the overall volume of turnover due to retirement is relatively minor when compared with that resulting from other causes, such as teacher job dissatisfaction and teachers seeking to pursue better jobs or other careers. At the end of the 2008-2009 school year, roughly 526,000 (roughly 16% of all) public school teachers left the school where they had been teaching; about 256,000 transferred to a different school and about 270,000 left teaching. Teacher certification or licensure is a state function. A license to teach typically means that the holder has met at least minimal standards set by the state and is, thereby, permitted to teach. The educational, experiential, testing, and other requirements for licensure vary from state to state. Often, the licensing process in a state includes a provisional license good for a limited number of years and granted to an individual who has completed an approved teacher education program and attained passing scores on an examination given to teacher candidates. This license is usually succeeded by a longer term license awarded, perhaps, for successful completion of the initial entry period of teaching and attainment of additional education. In addition to regular licenses, many states grant "intern" and "limited" licenses in order to fill vacancies quickly. These temporary licenses may be granted with an expectation that the holder will make progress to full certification through so-called alternative routes . Initiatives such as Teach for America, Inc. and IBM's Transition to Teaching program provide an additional means for bringing non-traditional teaching candidates (e.g., recently graduated, non-education majors and individuals seeking to change careers) into teaching in a structured fashion. One analysis estimates that as many as 40% of current teachers entered the profession through a nontraditional or alternative route. The hiring process for teachers is usually handled by districts' human resources departments, although some districts give schools a greater role in the process than others. Most districts conduct the entire hiring and placement process. Less often, but perhaps increasingly, human resource departments may simply review applicants' background and credentials and leave the rest up to schools. That is, once applicants clear the initial district screening process, a school-based hiring committee may conduct interviews and choose candidates to offer employment. In general, research has shown that, "most new teachers actually have limited interactions with school-based personnel during the hiring process." School assignment is typically subject to district staffing rules concerning teacher seniority, often instituted through collective bargaining. Under these rules, tenured teachers with the most seniority are typically given priority in staffing decisions. Research has shown that teachers use "their seniority to move to schools with higher test scores, lower poverty rates, and fewer black and Hispanic students. As a result, high-poverty, low-performing schools had the highest rates of turnover, and inexperienced teachers who [lack] the seniority to request transfers, or teachers who [lack] full certification, were typically assigned to fill vacancies in them." Research suggests that this uneven distribution of teachers by experience also leads to "hidden" funding inequities across schools in a district. Teacher seniority systems "can sharply curtail school principals' control over staff hiring, transfer, and firing decisions" and even prompt some principals to hide their vacancies until late summer to avoid the possibility of being forced to accept unwanted transfers. Responsibility for teacher evaluation is generally given to school administration. The process of evaluation is often laid out in collective bargaining agreements in states that have teacher unions or associations; however, these policies often lack detail on local approaches to evaluation. For example, a study of evaluation policies in Midwestern states found that "policy documents were more apt to specify the processes involved in teacher evaluation (who conducts the evaluation, when, and how often) than they were to provide guidance for the content of the evaluation, the standards by which the evaluation would be conducted, or the use of the evaluation results." Typically, provisional, nontenured teachers are evaluated at least once each year, while tenured teachers are evaluated less often. In general, principals and vice-principals perform these evaluations using personnel files and conducting classroom observations (either announced or unannounced), sometimes with pre- or post-observation conferences. Most teachers are simply asked to sign off on a summative evaluation form and many see the process as "a bureaucratic necessity of little use to improving" their instructional capabilities. Though they may be intended to gauge teachers' job performance, evaluations typically reveal little about their effectiveness in the classroom. A recent study by the New Teacher Project concluded that evaluation systems fail to distinguish between various degrees of effectiveness. Nearly half of the districts in the study used a binary rating for performance (e.g., either "satisfactory" or "unsatisfactory") and virtually all teachers (99%) in these districts receive a satisfactory rating. Differentiation improves when multiple ratings are available; however, often fewer than 10% of teachers receive a rating less than satisfactory. Some argue that evaluation policies must be reformed to require that evaluations use objective measures of classroom effectiveness, such as student achievement. In 2011, 22 states required that student learning be factored into teacher evaluations and 12 required that it be the preponderant criterion; these figures are up from 16 and 4, respectively, just two years earlier. Others point out limitations in using student assessments to estimate teacher performance; for example, only about half of the nation's teachers teach subjects that are tested. In a limited number of settings, so-called value-added models have been used to estimate teachers' effectiveness using student assessment results. State law typically provides teachers job protection in the form of tenure. These state statutes specify how teachers gain tenure and how they can be dismissed. These laws outline the due process that must be provided teachers facing dismissal. Every state has a law addressing these issues that is specifically targeted to elementary and secondary school teachers. Often a tenure law will identify a period of time during which a new teacher is under probation and being considered for tenure. In nearly every state, that probationary period is specified—the range is between two years and five years, the most common period is three years. Typically, during this probationary period, a teacher is employed under a yearly contract and can be dismissed by the district's board of education for any reason as long as that reason is not constitutionally impermissible. Generally, the law provides for a specified date by which the probationary teacher must be notified that the contract will not be renewed. Once awarded tenure, teachers are assured they will continue to be employed unless dismissed for cause and only under the procedures specified in the law. The grounds for dismissal most frequently cited are incompetency, neglect of duty, insubordination, and immorality. The procedure always includes the opportunity for a hearing, which is typically conducted by the school board. Tenure laws may also specify an appeals process. Nearly two-thirds (64.4%) of all school districts have specific agreements with a teachers' association or unions. Teachers' unions have been criticized as barriers to educational improvement and reform. Critics have argued that the major teachers' unions—National Education Association and American Federation of Teachers—have historically been more interested in job protection and higher salaries than in improving the instruction of students. Others argue that, in recent years, union leaders have been rethinking the role of unions in the current reform environment where traditional relationships among all parties in the educational process are being reconsidered and refashioned. Two recent studies of provisions in teacher collective bargaining agreements (CBAs) concluded that the most salient feature of CBAs with regard to their impact on school reform is their ambiguity. However, the researchers disagree about whether this impact is positive or negative. On the positive side, this ambiguity could "allow for greater latitude for an aggressive principal who is looking for more flexibility and willing to push the envelope, while serving to limit a more cautious or timid principal who looks to the CBA for explicit authority or permission first before acting." On the negative side, "while leaders in some industries would interpret these ambiguities as green lights, in the bureaucratic halls of public education—where risk-averse principals, central office administrators, school boards, and superintendents are rewarded for loyalty and encouraged by the community to avoid unseemly conflict—regulatory obscurity usually equals inaction." Teacher pay levels are typically set by local school districts, usually within a schedule established statewide that permits local districts to exceed the schedule's salary levels. Most teachers are currently paid under a single salary schedule which provides increases in pay for completion of additional college credits or degrees, as well as for completion of additional years of service. According to the Department of Education, "The average salary for public school teachers in 2006–2007 was $50,816, about 3% higher than in 1996–97, after adjustment for inflation. The salaries of public school teachers have generally maintained pace with inflation since 1990–91." There is much debate over whether teachers are adequately compensated. Complicating this debate are complex methodological issues concerning how to calculate the number of days per year or hours per week teachers actually work as well as how to factor non-monetary benefits like sick leave, health care, and pensions into total compensation. Research comparing teachers' salaries to those earned by individuals with similar skill sets or similar jobs produce a range of estimates. On the low end of this range is research by the Economic Policy Institute which shows that teachers earned 12% less per week in 2002 compared to accountants, reporters, registered nurses, computer programmers, clergy, personnel officers, and vocational counselors and inspectors. On the other end, according to a Manhattan Institute study of 2005 teacher salaries, public school teachers at that time were paid 11% more than the average professional worker in a similar list of occupations. Recent efforts to reform teacher compensation attempt to differentiate pay according to how difficult certain positions are to fill, such as schools with low retention rates and subjects in which the supply of teachers is limited. Another focus of teacher compensation reform has been the introduction of performance measures into this equation. The previous section explained that much of the teacher policy context is dictated at the local level. The systems for preparing, recruiting, certifying, compensating, granting tenure, and structuring the working conditions of elementary and secondary school teachers is primarily the responsibility of states and school districts. These areas have historically been viewed as largely outside the reach of the federal government. However, beginning with the 105 th Congress, the federal role in K-12 teaching has greatly expanded. In FY1998, the total amount appropriated for all teacher programs under the U.S. Department of Education (ED) was $498 million. Since that time, funding for this purpose has increased roughly fivefold. Along with this growth, Congress has redefined the nature of the federal role in this area. This section briefly discusses how this role has evolved and expanded in the last decade. Federal support for K-12 teaching prior to the 105 th Congress largely focused on in-service training and professional development. In FY1998, the largest federal teacher program was the Eisenhower Professional Development program (authorized under Title II of the ESEA, as amended by Improving America's Schools Act of 1994, P.L. 103-382 ). The Eisenhower program (appropriated $335 million for FY1998) allocated funds to state educational agencies (SEAs), local educational agencies (LEAs), and institutions of higher education (IHEs) to improve the quality of classroom teaching through professional development in core academic subjects. Five other programs accounted for the remainder ($163 million) of ED's FY1998 funding to support K-12 teaching. Virtually all of these funds were appropriated for programs to support in-service training. Most of this funding ($117 million) supported training for teachers of students with disabilities under the Individuals with Disabilities Education Act (IDEA). Much of the rest ($25 million) supported training of teachers working with limited English proficient students under the ESEA. A smaller amount ($19 million) was appropriated to support advanced certification for current teachers through the National Board for Professional Teaching Standards. Finally, a small portion ($2 million) of federal funding to improve K-12 teaching was appropriated to hire teachers through the Minority Teacher Recruitment program under Title V of the HEA. The 105 th Congress began a change in the focus of federal teacher policy through two measures: (1) amending the HEA to include a new Teacher Quality Enhancement program, and (2) appropriating funds for a new Class Size Reduction program under broad authority provided in Title VI of the ESEA. Title II, Part A of the HEA (as amended by the Higher Education Amendments of 1998, P.L. 105-244 ) authorized three types of competitively awarded grants—state grants, partnership grants, and recruitment grants—with the annual appropriation allocated 45%, 45%, and 10% respectively. State and partnership grant funds were to be used for activities including teacher preparation and holding preparation programs accountable for the quality of their graduates, reforming teacher certification requirements, and professional development. Recruitment grant funds were to be used for the recruitment of highly qualified teachers. In its first year of funding, FY1999, this program was appropriated $77 million. Significantly, these amendments also had broad-based accountability requirements for teacher education programs. Funded states and their IHEs were required to report publicly on teacher preparation, including the pass rates of graduates on certification assessments. States also had to identify low-performing teacher preparation programs. If low-performing programs lost state approval or financing, their institutions could not receive professional development funding from ED and could not accept or enroll any HEA-aided student in the teacher education program. The 105 th Congress also established the Class Size Reduction program through the FY1999 omnibus appropriations legislation ( P.L. 105-277 ) and appropriated $1.2 billion for the program. Funds were awarded through formula grants distributed among the states according to either (1) the state's share of ESEA, Title I-A funding (based primarily on numbers of children 5-17 years old living in poverty and levels of state per pupil expenditure), or (2) the state's share of ESEA Title II funding (based on school aged population and the distribution of Title I-A funding, with an overall state minimum of 0.5% of total state grants), whichever share would provide the state with a larger amount. States then awarded subgrants by formula to LEAs—80% on the basis of the distribution of children aged 5-17 living in poverty and 20% on the basis of total enrollment of children aged 5-17. Funds were appropriated for ESEA Title VI but were to be spent in accordance with provisions included in the appropriations statute which specified their use for the general hiring of new teachers to reduce class size. The program broke new ground with its explicit and primary focus on federal support for the hiring of teachers. The 106 th Congress continued the redefinition of the federal role in K-12 teaching. For FY2001, Congress specified that appropriated amounts for the Eisenhower program above the FY2000 level ($335 million) were to be spent on such activities as reducing the percentage of teachers without certification or with emergency or provisional certification, the percentage teaching out of field, or the percentage lacking requisite content knowledge. These excess funds could also be directed to such other activities as mentoring for new teachers, multi-week institutes providing professional development, and retention efforts for teachers with a record of increasing low-income students' academic achievement. Among other new money for teachers approved in the FY2001 appropriations for ED was $3 million for the Troops-to-Teachers program (supporting entry of former military personnel into teaching) and $31 million for the Transition to Teaching program (targeting recruitment of mid-career professionals in other occupations and highly qualified recent college graduates with BAs in fields other than education). The 107 th Congress further expanded the federal role concerning issues of teacher quality. On January 8, 2002, the No Child Left Behind Act (NCLB) was signed into law ( P.L. 107-110 ). This legislation continued to authorize federal support for activities to improve K-12 teaching through class size reduction, in-service training, and recruitment. It also more firmly focused federal interest on teacher quality by requiring virtually all teachers to be "highly qualified." Under NCLB, each SEA receiving ESEA Title I-A funding had to have a plan to ensure that, by no later than the end of the 2005-2006 school year, all teachers teaching in core academic subjects within the state be designated a highly qualified teacher . NCLB specified a lengthy definition of the requirements a teacher must fulfill to achieve highly qualified status and subsequent regulations specified the complex procedures that states and LEAs must undertake to demonstrate compliance with the new requirements. As part of its plan, each Title I-funded state had to establish annual measurable objectives for each LEA and school that included, at a minimum, annual increases in the percentage of highly qualified teachers at each LEA and school to ensure that the 2005-2006 deadline was met. States and LEAs were also required to publicly issue annual reports describing progress on the state-set objectives. To assist states and localities in meeting these new requirements, NCLB increased federal teacher program funding and replaced the Eisenhower Professional Development and Class Size Reduction programs with a new formula grant program (discussed further in the next section of this report). NCLB added to the ESEA the first federal definition of "professional development" to include activities that, among other things, improve teachers' knowledge of the academic subjects and enable teachers to become highly qualified; improve classroom management skills; are sustained, intensive, and classroom-focused instead of one-day, off-site workshops; advance understanding of effective instructional strategies; provide training in the use of technology; are regularly evaluated for their impact on increased teacher effectiveness and improved student academic achievement; provide instruction in methods of teaching children with special needs and English language learners; include instruction in the use of data and assessments; and include instruction in ways to work more effectively with parents. In recent years, Congress has broken new ground in the area of teacher compensation, expanded federal support for teacher recruitment, and modified the federal role in the preparation of teachers and school leadership. The results of these actions are briefly mentioned here; the programs created are discussed in detail in the next section, which describes all current federal teacher programs. The 109 th Congress established the Teacher Incentive Fund through the FY2006 appropriations legislation ( P.L. 109-149 ) which provided $100 million for competitive grants to support teacher compensation reform. The 110 th Congress passed the America COMPETES Act of 2007 ( P.L. 110-69 ) which authorized two new programs that encourage science, technology, engineering, and mathematics (STEM) majors to concurrently obtain teaching certification, support current teachers' pursuit of STEM master's degrees, and bring STEM professionals into teaching. The 110 th Congress further enhanced teacher recruitment by amending the HEA through the College Cost Reduction and Access Act of 2007 ( P.L. 110-84 ). The amendments authorized a new TEACH grant program that provides scholarships worth $4,000 a year for prospective teachers who agree to serve in hard-to-staff schools and expanded the existing loan forgiveness opportunities for certain teachers. The HEA was amended again, in the second session of the 110 th Congress, through the Higher Education Opportunity Act of 2008 ( P.L. 110-315 ). This legislation amended the Title II, Part A program by targeting grant activities on pre-baccalaureate teacher preparation, teacher residencies, and school leadership development. Recently, Congress has signaled that, as opposed to continuing to emphasize teacher quality, increasingly federal policy may focus on teacher effectiveness. The 111 th Congress enacted the American Recovery and Reinvestment Act (ARRA; P.L. 111-5 ), which was signed by the President on February 17, 2009. The ARRA authorized and appropriated $4 billion for the Race to the Top competitive grant program which is intended to initiate reforms around four areas: (1) adopting standards and assessments that prepare students to succeed in college and the workplace and to compete in the global economy; (2) building data systems that measure student growth and success, and inform teachers and principals about how they can improve instruction; (3) r ecruiting, developing, rewarding, and retaining effective teachers and principals, especially where they are needed most ; and (4) turning around the lowest-achieving schools. In November 2009, the Department of Education published a notice of final priorities for the Race to the Top program. Included in the notice was the first federal definition of an "effective teacher," which means a teacher whose students achieve acceptable rates (e.g., at least one grade level in an academic year) of student growth (as defined in this notice). States, LEAs, or schools must include multiple measures, provided that teacher effectiveness is evaluated, in significant part, by student growth (as defined in this notice). Supplemental measures may include, for example, multiple observation-based assessments of teacher performance. In addition, the RTT regulations require grantees to develop statewide systems that annually rate teachers' effectiveness based on classroom observations and student growth and use these ratings to inform critical human resource decisions. Through these regulations, ED established the following five requirements of all teacher evaluation systems. 1. Teachers must be evaluated at least annually, 2. Evaluation procedures must include several classroom observations, 3. Teacher performance must be measured in significant part on growth in student achievement, 4. Systems of evaluation must differentiate teachers among multiple categories of effectiveness (as opposed to a binary satisfactory/unsatisfactory rating), and 5. The results of teacher evaluations must inform important school staffing decisions (e.g., promotion and dismissal). On September 23, 2011, ED announced the availability of an ESEA flexibility package for states and described the principles that states must meet to obtain waivers that in effect exempt states and school districts from various NCLB accountability requirements, including those regarding teacher qualifications. Under this flexibility, a school district that does not meet targets for implementing the NCLB highly qualified-teacher requirement would no longer have to develop an improvement plan and would retain flexibility in how it uses its ESEA funds. Further, the state education agency in which that school district is located would be exempt from requirements regarding its role in the implementation of improvement plans, use of ESEA funds, and provision of technical assistance. In return for this flexibility, states and school districts must engage in education reforms for "improving student academic achievement and increasing the quality of instruction." These reforms must encompass the following four principles: (1) college- and career-ready expectations for all students; (2) state-developed differentiated recognition, accountability, and support; (3) supporting effective instruction and leadership ; and (4) reducing duplication and unnecessary burden. As articulated by ED, the third of these principles requires that states and school districts must commit to develop, adopt, pilot, and implement teacher and principal evaluation and support systems that 1. will be used for continual improvement of instruction; 2. meaningfully differentiate performance using at least three performance levels; 3. use multiple valid measures in determining performance levels, including as a significant factor data on student growth for all students (including English Learners and students with disabilities), and other measures of professional practice (which may be gathered through multiple formats and sources, such as observations based on rigorous teacher performance standards, teacher portfolios, and student and parent surveys); 4. evaluate teachers and principals on a regular basis; 5. provide clear, timely, and useful feedback, including feedback that identifies needs and guides professional development; and 6. will be used to inform personnel decisions. This section provides descriptions of the major federal programs currently authorized to address K-12 teaching. The primary focus of this discussion is on the programs in the ESEA as amended by NCLB. Select federal teacher programs authorized in the HEA and elsewhere are also described. In amending and reauthorizing the ESEA, NCLB continued Title II as the primary title for teacher programs. As amended, ESEA, Title II-A replaced the Eisenhower Professional Development and Class Size Reduction programs (hereinafter referred to as Eisenhower and CSR, respectively) with a new state formula grant program authorized at $3.175 billion for FY2002 and such sums as may be necessary for the five succeeding fiscal years. The fund awards formula grants to SEAs which then award formula subgrants to LEAs. The allocation formula for Title II-A provides each state with a base guarantee of funding equal to the amount it received for FY2001 under the Eisenhower and CSR programs. Any excess funding is allocated by formula among the states based 35% on school-aged population (5-17) and 65% on school-aged population in poverty. Each state is assured 0.5% of this excess. At the state level, 95% of the state grant is to be distributed as subgrants to LEAs, 2.5% for local partnerships (the Secretary calculates an alternative percentage if 2.5% of the state grant would generate a total for all states in excess of $125 million), and the remainder for state activities. LEA subgrant funding is distributed first as a base guarantee of the FY2001 Eisenhower and CSR grants to individual districts, with the remainder distributed by formula based 20% on school-aged population and 80% on school-aged population in poverty. LEAs are authorized to use their funding for one or more of various specified activities. Among the authorized activities are the following: assistance to schools in the recruitment and retention of highly qualified teachers (see definition above), principals, and, under certain conditions, pupil services personnel; assistance in recruiting and hiring highly qualified teachers through such means as scholarships and signing bonuses; use of these teachers to reduce class sizes; initiatives to increase retention of highly qualified teachers and principals, particularly in schools with high percentages of low-achieving students, through mentoring, induction services during the initial three years of service, and financial incentives for those effectively serving all students; professional development, including professional development that involves technology in teaching and curriculum and professional development delivered through technology; improvement of the quality of the teaching force through such activities as tenure reform, merit pay, and teacher testing in their subject areas; and professional development for principals and superintendents. The majority of Title II-A funds are used for class size reduction and professional development. In recent years, professional development has replaced class size reduction as the single largest area of spending. The percentage of funds used for reducing class size decreased from 57% in 2002-2003 to 39% in 2011-2012, and the percentage of funds used for professional development increased from 27% in 2002-2003 to 44% in 2011-2012. Funds are awarded competitively to partnerships that must include an IHE and its division preparing teachers and principals; an IHE school of arts and sciences; and a high-need LEA (defined as one with at least 10,000 poor children or a child poverty rate of at least 20% that, in addition, has either a high percentage of out-of-field teachers or a high percentage of teachers with emergency, provisional, or temporary certificates). Other entities, such as charter schools or another LEA, may be part of these partnerships. Partnerships must use their funds for professional development in the core academic subjects for teachers, highly qualified paraprofessionals, and principals. States must use their funding for one or more of several specified activities. Among these activities are the following: teacher and principal certification reform; mentoring and intensive professional development for teachers and principals, including those new to their careers; assistance to LEAs and schools in the recruitment and retention of highly qualified teachers, principals, and, under certain conditions, pupil services personnel; tenure reform; subject matter testing for teachers; projects to promote teacher and principal certification reciprocity across states; training to help teachers integrate technology into the curriculum and instruction; assistance to help teachers become highly qualified by the end of the fourth year of state funding; and a clearinghouse for teacher recruitment and placement. If, after the second year of the plan to ensure that all teachers are highly qualified (see previous section), an LEA has failed to make progress toward the annual objectives in such plan, it must develop an improvement plan. Failure after the third year coupled with failure to make adequate yearly progress for three consecutive years requires the SEA to identify the professional development the LEA will use and, generally, precludes use of Title I-A funds for the hiring of paraprofessionals. In addition, the SEA provides funding directly to schools in the LEA to enable their teachers to choose their own professional development activities. The Secretary of Education is authorized to use national activities funding for several specific activities. These funds support an Advanced Credentialing program to encourage teachers to pursue advanced certification by the National Board for Professional Teaching Standards or the National Council on Teacher Quality. In FY2010, $10.6 million is appropriated for Advanced Credentialing. National activities also support a School Leadership program for the recruitment of principals to high-need LEAs. Title II-B authorizes funding for partnerships to improve math and science instruction. An eligible partnership must include an SEA, the engineering, mathematics, or science department of an IHE, and a high-need LEA. Other entities such as LEAs and charter schools may be included as well. The annual authorization of appropriations is $450 million for FY2002 and such sums as may be necessary for the next five fiscal years. When the annual appropriation is less than $100 million, the program's three-year grants are awarded competitively; otherwise, funds are awarded to SEAs based on school-aged population in poverty with a 0.5% small state minimum. Partnerships must use their grants for one or more of several specific activities. Among them are the following: professional development to improve math and science teachers' subject knowledge; activities to promote strong teaching skills among these teachers and teacher educators; math and science summer workshops or institutes with academic year followup; recruitment of math, science, or engineering majors to teaching through signing and performance incentives, stipends for alternative certification, and scholarships for advanced course work; development or redesign of more rigorous, standards-aligned math and science curricula; distance learning programs for math and science teachers; and opportunities for math and science teachers to have contact with working mathematicians, scientists, and engineers. The Secretary is to consult and coordinate activities with the Director of the National Science Foundation, particularly regarding the appropriate roles of the two entities in workshops, institutes, and partnerships. Each partnership must have an evaluation and accountability plan that includes objectives measuring the impact of the funded activities. Among these objectives must be improvement of student achievement on state math and science assessments. The NSF has been implementing a Mathematics and Science Partnership program as well, authorized by the National Science Foundation Authorization Act of 2002. This is a competitive grant program designed to improve the content knowledge of teachers and the performance of students in the areas of mathematics and science. Grantees are to engage in three kinds of activities: partnerships between IHEs and local school districts, projects focusing on research and evaluation of these efforts and technical assistance, and partnerships supporting teacher institutes. Title II Part C, Subpart 1, Chapter A authorizes funding and administration of the Troops-to-Teachers program, an effort to facilitate the movement of members of the armed forces into K-12 teaching. This legislation authorizes the Secretary of Education to enter into a memorandum of agreement with the Department of Defense for the actual administration of the program, which was first enacted in the FY1993 Defense Authorization Act. The program assists eligible members of the armed forces to become certified as elementary or secondary school teachers or vocational technical teachers. A single authorization of appropriations of $150 million for FY2002 and such sums as may be necessary for the next five fiscal years was provided for the Troops-to-Teachers program and the Transition to Teaching program, of which the Secretary was to reserve not more than $30 million in FY2002 for the Troops-to-Teachers program. This is a continuation of a program to recruit mid-career professionals and others to teaching that was first initiated through the Consolidated Appropriations Act of 2001. Title II Part C, Subpart 1, Chapter B authorizes the Secretary to competitively award five-year partnership grants to SEAs, high need LEAs, and higher education institutions for the establishment of state and local "teacher corps" projects. These projects are to recruit highly qualified mid-career professionals, highly qualified paraprofessionals, and recent college graduates to teach in high need schools. Among the activities these programs can support are financial incentives effective for retaining teachers in high need schools in high need LEAs; pre- and post-placement support such as mentoring; payments for the costs of hiring these teachers or subsidies to participants; and state or regional clearinghouses for recruitment and placement. Participating teachers are to be placed in high need schools within high-need LEAs with a priority on schools in areas with the highest percentages of low-income students. Participants have a three-year service commitment. Projects failing to make substantial progress by the end of their third year toward goals and objectives established in their applications have their grants revoked. The Teacher Incentive Fund (TIF) was first authorized and funded through the FY2006 Labor-HHS-Education Appropriations Act ( P.L. 109-149 ) which provided $261 million for activities authorized under Title V, Part D of the ESEA. A portion of these funds ($100 million) was reserved for activities under Subpart 1 which gives the Secretary general authority to award discretionary grants, "to support nationally significant programs to improve the quality of elementary and secondary education." The act stipulates that these $100 million are to be used for five-year grants competitively awarded to local education agencies (including charter schools) or states individually or in partnership with each other or with a non-profit organization. According to the act, the goal of these projects is to "develop and implement performance-based teacher and principal compensation systems in high-need schools." The act further requires that TIF project compensation reforms "must consider gains in student academic achievement as well as classroom evaluations conducted multiple times during each school year" among other factors and provide educators with incentives to take on additional responsibilities and leadership roles. The Secretary is given a 5% set-aside to support the Center for Educator Compensation Reform which raises national awareness about alternative and effective strategies for educator compensation reform and provides technical assistance to TIF grantees. Beginning in 2007, the FY2006 appropriation was used to fund 34 TIF projects; no funds were appropriated for TIF in FY2007. Program funds may be used to pay the costs of developing and implementing performance-based compensation systems for the benefit of teachers and principals in high-need schools. For example, in addition to costs associated with the incentives given to teachers and principals, other project costs could include professional development activities for those teachers in high-need schools, evaluation and analysis tools, project staff salaries at the applicant level, and reasonable travel necessary for project development and implementation. ESEA, Title V, Part D also authorizes the Ready to Teach program which supports two types of competitive grants to nonprofit telecommunications entities: (1) grants to carry out a national telecommunications-based program to improve teaching in core curriculum areas, and (2) digital educational programming grants that enable eligible entities to develop, produce, and distribute educational and instructional video programming. National telecommunications-based program grants are generally five-year awards. Digital educational programming grants must last three years, be matched by applicants, and must be based on challenging state academic content and student academic achievement standards in reading or mathematics. The HEA, as amended by the Higher Education Opportunity Act (HEOA, P.L. 110-315 ), addresses K-12 teacher issues through programs supporting the improvement of teacher preparation and recruitment. Title II of the HEA authorizes grants for improving teacher education programs, strengthening teacher recruitment efforts, and providing training for prospective teachers. This title also includes the reporting requirements for states and higher education institutions regarding the quality of teacher education programs. Title IV of the HEA authorizes TEACH Grants to encourage more students to prepare for a career in teaching and student loan forgiveness for individuals teaching in certain high-need subjects. Title VIII of the HEA authorizes support for Teach for America which recruits recent college graduates into teaching. Title II, Part A of the HEA authorizes Teacher Quality Partnership grants to improve the quality of teachers working in high-need schools and early childhood education programs by improving the preparation of teachers and enhancing professional development activities for teachers; holding teacher preparation programs accountable for preparing effective teachers; and recruiting highly qualified individuals into the teaching force. To be eligible, partnerships must include a high-need LEA; a high-need school or high-need early childhood education program (or a consortium of high-need schools or early childhood education programs served by the partner high-need LEA); a partner IHE; a school, department, or program of education within the partner IHE; and a school or department of arts and sciences within the partner IHE. A high-need LEA must serve either (1) not less than 20%, or (2) not fewer than 10,000 children who are from families below the poverty line. Partnership grant funds are authorized to be used for either a Pre-Baccalaureate Preparation program, a Teacher Residency program, or both. Funds may also be used for a Leadership Development program, but only in addition to one of these other two uses. Activities authorized by the HEOA amendments are described below. Pre-Baccalaureate Preparation Program. Grants are provided to implement a wide-range of reforms in teacher preparation programs and, as applicable, preparation programs for early childhood educators. These reforms may include, among other things, implementing curriculum changes that improve, evaluate, and assess how well prospective teachers develop teaching skills; using teaching and learning research so that teachers implement research-based instructional practices and use data to improve classroom instruction; developing a high-quality and sustained pre-service clinical education program that includes high-quality mentoring or coaching; creating a high-quality induction program for new teachers; implementing initiatives that increase compensation for qualified early childhood educators who attain two-year and four-year degrees; developing and implementing high-quality professional development for teachers in the partner high-need LEAs; developing effective mechanisms, which may include alternative routes to state certification, to recruit qualified individuals into the teaching profession; and strengthening literacy teaching skills of prospective and new elementary and secondary school teachers. Teacher Residency Program. Grants are provided to develop and implement teacher residency programs that are based on models of successful teaching residencies and that serve as a mechanism to prepare teachers for success in high-need schools and academic subjects. Grant funds must be used to support programs that provide, among other things, rigorous graduate-level course work to earn a master's degree while undertaking a guided teaching apprenticeship; learning opportunities alongside a trained and experienced mentor teacher; and clear criteria for selecting mentor teachers based on measures of teacher effectiveness. Programs must place graduates in targeted schools as a cohort in order to facilitate professional collaboration and provide a one-year living stipend or salary to members of the cohort, which must be repaid by any recipient who fails to teach full time at least three years in a high-need school or subject area. Leadership Development Program. Grants are provided to develop and implement effective school leadership programs to prepare individuals for careers as superintendents, principals, early childhood education program directors, or other school leaders. Such programs must promote strong leadership skills and techniques so that school leaders are able to create a school climate conducive to professional development for teachers; understand the teaching and assessment skills needed to support successful classroom instruction; use data to evaluate teacher instruction and drive teacher and student learning; manage resources and time to improve academic achievement; engage and involve parents and other community stakeholders; and understand how students learn and develop in order to increase academic achievement. Grant funds must also be used to develop a yearlong clinical education program, a mentoring and induction program, and programs to recruit qualified individuals to become school leaders. The HEOA amendments established five new programs in HEA, Title II, Part B, Enhancing Teacher Education including Subpart 1, Preparing Teachers for Digital Age Learners; Subpart 2, Hawkins Centers of Excellence; Subpart 3, Teach to Reach Grants; Subpart 4, Adjunct Teacher Corps; and Subpart 5, Graduate Fellowships to Prepare Faculty in High-Need Areas. None of these programs have received funding. The College Cost Reduction and Access Act of 2007 ( P.L. 110-84 ) authorized the TEACH Grant program, which provides scholarships worth $4,000 a year for prospective teachers. Eligible recipients must be high-achieving (at least a 3.25 GPA) undergraduate, post-baccalaureate, and graduate students who commit to teaching a high-need subject in a high-need elementary or secondary school for four years. High-need subjects include mathematics, science, foreign languages, bilingual education, special education, and reading. High-need schools are those located in an LEA that is eligible for ESEA, Title I funds. TEACH Grant recipients agree to serve full-time in a high-need subject at a high-need school for not less than four years within eight years of graduation. For students who fail to fulfill this service requirement, grants are converted to Direct Unsubsidized Stafford Loans with interest accrued from the date the grants were awarded. Qualifying teachers may receive relief from HEA, Title VI Stafford Loan debt. Loan debt can be forgiven for individuals teaching in low-income elementary or secondary schools who are new borrowers on or after October 1, 1998. To be eligible for repayment, borrowers have to teach on a full-time basis for five consecutive years in a Title I school. After completion of that service, up to $5,000 in loan debt can be forgiven. Math, science, and special education teachers in low-income schools are eligible for relief of up to $17,500 in loan debt. HEA, Title VIII-F, authorizes the Secretary to award a five-year grant to Teach for America, Inc. (TFA), a nonprofit organization that recruits recent college graduates who commit to teach in high-need LEAs. Grant funds may be used for the following activities: (1) recruiting and selecting teachers through TFA's highly selective national process; (2) providing pre-service training to such teachers through a rigorous summer institute that includes hands-on teaching experience and significant exposure to education coursework and theory; (3) finding placements for these teachers in schools and positions designated by high-need local educational agencies as high-need placements serving underserved students; and (4) providing ongoing professional development activities for these teachers during their first two years in the classroom, including regular classroom observations and feedback, and ongoing training and support. The America COMPETES Act of 2007 ( P.L. 110-69 ) authorized two new programs to improve K-12 teaching: (1) a Baccalaureate Degree program that encourages STEM majors to concurrently obtain teaching certification and (2) a Master's Degree program to upgrade the skills of current teachers through two to three years of part-time study or to support one-year programs to bring STEM professionals into teaching. The program requires that grantees put particular emphasis on encouraging members of groups that are underrepresented in the teaching of STEM subjects or critical foreign languages to participate in the program. In addition, the program gives priority to grantees whose primary focus is on placing participants in high-need LEAs. Teachers may take an above-the-line deduction from their federal taxable income of up to $250 a year for classroom expenses (including those for books, supplies, computer equipment, other equipment, and supplementary materials used in the classroom) incurred by teachers and others in schools. The ARRA authorized the Race to the Top (RTT) program and appropriated $4 billion which the Secretary may use to award discretionary RTT grants to states. Section 14006(c) of the ARRA requires at least 50% of RTT funding to states to be sub-granted to participating LEAs according to their relative shares of funding under the ESEA, Title I-A. States have considerable flexibility in awarding or allocating the remaining 50% of their RTT awards, which are available for state-level activities, disbursements to LEAs, and other purposes as the state may propose in its application. The purpose of the RTT program is to encourage the development and implementation of educational reforms in four areas: (1) adopting standards and assessments that prepare students to succeed in college and the workplace and to compete in the global economy; (2) building data systems that measure student growth and success, and inform teachers and principals about how they can improve instruction; (3) recruiting, developing, rewarding, and retaining effective teachers and principals, especially where they are needed most; and (4) turning around the lowest-achieving schools. The second and third of these reform areas have particular importance for federal teacher policy. To be eligible to compete for RTT funds, a state must have its application for funds under the State Fiscal Stabilization Fund approved by the Secretary and, at the time the state submits its RTT application, "there must not be any legal, statutory, or regulatory barriers at the state level to linking data on student achievement (as defined in this notice) or student growth (as defined in this notice) to teachers and principals for the purpose of teacher and principal evaluation." Moreover, priority in the grant competition is given to applications in which the state plans to expand statewide longitudinal data systems to include or integrate data on subgroups of students with human resources data on teachers, principals, and other staff. Applications must explain the extent to which the state's data system would (1) provide teachers, principals, and administrators with the information and resources they need to inform and improve their instructional practices, decision-making, and overall effectiveness; (2) support LEAs and schools in providing effective professional development to teachers, principals, and administrators; and (3) make data available and accessible to researchers so that they have detailed information with which to evaluate the effectiveness of instructional materials, strategies, and approaches for educating different types of students. To be eligible for participation, LEAs must sign a memorandum of understanding with the state that demonstrates they are,"strongly committed to the state's plans and to effective implementation of reform in the four education areas," including reforms of their teacher evaluation systems. In reforming these systems, participating LEAs must consider several factors when evaluating teachers' effectiveness. According to ED's guidance, "The Department believes that teacher and principal evaluations and related decisions should be based on multiple measures of teacher performance. The Department also believes that student growth should be one of those measures and should be weighted as a significant factor." ED's RTT regulations define an "effective teacher" as "a teacher whose students achieve acceptable rates (e.g., at least one grade level in an academic year) of student growth (as defined in this notice)." That is, to be considered effective, teachers must raise their students' learning to a level at or above what is expected within a typical school year. The guidance additionally points out that the focus of evaluating an effective teacher should be student growth , not one-time measures of student achievement or proficiency. These reforms must also produce evaluation results that have actionable consequences. First, they must differentiate teacher and leader effectiveness using multiple rating categories. Second, LEAs must use these evaluations to inform decisions regarding (1) coaching, induction support, and/or professional development; (2) compensating, promoting, and retaining teachers and principals; (3) granting tenure and/or full certification; and (4) removing ineffective tenured and untenured teachers and principals after they have had ample opportunities to improve. Third, states must ensure the equitable distribution of effective teachers based on definitions that are comparable across classrooms in each LEA and across classrooms statewide. The authorization for ESEA programs expired at the end of FY2008, and the 113 th Congress is considering whether to amend and extend the ESEA. This section discusses teacher policy issues that may arise if Congress proceeds with reauthorization. Federal policy has, until very recently, been silent on what constitutes effective teaching. The definition of an effective teacher and the evaluation of teachers' performance have largely remained the responsibility of school leadership within broad parameters outlined at the district level; indeed, few states have intervened in this process. Still, Congress has shown increasing interest in growing federal involvement in this area, most recently through passage of RTT and several hearings on the topic. Among other questions that may arise during ESEA reauthorization, Congress may consider whether definitions of teacher effectiveness and principal effectiveness should be written into federal law; whether HOUSSE procedures currently laid out in NCLB to identify highly-qualified teachers can be adapted to reform teacher evaluation; whether federal accountability requirements for student achievement can be amended to facilitate their use in teacher evaluation; whether the federal investment in teacher and principal training should be targeted at improving evaluation systems; whether the best policy levers for reforming teacher evaluation systems to emphasize effectiveness occur at the state, district, or school level; and whether value-added methods for determining the effectiveness of individual teachers, principals, schools, or districts is currently feasible across grades and subject areas and should be required by federal policy. Along with increasing the federal role in the evaluation of teacher and principal effectiveness, Congress has shown interest in influencing the use of these evaluations. The TIF requires that grantees reform compensation systems to reward teacher performance with bonuses and other financial incentives. RTT requires that grantees go further and use evaluations to inform high-stakes decisions such as the granting of tenure, awarding full certification, and removing ineffective teachers. With the knowledge that these decisions are often made at the local level of our educational system, Congress may consider whether the federal government will have a sustained role in teacher and principal compensation and whether this role will focus on seeding efforts to develop the capacity to link compensation to performance; whether performance-based teacher compensation efforts have triggered reforms in other areas such as evaluation procedures, leadership development, and data systems; whether successful reforms in a limited set of school districts can be replicated by scaling up the federal investment; and whether federal policy should address other barriers (i.e., beyond failure to identify poor teacher performance) that limit the role of teacher evaluations in high-stakes decision-making. NCLB requires that highly-qualified teachers be equitably distributed among classrooms and schools. Although some claim that high-poverty schools are less likely to have highly qualified teachers, given that nearly all teachers are considered highly qualified, it is not clear whether this requirement has proven useful. Congress included similar provisions concerning the equitable distribution of teacher effectiveness in RTT. However, instead of binary categories—highly qualified or not highly qualified—the new program requires states to define and identify "effective" and "highly effective" teachers. If distribution issues arise during ESEA reauthorization, Congress may consider whether federal policy should require states, districts, and/or schools to distinguish multiple levels of teacher quality and/or effectiveness in order to better examine questions of equity; whether requirements for distribution of teacher quality and/or effectiveness should be integrated with requirements for "comparability of services" under Title I-A; whether current seniority rules for teacher-to-school assignment, often written into collective bargaining agreements, that contribute to the uneven distribution of teachers, should be addressed by the federal government; and whether other policy levers, such as pay incentives, are effective at improving equity and should be expanded. The federal government currently plays a somewhat limited role with regard to support for pre-service teacher preparation. Fewer than 1 in 20 teacher preparation programs receive funding through HEA, Title II-A. All such programs at institutions receiving assistance through the HEA must adhere to the accountability provisions in Title II-A, including reporting requirements regarding pass rates on teacher certification exams. When Congress reauthorized the HEA through the HEOA, Title II-A was authorized through FY2011 (rather than the FY2014 authorization provided most of the rest of the HEA). This early expiration provides Congress with an opportunity to simultaneously reauthorize two of the major federal teacher programs (ESEA, Title II-A and HEA, Title II-A). In taking this opportunity, Congress may consider whether a portion of the comparatively large federal investment supporting in-service teacher training (under ESEA, Title II-A) should be reallocated to pre-service preparation; whether current support for traditional teacher preparation programs under HEA, Title II-A needs to be reworked in light of the growth of alternative routes to certification; whether accountability for teacher preparation programs under HEA, Title II-A should be designed to promote the most effective training practices rather than identify so-called "failing" programs; and whether certification reform efforts supported by the initial round of HEA, Title II-A State Grants should be renewed in light of recent congressional interest in incorporating teacher effectiveness into the awarding of full certification to teachers. ESEA, Title II-A funds are increasingly being used by school districts to support additional in-service professional development. However, this training is often delivered in a sporadic and uncoordinated fashion and teachers often find it of little use in the classroom. As federal mandates expand the collection of student achievement data, teachers have little access to the training needed to use this data effectively. Should improving teacher training become an issue during ESEA reauthorization, Congress may consider whether to amend the current, lengthy definition of "professional development" and/or create mechanisms to enforce the practices described in the definition; whether to hold schools and/or professional development providers accountable for improving teachers' effectiveness; and whether strengthening incentives to improve student achievement is a better way to improve teacher training than to define what that training should entail. | The Elementary and Secondary Education Act of 1965 (ESEA) is the primary legislative vehicle for federal policymaking regarding teachers and instructional quality in the nation's elementary and secondary schools. Authorization for ESEA programs and policies, enacted through the No Child Left Behind Act of 2001 (NCLB), expired at the end of FY2008 and the 113th Congress is likely to consider whether to amend and extend the ESEA. Notable ESEA provisions concerning K-12 teaching include requirements for minimum teacher qualifications and authority for a teacher training and class size reduction program funded at roughly $3 billion. The size of the teaching workforce and diversity of the teaching workplace present many challenges to federal policy makers. The workforce of roughly 4 million teachers in the United States is both aging and "greening"—with well over one-third (37%) on the job for over 15 years and an equal share (36%) having taught less than four years in their current school. The teaching workplace of about 14,000 school districts nationwide is a highly dynamic one—with certain schools experiencing high rates of staff turnover each year and many schools instituting major reforms of teacher evaluation procedures. The federal role in K-12 teacher policy has evolved rapidly since passage of NCLB. Federal policy has historically focused mainly on in-service training (or professional development). This focus began to change as the 105th Congress tripled funding for federal teacher programs by enacting a hiring program known as Class Size Reduction. With NCLB, the focus of federal policy moved squarely to the issue of teacher quality. The law mandated that all "core" subject-matter teachers possess minimum qualifications including a bachelor's degree, full state certification, and subject-matter knowledge. More recently, the focus of federal policy in this area has shifted to teacher effectiveness, particularly with passage of the American Recovery and Reinvestment Act of 2009 (ARRA), which authorized the Race to the Top program. Legislative action in the 112th Congress, including bills passed by authorizing committees in both chambers, also contained provisions that would continue federal involvement in state and local efforts to evaluate teacher effectiveness. At the present time, the Department of Education (ED) administers a dozen programs that support elementary and secondary school teachers and instructional quality. By far the largest of these, both in terms of appropriations and number of teachers served, is authorized in Part A of Title II of the ESEA—the Teacher and Principal Training and Recruiting Fund. In FY2013, this program provided roughly $3 billion primarily for teacher professional development to support meeting the NCLB highly qualified-teacher requirement. The second- and third-largest federal teacher programs are Race to the Top ($550 million in FY2013, though not all funds are used to improve teaching) and the Teacher Incentive Fund ($300 million in FY2013). Both of these programs support improved teacher effectiveness, the former through teacher evaluation reform and the latter by providing pay compensation to high-performing teachers. If the 113th Congress considers reauthorizing the ESEA, teacher effectiveness will likely continue to be central to this discussion. Other issues of importance include compensation and high-stakes school staffing decision-making, distributional equity across schools and districts, teacher preparation programs—both traditional and alternative—and professional development. |
Members of Congress hold diverse views about the value of international cooperation to address climate change. While some Members are convinced that human-induced climate change is a high priority risk that must be addressed through federal actions and international cooperation, others are not convinced of significant risk. Some are wary, as well, of international processes that could impose costs on the United States, undermine national sovereignty, or lead to trade advantages for other countries. The United States government has participated for more than two decades in various multilateral negotiations and actions aimed at addressing climate change. This report surveys the United Nations negotiations, from a primarily U.S. perspective. A table at the end of the report summarizes the chronology ( Table 1 ). Formal international negotiations were launched in December 1990 to address growing scientific and political concern about human-induced climate change. The negotiations on the 1992 United Nations Framework Convention on Climate Change (UNFCCC) marked the progress of decades of scientific research. Scientific conclusions—with uncertainties—have remained stable over two decades: greenhouse gas (GHG) emissions from human-related activities are very likely causing the major portion of climate change observed in recent decades. If changes continue, they could lead to adverse impacts on human societies and their environment, potentially including catastrophes. Predicting the timing, magnitude, and implications of change remains imprecise; many uncertainties may not be resolvable in a time frame consistent with making effective and efficient decisions to reduce the risks of climate change. The question of how to share any effort to address climate change has been a core challenge for international cooperation. Because emissions come from all countries, only concerted reductions by all major emitters can stabilize the rising GHG concentrations in the atmosphere. The United States historically has contributed the most—almost one-fifth of the rise of GHG concentrations since the Industrial Revolution. In 2007, however, China surpassed the United States as the leading emitter of GHG annually. In the future, the greatest growth in GHG emissions is expected from industrializing countries, such as China, India, and Brazil. These countries historically have contributed less, and still emit much less per person, than the United States and most other high-income countries. Arguably, the least developed and still industrializing nations have lower economic and governance capacities to address the problem. The size of effort and how to allocate it is a key element of negotiations. The primary issues for negotiation in 1990 remain the same today: when and by how much to reduce greenhouse gas emissions globally in order to achieve the UNFCCC's objective of avoiding " dangerous anthropogenic interference with the climate system "; how to share " common but differentiated responsibilities " among countries taking into account " historic contributions " and " respective capacities " of different people—in particular, the acceptable degree of participation of low-income countries; what mechanisms are best suited to assuring GHG reductions at the lowest cost, respecting national sovereignty and supporting " sustainable economic development " and " the eradication of poverty "; how cooperatively to understand the risks and facilitate adaptation to climate changes, especially by those people least able to cope on their own; and how to adapt international arrangements over time as science, social conditions, and capabilities evolve. At present, the United States is one of three of the 194 Parties to the UNFCCC that is not also Party also to the subsidiary Kyoto Protocol. (The other two are Canada and Andorra.) As a Party to the UNFCCC, the United States has general obligations to reduce its GHG emissions, report its emissions and be subject to international review, and assist lower-income countries, and other binding commitments. The industrialized Parties to the Kyoto Protocol ( Annex I Parties ), however, took on binding, quantitative commitments to reduce their GHG emissions to 5% below 1990 levels during 2008-2012 and agreed in 2012 to reduce these further during a second commitment period from 2013 to 2020. Most Parties have made voluntary pledges to GHG reduction targets or nationally appropriate mitigation actions under the 2009 Copenhagen Accord and the 2010 Cancun Agreements. Nonetheless, many non-Annex I Parties have opposed taking on legally binding commitments to abate GHG emissions. Many Annex I Parties have opposed taking on further legally binding commitments without participation by all Parties. The 2011 Durban Platform envisioned an end to two-track (developed versus developing) negotiations and provided a mandate to negotiate by 2015 a single outcome "with legal force" applicable to all Parties and that would take effect after 2020. How to pay for GHG reductions and adaptation measures is another key issue. The wealthiest Parties (including the United States) pledged "fast start" financing approaching $30 billion during 2010-2012, and a goal of mobilizing financing of $100 billion annually by 2020. Funding will come from public and private, bilateral and multilateral, and alternative sources. The most vulnerable developing countries had priority for the 2010-2012 funds. Reportedly, the fast-start financing goal was exceeded, but the pathway to meeting the 2020 pledge remains obscure. This report summarizes the process and principle issues and outcomes of the international climate change negotiations since 1990. Further, CRS has produced a series of reports on many aspects of the international climate change negotiations (and domestic issues) that can be accessed through the CRS website ( http://www.crs.gov/Pages/clis.aspx?cliid=2522 ) or by contacting CRS Inquiry at [phone number scrubbed]. This report summarizes the principal events and agreements, followed by a chronology at the end. The international negotiations launched in 1990 culminated in the 1992 adoption of the United Nations Framework Convention on Climate Change (UNFCCC) in Rio de Janeiro, Brazil. The U.S. Senate quickly gave its advice and consent, leading the United States to be the fourth nation to ratify the UNFCCC—the first among industrialized countries. As of November 1, 2013 195 governments were Parties to the UNFCCC. As a framework convention, this treaty provides the structure for collaboration and evolution of efforts over decades, as well as the first qualitative step in that collaboration. The UNFCCC does not, however, include measurable and enforceable objectives and commitments. The UNFCCC originally listed 35 of the most industrialized nations (including the United States) plus the European Economic Community (now the European Union, or EU) in Annex I. These Annex I Parties accepted specific commitments, particularly to take the lead in adopting national policies and undertaking measures with an aim to reduce human-related greenhouse gas (GHG) emissions to their 1990 levels by the year 2000. Annex I Parties also agreed to submit inventories of their emissions and sinks , and national communications of their UNFCCC-related policies and actions. The non-Annex I Parties were then low-income countries, though many are now middle- or high-income countries (e.g., Singapore). The UNFCCC also listed in Annex II the then-wealthiest Parties (including the United States), which committed to providing agreed new and additional financial resources to assist the developing country Parties to meet their obligations. By the time the treaty entered into force and the Conference of the Parties (COP) met for the first time in 1995, the Parties agreed that achieving the objective of the UNFCCC would require further, stronger, and binding GHG commitments. The 1995 Berlin Mandate for negotiations on a 1997 protocol deferred any new commitments for developing countries to later agreements. As a first enforceable step toward meeting the objective of the UNFCCC, the 1997 Kyoto Protocol promised to reduce the net GHG emissions of industrialized country Parties (Annex I Parties) to 5.2% below 1990 levels in the first commitment period of 2008 to 2012. It also pledged to assess the adequacy of these commitments early in the new century. The United States signed the Kyoto Protocol on November 12, 1998. In Congress, however, opposition was strong. In the "Byrd-Hagel" Resolution in July 1997, the Senate expressed its opposition (95-0 vote) to the terms of the Berlin Mandate, by stating that the U.S. should not sign any treaty that does not include specific, scheduled commitments of non-Annex I Parties in the same compliance period as Annex I Parties, or that might seriously harm the U.S. economy. The Kyoto Protocol (KP) was not submitted to the Senate for ratification by President Clinton, nor by his successor, President George W. Bush. Newly elected President Bush announced in 2001 that the United States would not become a Party because the Kyoto Protocol did not include GHG commitments by other large emitting non-Annex I countries and because of his conclusion that it would cause serious harm to the U.S. economy. As of November 1, 2012, 192 governments were Parties to the Kyoto Protocol. The United States and Andorra are the only Party to the UNFCCC never to join the Kyoto Protocol, while Canada withdrew from it in December 2012. Negotiations following the Kyoto Protocol particularly contested differentiation of commitments and assistance to developing countries, and slowed agreement on further steps under the UNFCCC. In 2007, Parties agreed to establish two tracks for negotiation of further commitments of Parties, one under the Kyoto Protocol and the other under the UNFCCC. The first track was a mandate among the Kyoto Protocol Parties (not including the United States) to pursue an amendment to the Protocol on further commitments of Annex I Parties for the period(s) beyond the year 2012. The first commitment period runs from 2008 through 2012. The second track was established in December 2007, when the Conference of the Parties (COP) to the UNFCCC agreed to a "Bali Action Plan" to negotiate new GHG mitigation targets for Annex I Parties, "nationally appropriate mitigation actions" for non-Annex I Parties, and other commitments for the post-2012 period. The mandates specified that the products of negotiation should be ready by the end of 2009, for decision at the 15 th meeting of the COP and the fifth Meeting of the Parties to the Kyoto Protocol (CMP, or sometimes COP/MOP), in Copenhagen, Denmark. The form(s) of agreement were not clear, nor how the two negotiating tracks might converge. (As discussed later, the Durban Platform of 2011 established a mandate that ended the Bali Action Plan, with negotiations that proceed on one track applicable to all Parties.) The Bali Action Plan framed the key items for the "Copenhagen" negotiations to address climate change beyond 2012 as mitigation of climate change (primarily to reduce GHG emissions or to enhance removals of carbon by forests and other vegetation "sinks"); adaptation to impacts of climate change; financial assistance to low-income countries; technology development and transfer; and a shared vision for long-term goals and action. In addition, provisions for "monitoring, reporting, and verification" (MRV) permeated the negotiations. Provisions to reduce GHG emissions from deforestation and forest degradation ("REDD+") were also pursued under the Bali Action Plan. While the inter-sessional meetings during 2008 and 2009 showed little movement, public and many diplomatic expectations were high that the United States, and perhaps China and other developing countries, would come to the Copenhagen negotiations with a new willingness to change positions and agree to (1) a second commitment period of the Kyoto Protocol with GHG targets for Annex I Parties and (2) a new instrument that would include quantitative GHG commitments for the United States and perhaps an array of non-Annex I Parties or all Parties. Many experts and stakeholders around the world opined that the Copenhagen sessions in December 2009 failed, bringing the United Nations' process close to collapse; others judged the meetings differently. Certainly, the Copenhagen meetings did not meet the very high expectations set by the UNFCCC Secretariat and many advocates of commitments to aggressive GHG emissions mitigation by either the Annex I or all Parties. There were practical outcomes of the Copenhagen negotiations nonetheless; these included evolving recognition of the political and economic barriers in some countries to setting aggressive international obligations that Parties are not sure to fulfill. Another was a greater focus on transparency through enhanced reporting and verification of actions in countries. The U.S. Deputy Envoy for Climate Change, Jonathan Pershing, called the Copenhagen Accord a "paradigm shift" in the long-term path of the UNFCCC negotiations, from a "top-down" assignment of GHG targets to Parties to a "country-up" offering of commitments. The Copenhagen negotiations revealed distance among many countries' "bottom lines," without ground of consensus on major issues, such as the form and structure of agreements; obligations for GHG reductions and actions; the legal nature of future commitments; and acceptable provisions for monitoring, reporting, and verification (MRV). A "Copenhagen Accord" emerged that bridged some difficult differences and identified a common and differentiated path forward. While most UNFCCC Parties seemed willing to adopt the Copenhagen Accord, it was blocked by Bolivia, Cuba, Sudan, and Venezuela, arguing that the closed-door deal-making violated the procedures of the United Nations Charter. Tuvalu and some other nations rejected the agreement for not assuring, in their views, sufficiently deep GHG reductions. Consequently, the COP only "took note" of the text, but did not adopt it. Hence, the Copenhagen Accord was a political outcome, not a legal agreement. The Copenhagen Accord outlines a number of key points for action on mitigation, adaptation, financing, technology, reducing emissions from deforestation, and a long-term vision of avoiding temperature increases. All of these elements have been embodied in the Cancun Agreements of December 2010 (see next section). The Copenhagen Accord also included a pledge by the wealthiest Parties to arrange "fast start" financing approaching $30 billion during 2010-2012, and a goal of mobilizing financing of $100 billion annually by 2020. Funding will come from public and private, bilateral and multilateral, and alternative sources. The most vulnerable developing countries have priority for the 2010-2012 funds. These financial pledges carried into the Cancun Agreements as well. The Copenhagen Accord seemed a weak but generally agreed instrument. Following the terms of the pact, by the end of 2010, 114 Parties to the UNFCCC had associated themselves with the Copenhagen Accord, and 42 Annex I Parties and EU Member States had submitted quantified economy-wide emissions targets for 2020. Thirty-five non-Annex I Parties submitted nationally appropriate mitigation actions (NAMAs). Another 42 non-Annex I Parties associated themselves formally with the Accord (and were listed in the Accord as such). Some of those that submitted actions or targets did not associate with the Accord. Cuba, the Cook Islands, Ecuador, Kuwait, and Nauru formally notified the UNFCCC Secretariat that they would not associate or engage with the Accord. Meetings in 2010 suggested that some Parties might retreat from pledges made in the Copenhagen Accord. Notably, several low-income countries reemphasized the two-track, pre-Copenhagen texts from the 2007 Bali meetings, rather than the single text of the Copenhagen Accord. Nevertheless, the government of Mexico, as host of the December 2010 meeting in Cancun, facilitated inclusive and transparent deliberations, restoring the confidence of some Parties in the negotiations process, and which yielded several decisions of the Parties collectively called the "Cancun Agreements" (CA). To a large degree, the Cancun Agreements reiterated elements already included in the UNFCCC, the Bali Action Plan, and the Copenhagen Accord. The Cancun Agreements continued the two tracks of negotiations toward post-2012 commitments. However, they contained nearly identical language on key points in the separate decisions under the UNFCCC and the Kyoto Protocol. A few paragraphs established explicit formal linkages between the two negotiating tracks. Major elements of the Cancun Agreements included the following: Long-term vision for GHG mitigation: (Only in the decision directly under the UNFCCC.) Identifies a wide variety of elements that are components of the long-term package considered necessary to address the multiple faces of climate change. States that "deep cuts" in global emissions are required "with a view to ... hold the increase in global average temperature below 2 o C." Also, establishes consideration beginning in 2013 of setting a more stringent goal to avoid a temperature increase exceeding 1.5 o C. A Cancun Adaptation Framework and an Adaptation Committee: Both established to promote national adaptation plans; and to prioritize and strengthen institutional capacities and disaster risk reduction strategies, research and technology development, and other country-driven actions to build social and ecological resilience to climate change. The work program may consider options for risk management, including development of a climate risk insurance facility. Parallel GHG mitigation by Annex I and non-Annex I Parties: Notes GHG mitigation targets for 2020 reported by Annex I Parties, and nationally appropriate mitigation actions (NAMAs) to be implemented by Non-Annex I Parties and communicated to the Secretariat by them, compiled in public documents to be issued by the Secretariat. Further reporting and analysis will clarify the assumptions and implications for the reported targets and actions. A registry on NAMAs: To record and update information on actions for which countries are seeking support; support available for NAMAs; and support provided for NAMAs. Enhanced reporting by Annex I Parties and international assessment: Requires reporting of emissions and removals related to GHG commitments, and to financial, technology, and capacity-building support provided by them. Transparent reporting and international review of Non-Annex I Parties' mitigation while respecting national sovereignty: Non-Annex I Parties must submit National Communications every four years, with biennial updates to include national GHG inventories and mitigation actions, needs, and support received. Domestic actions will be subject to domestic monitoring, reporting, and verification (MRV) in accordance with future guidelines. A process for international consultations and analysis (ICA) of biennial reports will be non-intrusive, non-punitive, and respectful of national sovereignty. Mitigation actions (as well as technology, financing, and capacity-building) supported by international finance will be subject to international MRV. Reducing Emissions from Deforestation: Requests countries to reduce carbon losses from land uses, including REDD+, and to enable mobilization of supportive international financing. Requests the AWG-LCA to explore financing mechanisms for implementing "results-based actions" to reduce emissions from deforestation and forest degradation, conserve and enhance forest carbon stocks, and to manage forests sustainably. With provision of adequate and predictable support, developing countries would develop forest and carbon reference levels and transparent national forest plans and safeguards monitoring systems. "Results-based actions" should be "fully measured, reported, and verified." Consideration of market-based mechanisms: Permits further consideration of emissions trading to assist developed country Parties to meet part of their GHG commitments, to supplement their domestic actions, to maintain and build on those under the Kyoto Protocol. A commitment by developed countries to mobilize finance for adaptation, mitigation, technology, and capacity-building: Pledges approaching $30 billion during 2010-2012, and a goal of $100 billion annually by 2020. Funding will come from public and private, bilateral and multilateral, and alternative sources. The most vulnerable developing countries had priority for the 2010-2012 funds. A Green Climate Fund (GCF): The GCF is governed by a board of 24 representatives, equally from developed and developing countries, to channel a significant share of new multilateral funding for adaptation and mitigation. The GCF is accountable to the COP, and is assisted by a new Standing Finance Committee. A Trustee (for at least three years the World Bank), accountable to the GCF Board, manages the financial assets, maintains records and prepares statements according to fiduciary standards. A Technology Mechanism: To support actions on mitigation and adaptation, accountable to the COP, composed of a standing, expert Technology Executive Committee and a Climate Technology Center (CTC) and Network. The CTC is intended to facilitate assistance by the Network at the request of a developing country Party. Intellectual property controversies are not addressed. Review by the COP of the long-term global goal: Starting by 2013 and ending by 2015, to lead to "appropriate action based on the review." The Decision of the Parties to the Kyoto Protocol took note of the GHG reduction pledges of the Annex I Parties in accordance with the Copenhagen Accord. The Decision under the Kyoto Protocol did not set a new deadline to conclude extension of the Protocol, only agreeing that it should be "as early as possible and in time to ensure that there is no gap between the first and second commitments periods." Japan, Canada, and others announced that they would not participate in an extension of the Kyoto Protocol, and that they would consider only an agreement that includes GHG mitigation requirements of all major emitters (including the United States). The absence of commitments from the top three global GHG emitters (China, the United States, and India) was a matter of consternation among many delegations and stakeholders. The Cancun Agreements marked a tentatively renewed confidence of many in the United Nations process. Many, though, watched the development of rules and guidelines, and degree of follow-through by countries on their pledges, as measures of success of the global process. Many, simultaneously, turned toward other domestic, bilateral, and multilateral institutions and processes, such as the development banks, the Major Economies Meetings, and private fora, as possibly more effective supplements or alternatives to the UNFCCC processes. Additionally, the experiences of the Copenhagen and Cancun processes, and their outcomes, marked an increase in attention to national and sub-national efforts to address climate change, relative to the attention and credence given to international negotiations. Among the decisions made by Parties at COP 17 in Durban, South Africa were two of particular note: (1) an agreement to a second commitment period (CP2) of the Kyoto Protocol, and (2) a mandate, the Durban Platform for Enhanced Action (DP), to negotiate by 2015 a new agreement "with legal force" that would be "applicable to all Parties", to begin implementation after 2020. Agreement on a new commitment period for GHG abatement under the Kyoto Protocol proved key to gaining consensus on the Durban Platform. Notably, delegations from China, India, and some other middle-income countries insisted that the highest-income Annex I Parties must meet their existing GHG reduction obligations and sign up to further reductions under the Kyoto Protocol. They also sought continuation of the Clean Development Mechanism of the Kyoto Protocol, through which non-Annex I Parties could sell GHG reduction credits. On the other hand, Canada, Japan, and Russia stated they would only consider an agreement that includes GHG reduction commitments from all major emitters (i.e., including China, the United States, and others). The EU, ultimately pivotal in the compromise, agreed to a second commitment period of the Kyoto Protocol only in conjunction with a decision to set out a clear roadmap to a new agreement that would include legally binding GHG reductions for all major emitters. In concept, the Durban Platform mandate could eliminate after 2020 the bifurcation of countries into "developed" or "developing." It remains to be seen whether Parties will adopt new approaches or fall back on positions that have been in stalemate for many years. Following up on other aspects of the Cancun Agreements, Parties also decided on the governing instrument for the Green Climate Fund (launched in 2012) to help finance mitigation and adaptation measures in low-income countries; a technology expert panel, modalities of the Technology Executive Committee, and criteria and a process for selecting the host of the new Climate Technology Centre—the center of a global network of technology centers; methods to establish reference levels against which to measure avoided deforestation as a basis for market payments, rules to count reductions from peatlands, and languages on reporting safeguards for indigenous people and other concerns with REDD+ projects; and guidelines for biennial reports by Parties, procedures for "international assessment and review," "international consultation and analysis," and other actions to increase the transparency of countries' emissions-cutting actions. The 18 th session of the COP and the 8 th Session of the CMP produced a set of decisions collectively dubbed the Doha Climate Gateway . The agreements formally closed processes under the Bali Action Plan (2007), such as the Ad Hoc Working Group on Long-Term Cooperation (AWG-LCA) and the Ad Hoc Working Group on the Kyoto Protocol (AWG-KP). These processes have given way to new paths forward focused 1. under the UNFCCC, on a. implementation of past agreements, and b. the search for a future accord to be hammered out by the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP); 2. under the Kyoto Protocol, on adoption of the Doha Amendment, which established a second commitment period for GHG targets from 2013-2020, covering 37 countries and the European Union, and requiring reductions of GHG emissions to, on average, 18% below 1990 levels. These are detailed below. In addition, the Parties to the UNFCCC continue to operate without rules on voting. As a result, decisions must be made by consensus (without objection). This is increasing seen by some as a problem for further progress under the UNFCCC, as any one Party may block an agreement. For the second time in UNFCCC history, the Chair gaveled adoption of a decision over the objections of a Party (see Bolivia's experience in discussion of the Cancun Agreements ). The Chair announced adoption of the Doha Amendment with language restricting sales of surplus AAUs over a delegation trying to object. This incident has raised questions about whether and how voting and consensus may evolve. Past meetings produced many decisions and agreements to analyze issues, produce plans, establish institutions, and other activities generally aimed at reducing GHG emissions, including from deforestation, forest degradation, and other activities. Themes of deliberations to reduce GHG emissions include Closing the "gap" between current pledges and the maximum 2 o C vision : Beyond urging countries to increase their ambition, much of the work is to clarify GHG pledges and compare them, with an eye toward encouraging all Parties to take on "comparable" efforts. Under the 2010 Cancun Agreements, more than 85 Parties—both Annex I and non-Annex 1(including China, India, Indonesia, Mexico, and many others)—made non-binding pledges to abate national GHG emissions. These pledges are stated with different base years, scopes, and other conditions that make comparison and evaluation challenging. Work continues on "clarification," "common elements", "comparability", and assistance to developing countries in making pledges. Supporting mitigation and adaptation actions by developing countries : Many non-Annex I Parties are working on low-carbon development strategies and Nationally Appropriate Mitigation Actions (NAMAs) that address multiple policy objectives in GHG mitigation, energy supply, water management, provisions of sanitation, and social development. Work continues to prepare and carry out NAMAs, and to match these efforts to technical, financial, and capacity-building support. The work program on Reducing Emissions from Deforestation and Forest Degradation, plus Conservation (REDD+) continues to struggle with questions about how to verify and validate GHG reductions. The COP in Doha extended the work program on long-term finance for an additional year. Discussion of a "mid-term gap" from 2012 to 2020, from the end of fast-start financing to the 2020 named in the $100 billion pledge, led to a decision encouraging developed countries to increase efforts to provide finance from 2013 to 2015. The Standing Committee on Finance (SC) was charged with identifying options to mobilize financial resources that are adequate, predictable, sustainable, and accessible. Industrialized countries were urged to "provide resources of at least to the average annual level of the fast-start period for 2013-15." Denmark, France, Germany, Sweden, the United Kingdom, and the EU Commission pledged as much as $8.5 billion for the period to 2015. The SC reported that developed countries had delivered more than $33 billion in fast-start climate finance between 2010 and 2012. This was greater than the pledge for $30 billion in fast-start finance they made in Copenhagen in 2009. Many Parties and observers questioned, however, whether all the financing counted is "new and additional" or recounted financing that would have been available anyway. The SC will continue to debate proposals for taxes on international aviation, international shipping, and/or international financial transactions as possible, more reliable sources of funding than periodic, voluntary replenishments from public coffers. The SC will also prepare biennial reports assessing financial flows, and developing methods for improved reporting of financial flows. The Green Climate Fund (GCF) moved forward. The COP agreed to a governing instrument for the Green Climate Fund (GCF) but some Parties and stakeholders expressed disappointment that more progress had not been made in operationalizing the GCF. They also sought more clarity on how much money will be available in the GCF, the role of the private sector, and the balance of mitigation and adaptation pay-outs. Parties selected Songdo, South Korea, as the host of the GCF. Considerable discussion revolved around the relationship between the Governing Board and the COP. Parties continued to discuss the roles and linkages between the Technology Executive Committee (TEC) and the Climate Technology Centre and Network (CTCN), both established in the Cancun Agreements . Parties continued to disagree on whether intellectual property rights should be discussed in the TEC, given that they are covered in fora other than the UNFCCC. Parties agreed to meetings to support two "workstreams" of the ADP, relating to 1. the 2015 agreement, to take effect in 2020; and 2. "pre-2020 ambition"—or increasing the reduction of GHG emissions in the period to 2020. "Balance" has become a key concept, concerning relative priorities between the two workstreams, and among the subjects of adaptation, "enhanced ambition" in GHG mitigation, means of implementation (finance, technology development and transfer, and capacity-building), and transparency of actions and support for actions. Decisions in Doha included several further items: Parties agreed to consider managing Loss and Damage through an institutional mechanism. Some characterize this as agreement to a process to address "loss and damage" while the United States does not contemplate participating in any arrangement based on blame or liability for past actions, including GHG emissions. Parties agreed to consider the possible roles of both market mechanisms and non-market mechanisms in the new 2015 agreement. At the request of Saudi Arabia, Parties agreed to work to consider diversification of economies, suggesting a vision beyond reliance primarily on production of fossil energy. The Doha Amendment to the Kyoto Protocol established the second commitment period, from 2013-2020 for the Kyoto Protocol, with GHG targets for 37 countries plus the EU averaging a reduction of 18% below 1990 levels. Japan, New Zealand, and the Russia Federal declined new GHG targets because all major emitters did not participate. Canada formally withdrew from the Kyoto Protocol. Because some Parties were disappointed with what they considered to be a low level of ambition for GHG reductions in the second commitment period, the Doha Amendment provided for a voluntary review in 2014 of Annex I Parties' Quantified Emission Limitations and Reduction Commitments (QELRCs) . The first commitment period of the KP, in 1997, covered more than 55% of the 1990 "basket of six" GHG emissions globally. The second commitment period covers approximately 15%, given the growth of emissions by a number of non-Annex I countries and without the participation in second commitment period GHG targets by the Russian Federation, Japan, and New Zealand, the United States, or Canada. The Doha Amendment modified several rules for the KP's second commitment period: Only Annex I Parties taking on GHG targets in the second commitment period may transfer and acquire emission reduction credits from the Clean Development Mechanism (CDM) and Joint Implementation, two of the three flexibility mechanisms under the Kyoto Protocol. Parties that have not used all their Assigned Allowance Units ( AAUs) from the first commitment period may sell to other Parties. Nonetheless, the EU, Japan, and other countries vowed they would not acquire any, as they do not consider that the "surplus" AAUs represent real GHG emission reductions. Disagreement continued over whether AAUs unused in the first or second commitment periods should be cancelled from 2020. Some observers have noted vagaries in the text that may create uncertainties in the likely size of credit supplies and market demand under the market mechanisms. Members of Congress may seek to monitor and provide input to the Doha Platform (ADP) negotiations, due to reach an agreement in 2015 to take effect in 2020, with a vision of avoiding a 2 o C (3.6 o F) increase of global average temperature above pre-industrial levels. The United States will be among the countries under most pressure also to provide financial and other assistance to low-income countries, to help them take on and adhere to commitments to GHG mitigation and adaptation. In preparation for the 2015 ADP negotiations, Congress may wish to provide advice regarding the United States' position at summit of world leaders, to be convened by UN Secretary General Ban Ki-Moon in September 2014; he has challenged leaders to bring "bold pledges." Members of Congress hold divergent views about the value of international cooperation to address climate change. While some Members are convinced that human-induced climate change is a high priority risk that must be addressed through federal actions and international cooperation, others are not convinced of significant risk. Some are wary, as well, of international processes that could impose costs on the United States, undermine national sovereignty, or lead to trade advantages for other countries. Regardless of current views, the United States is a Party to the UNFCCC and has certain obligations, however unenforceable, under that treaty. The United States' behaviors in that context are likely to continue to draw great attention on the world stage. Arguably, U.S. credibility is impaired to the degree that it has not followed through on earlier commitments, is unable to negotiate for unambiguous commitments due to lack of domestic consensus, and cannot assure others that any agreements made by an Administration would be accepted by Congress. The Executive Branch continues international negotiations and implementation of the UNFCCC obligations. Committees of Congress engage in oversight (from home and at the international meetings), providing input to the Administration formally and informally, and deciding program authorities and appropriations for these activities. Given the continuing public and legislative debate over whether and how to address climate change, the 113 th Congress may engage on the international aspects. International cooperation would be required to curtail human-induced climate change and to facilitate successful adaptation to its projected impacts. Many U.S. legislators seek assurance of comparable actions by all major emitters prior to committing the United States to actions. Additional issues that may be important to Congress include the compatibility of any international agreement with U.S. domestic policies and laws; the adequacy of appropriations and fiscal incentives to achieve any commitments under the agreement; the desirable form of any agreement; and any requirements for potential ratification and implementing legislation, should a formal treaty emerge from the negotiations. Many Members of Congress are especially attentive to questions of parity of GHG actions among major trading partners, and especially to the potential for adverse competitiveness effects if some countries do not mandate GHG reductions while others move ahead. Most other major countries (including China, Brazil, and others) are taking actions, and some are measurably altering their GHG emission trajectories. The United States has taken some actions, such as establishing GHG emission limits for motor vehicles and providing fiscal incentives for energy efficiency, renewable, and other energy technologies, etc. The Environmental Protection Agency (EPA) has proposed carbon dioxide emission standards for future electric generating units as well. With existing programs and regulations, and the addition of the expected EPA regulation of GHG, the Administration believes the United States will accomplish its pledge of reducing U.S. GHG emissions to at least 17% below 2005 levels by 2020. Still, the cumulative effects of measures taken may be unlikely to achieve the deep, absolute reductions of GHG emissions considered necessary by many to stabilize atmospheric concentrations or to substantially increase rates of carbon removals from the atmosphere and sequestration (e.g., by forests and agricultural activities). Many observers have noted other risks to the U.S. economy relating to GHG abatement: some major competitors are undertaking rapid development and deployment of advanced energy technologies, justified by their domestic commitments to abating GHG emissions, enhancing energy security, reducing environmental impacts of industrial systems, and achieving additional policy objectives. Some of the countries have, correspondingly, emerged as the leading inventors and/or manufacturers of new technologies that are gaining global market shares. While fossil fuel use is unlikely to decline in the next two decades, markets for alternative technologies are expanding. Some in Congress may continue inquiries into the relationship of climate change policies to other national interests, including technological competitiveness and energy and water security. | The November 2013 negotiations in Warsaw are the most recent in a series aimed at arranging multilateral cooperation to address climate change. The United Nations launched formal international negotiations in 1990 to respond to growing scientific and public concern about human-induced emissions of greenhouse gases (GHG), principally carbon dioxide. This report chronicles the main milestones and issues in the United Nations process to address climate change. The 1992 United Nations Framework Convention on Climate Change (UNFCCC): Governments agreed in 1992 to the United Nations Framework Convention on Climate Change (UNFCCC), which continues to provide the principle—but not sole—framework for global cooperation on the issue. The treaty's objective is to stabilize GHG concentrations in the atmosphere at a level that would prevent dangerous human-induced interference with the Earth's climate system. A 2010 political statement interpreted this as a vision of GHG cuts to prevent global average temperature from increasing more than 2°C (2.6°F) above pre-industrial levels. The United States, as a Party to the UNFCCC, has qualitative obligations to report national GHG emissions; cooperate on science and technology development; enact programs to abate emissions; and provide agreed new and additional financial resources to assist low-income countries to mitigate and adapt to climate change. When the UNFCCC was drafted, the then-industrialized countries emitted two-thirds of annual GHG emissions (excluding emissions from deforestation). These Annex I countries correspondingly accepted a lead role in abating GHG emissions, though all countries agreed to "common but differentiated responsibilities." The 1997 Kyoto Protocol and its 2012 Doha Amendment: When UNFCCC entered into force in 1995, Parties agreed that enforceable obligations were necessary to prevent "dangerous climate change." The 1995 Berlin Mandate called for a new protocol by 1997 with "no new commitments for developing countries" Under the resulting 1997 Kyoto Protocol, 37 of the then-highest income countries and the European Union (EU) committed to reduce their GHG emissions on average to 5% below 1990 levels during the "first commitment period" of 2008 to 2012. The United States signed but did not become a Party to the Kyoto Protocol. The 2012 Doha Amendment to the Kyoto Protocol established a second commitment period of the Kyoto Protocol for the period 2013-2020, with GHG abatement pledges from 37 countries plus the EU. Japan, New Zealand, and the Russian Federation declined to participate in the Doha Amendment to the Kyoto Protocol. Canada withdrew from the Kyoto Protocol in 2012. The 2010 Cancun Agreement: In 2010 for the first time under the UNFCCC, a negotiated agreement contained language for GHG pledges by all major emitting Parties. Many Parties, including China, pledged quantitatively to limit their GHG emissions. However, these pledges are not considered "legally binding." Currently, the Durban Platform Negotiations: The current round of negotiations is the Durban Platform for Enhanced Action. The Durban Platform's mandate is for a new agreement "with legal force" that would be "applicable to all Parties" and begin implementation after 2020. In concept, this mandate could eliminate the bifurcation in the UNFCCC between Annex I and non-Annex I Parties, or between countries with and without binding GHG obligations. Issues for Congress: Many in Congress are concerned with the merits of a treaty, and with the goals and obligations it might embody. One concern is the compatibility of any international agreement with any U.S. domestic policies and laws, should consensus emerge on whether and how to address climate change. Additional issues include the costs and other impacts of obligations; the parity of actions among countries and effects on trade competitiveness; the adequacy of appropriations, fiscal measures, and programs to achieve any commitments under the agreement; and the desirable form of the agreement and related requirements. A new treaty would require Senate consent to ratify it as well as possible federal legislation to meet any U.S. commitments. |
F ederal campaign finance law is composed of a complex set of limits, restrictions, and requirements on money and other things of value that are spent or contributed in the context of federal elections. While the Federal Election Campaign Act (FECA, or Act) sets forth the statutory provisions governing this area of law, several Supreme Court and lower court rulings also have had a significant impact on the Act's regulatory scope. This report begins with a brief history of FECA and an overview of the constitutional framework for evaluating campaign finance law. Next, organized by regulatory context, and integrating governing court precedent, this report analyzes three primary areas of FECA regulation: contribution limits; source restrictions; and disclaimer and disclosure requirements. In so doing, the report examines topics of recent interest to Congress, including the permissible uses of campaign funds; the scope of what constitutes a campaign contribution; the ban on foreign nationals making contributions and expenditures in connection with U.S. elections; and the restrictions on foreign nationals participating in campaigns. The report also outlines the criminal penalties that may be imposed under the Act for violations of its provisions. As the Supreme Court's campaign finance jurisprudence informs the manner in which campaign financing may be constitutionally regulated, the report assesses pivotal rulings that may be instructive should Congress consider legislation in this area. In addition, the report examines significant lower court rulings, including an appellate court decision that provides the legal underpinning for the establishment of super PACs. Finally, the report analyzes two cases that were recently appealed to the Supreme Court. Should the Court decide to review either case, depending on its contours, the decision could potentially affect the constitutional bounds of future campaign finance regulation. In 1971, Congress first enacted FECA, requiring, among other things, campaign finance reporting by candidates and political committees. In response to the Watergate scandal, in 1974, Congress substantially amended the Act, generally implementing limits on contributions and expenditures, and creating the Federal Election Commission (FEC) to administer and provide civil enforcement of FECA. As a result of a challenge to the constitutionality of the 1974 Amendments, the Supreme Court issued its seminal Supreme Court ruling in Buckley v. Valeo , holding, among other things, mandatory spending limits unconstitutional, and invalidating the original appointment structure of the FEC. Responding to the Court's ruling, in 1976, Congress amended FECA in order to, among other things, restructure the FEC and establish revised contribution limits, and again in 1979, in order to revise certain reporting requirements. In 2002, Congress enacted the Bipartisan Campaign Reform Act (BCRA), which contains the most recent, comprehensive amendments to FECA. Among other provisions, BCRA prohibited corporate and labor union spending on certain advertisements run prior to elections, and restricted the raising and spending of unregulated or "soft money" in federal elections. Since 2003, a series of Supreme Court decisions has invalidated several BCRA provisions. In addition, in 2010, the Court invalidated a long-standing prohibition on independent expenditures funded from the treasuries of corporations and labor unions. Generally, the Court has overturned such provisions as unconstitutional violations of First Amendment guarantees of free speech. Accordingly, the body of federal campaign finance law that remains was not originally enacted by Congress as a comprehensive regulatory policy. In Buckley , the Supreme Court established the framework for evaluating the constitutionality of campaign finance regulation. According to the Court, limits on campaign contributions—which involve giving money to an entity—and expenditures—which involve spending money directly for electoral advocacy—implicate rights of political expression and association under the First Amendment. The Court, however, afforded different degrees of First Amendment protection and levels of scrutiny to contributions and expenditures. Contribution limits are subject to a more lenient standard of review than expenditures, the Court held, because they impose only a marginal restriction on speech, and will be upheld if the government can demonstrate that they are a "closely drawn" means of achieving a "sufficiently important" governmental interest. Unlike expenditure limits, which reduce the amount of expression, the Court opined, contribution limits involve "little direct restraint" on the speech of a contributor. Although the Court acknowledged that a contribution limit restricts an aspect of a contributor's freedom of association, that is, his or her ability to support a candidate, nonetheless, the Court determined that a contribution limit still permits symbolic expressions of support, and does not infringe on a contributor's freedom to speak about candidates and issues. Reasonable contribution limits, the Court announced, still permit people to engage in independent political expression, associate by volunteering on campaigns, and assist candidates by making limited contributions. Regarding whether a contribution limit is closely drawn, the Court reasoned that it was relevant to examine the amount of the limit. Limits that are too low could significantly impede a candidate or political committee from amassing the necessary resources for effective communication. The Court concluded, however, that the FECA contribution limit at issue in Buckley would not negatively affect campaign funding. On the other hand, the Buckley Court determined that because they impose a substantial restraint on speech and association, expenditure limits are subject to strict scrutiny, requiring that they be narrowly tailored to serve a compelling governmental interest. Specifically, under the First Amendment, the Court determined, expenditure limits impose a restriction on the amount of money that a candidate can spend on communications, thereby reducing the number and depth of issues discussed and the size of the audience reached. Such restrictions, the Court determined, are not justified by an overriding governmental interest. That is, because expenditures do not involve money flowing directly to the benefit of a candidate's campaign fund, the risk of quid pro quo corruption does not exist. Essentially, quid pro quo corruption captures the notion of "a direct exchange of an official act for money." Further, the Court in Buckley rejected the government's asserted interest in equalizing the relative resources of candidates, and in reducing the overall costs of campaigns. Upon a similar premise, the Court rejected the government's interest in limiting a wealthy candidate's ability to draw upon personal wealth to finance his or her campaign, and struck down a law limiting expenditures from personal funds. When a candidate self-finances, the Court pointed out, his or her dependence on outside contributions is reduced, thereby lessening the risk of corruption. Importantly, the Court's most recent major campaign finance decision, McCutcheon v. Federal Election Commission , announced that only quid pro quo corruption or its appearance constitute a sufficiently important governmental interest to justify limits on contributions, as well as expenditures. In McCutcheon , the Court reasoned it has consistently rejected campaign finance regulation based on other governmental objectives, such as goals to "level the playing field," "level electoral opportunities," or "equaliz[e] the financial resources of candidates." While acknowledging that the Court's campaign finance jurisprudence has not always discussed the concept of corruption clearly and consistently, and that the line between quid pro quo corruption and general influence may sometimes seem vague, the Court in McCutcheon said that efforts to ameliorate "influence over or access to" elected officials or political parties do not constitute a permissible governmental interest. Although the Supreme Court's campaign finance jurisprudence has shifted over the years, as this report illustrates, reviewing courts have applied the basic Buckley framework when evaluating whether a campaign finance regulation violates the First Amendment. Therefore, in Buckley and its progeny, with some exceptions, courts have generally upheld limits on contributions, concluding that they serve the governmental interest of protecting elections from corruption, while invalidating limits on independent expenditures, concluding that they do not pose a risk of corruption. As discussed, FECA sets forth limits and restrictions on campaign contributions in federal elections. FECA broadly defines a "contribution" to include money or anything of value given for the purpose of influencing an election for federal office. Specifically, FECA defines contributions to include "any gift, subscription, loan, advance, or deposit of money or anything of value" that is made "for the purpose of influencing any election for Federal office" or a payment that is made for compensation of personal services that are rendered to a political committee free of charge. As outlined above, FECA expressly defines contributions to include loans made to campaign committees; however, the Act exempts from such definition loans that are made from banks, so long as they are made in compliance with applicable law and "in the ordinary course of business." Further, the Act specifies that a bank loan to a campaign committee must be evidenced by a written instrument, ensuring repayment on a date certain or in accordance with an amortization schedule, and subject to the lending institution's "usual and customary interest rate." However, in the case of other loans made to a campaign—for example, personal loans—the outstanding balance is considered a campaign contribution. Therefore, the amount of an unpaid loan, coupled with other contributions made by an individual to a given candidate or committee, cannot exceed the applicable contribution limit. Once a loan is repaid in full, the amount of the loan is no longer considered a contribution. The following sections of the report provide an overview of FECA's limits and restrictions on contributions, including a discussion of key constitutional rulings. FECA provides specific limits on how much individuals can contribute to a candidate, and these limits are periodically adjusted for inflation in odd-numbered years. For example, in the 2017-2018 federal election cycle, an individual can contribute up to $2,700, per election, to a candidate. Table 1 , below, outlines the major federal campaign contribution limits applicable to the 2017-2018 cycle. In Buckley , the Court upheld the constitutionality of FECA base limits, which limit the amounts of money an individual can contribute to a candidate, party, or political committee. In the years since, the Court has applied the principles articulated in Buckley to uphold what it considers reasonable contribution limits, while invalidating limits it determines are too low to allow a candidate to amass necessary resources for effective campaigning. For example, in Nixon v. Shrink Missouri Government PAC , the Court upheld a state law imposing limits on contributions made to candidates running for state office. While observing that contribution limits must be closely drawn to a sufficiently important interest, the Court announced that the amount of the limitation "need not be 'fine tuned.'" In contrast, in Randall v. Sorell , in a plurality opinion, the Court invalidated a Vermont law that provided that individuals, parties, and political committees were limited to contributing $400 to certain state candidates, per two-year election cycle, without providing for inflation adjustment. While unable to reach consensus on a single opinion, six Justices agreed that Vermont's contribution limits violated First Amendment free-speech guarantees. The plurality opinion written by Justice Breyer, joined by two other Justices, determined that the contribution limits in Randall were substantially lower than limits the Court had previously upheld, as well as limits in effect in other states, and that they were not narrowly tailored. The opinion also concluded that the limits substantially restricted candidates, particularly challengers, from being able to raise the funds necessary to run a competitive campaign; impeded parties from getting their candidates elected; and deterred individual citizens from volunteering on campaigns (because the law counted certain volunteer expenses toward a volunteer's individual contribution limit). In contrast to base contribution limits, FECA also provided for limits on the amount of money a donor could contribute in total to all candidates, parties, and political committees, which is referred to as aggregate contribution limits. In its most recent campaign finance decision, McCutcheon , the Supreme Court held that aggregate contribution limits are unconstitutional under the First Amendment. Characterizing them as an "outright ban" on further contributions once the aggregate amount has been reached, the Court determined that they violate the First Amendment by infringing on political expression and association rights, without furthering the governmental interest of preventing quid pro quo corruption or its appearance. In Buckley v. Valeo , the Court had upheld the constitutionality of a $25,000 federal aggregate contribution limit then in effect, characterizing that limit as a "quite modest restraint" that served to prevent circumvention of base limits. In other words, the Court determined that the aggregate limits constrained an individual from, for example, contributing large amounts to a particular candidate through "the use of unearmarked contributions to political committees likely to contribute to that candidate." In McCutcheon , however, the Court invalidated a BCRA provision that imposed biennial limits on aggregate contributions, which were adjusted for inflation each election cycle. For example, during the 2011-2012 election cycle, the Act prohibited individuals from making contributions to candidates totaling more than $46,200, and to parties and PACs (with the exception of "super PACs") totaling more than $70,800. (The base limits on contributions established by BCRA were not at issue in this case and remain in effect.) As a threshold matter, the plurality opinion in McCutcheon determined that, regardless of whether strict scrutiny or the "closely drawn" standard applies, the analysis requires the Court to "assess the fit" between the government's stated objective and the means to achieve it. Applying that analysis to FECA's aggregate contribution limits, the opinion observed a "substantial mismatch" between the two, and concluded that even under the more lenient standard of review, the limits could not be upheld. The plurality in McCutcheon concluded that Buckley's holdings on aggregate limits did not control because the Buckley Court had engaged in minimal analysis of aggregate limits, and further, the limits at issue in McCutcheon established a different statutory regime and operated under a distinct legal backdrop. The Court reasoned that, since Buckley , Congress had enacted other statutory and regulatory safeguards against circumvention of base limits. The opinion also outlined additional safeguards that Congress could enact to prevent circumvention of base contribution limits, such as targeted restrictions on transfers among candidates and political committees or enhanced restrictions on earmarking, but cautioned that the opinion was not meant to evaluate the validity of any particular proposal. Further distinguishing the holding in Buckley , the McCutcheon plurality emphasized that aggregate contribution limits restrict how many candidates and committees an individual can support, which creates an "outright ban" on further contributions. This ban, the opinion concluded, unconstitutionally restricts both free speech and association rights. Importantly, it was in McCutcheon that the Court announced that the prevention of quid pro quo corruption or its appearance is the only legitimate governmental interest for restricting campaign contributions. According to the opinion, the spending of large sums of money in connection with elections, but absent an effort to control how an officeholder exercises his or her official duties, does not give rise to quid pro quo corruption. Although McCutcheon did not expressly adopt a stricter standard of review for contribution limits, its announcement that only quid pro quo corruption or its appearance serve as a compelling governmental interest may affect the degree to which contribution limits are upheld in future rulings. In addition to limiting the amount a donor may contribute to a campaign, FECA also places certain restrictions on the types of contributions that a donor can make. For example, FECA prohibits contributions made through a conduit—that is, by one person "in the name of another person"—and bans candidates from knowingly accepting such contributions. This provision serves to prevent an individual, who has already contributed the maximum amount to a given candidate, from circumventing contribution limits by giving money to someone else to contribute to that same candidate. Regulations the FEC promulgated under FECA further specify that a corporation is prohibited from reimbursing employees for their campaign contributions through a bonus, expense account, or other form of compensation. Notably, as discussed below in the section of the report entitled " Criminal Penalties ," FECA provides for specific penalties for knowing and willful violations of this provision. FECA also expressly prohibits a candidate from converting campaign funds for personal use. Specifically, the Act considers a contribution to be converted to personal use if it is used to fulfill any commitment, obligation, or expense that would exist "irrespective" of the candidate's campaign or duties as a federal officeholder. Examples of such expenses include home mortgage, rent, or utility payments; clothing purchases; non-campaign-related car expenses; country club memberships; vacations; household food; tuition payments; admission to sporting events, concerts, theater performances, or other entertainment not associated with a campaign; and health club fees. Notably, in 2018, the FEC decided that a candidate may pay for child care expenses with campaign funds if they are incurred as a direct result of campaign activity. According to the FEC, applying the irrespective test, if child care expenses are incurred as a direct result of campaign activity, "they would not exist irrespective" of the campaign. FECA defines an "independent expenditure" to mean an expenditure by a person that expressly advocates the election or defeat of a clearly identified candidate, and "is not made in concert or cooperation with or at the request or suggestion of" the candidate or a party. In contrast, FECA provides that a communication will be considered "coordinated" if it is made "in cooperation, consultation or concert, with, or at the request or suggestion of" the candidate or a party. In other words, if a communication—such as a political advertisement—is made in coordination with a candidate or political party, it is treated as an in-kind contribution to the corresponding candidate or party, or as a coordinated party expenditure, rather than as an independent expenditure. Like other contributions, in-kind contributions and coordinated party expenditures are subject to FECA limits and source restrictions, which are discussed in the next section of the report. The regulatory line between coordinated communications and independent expenditures is based on Supreme Court precedent. In various rulings, the Court has determined that the First Amendment does not allow any limits on expenditures that are made independently of a candidate or party because the money is deployed to advance a political point of view separate from a candidate's viewpoint. In other words, the Court has explained, without coordination or "prearrangement" with a candidate, not only is the value of an expenditure decreased, but so is "the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate." Accordingly, the Court has reasoned that independent expenditures do not raise heightened governmental interests in regulation. As the Court has emphasized, the "constitutionally significant fact" of an independent expenditure is the absence of coordination between the candidate and the source of the expenditure, and the independence of such spending is easily distinguishable when it is made "without any candidate's approval (or wink or nod)." Hence, individuals, political parties, political action committees (PACs), super PACs, and other organizations can engage in unlimited independent expenditures. Furthermore, as a result of the Court's ruling in Citizens United v. Federal Election Commission , discussed further below, corporations and labor unions have a constitutionally protected right to engage in unlimited independent expenditures directly from their revenue funds or "general treasuries" and are not required to establish a PAC in order to conduct such spending. As summarized below, regulations promulgated under FECA set forth specific criteria establishing when a communication by an organization will be considered coordinated with a candidate or a party and thereby treated as a contribution. Specifically, the regulations set forth a three-prong test whereby if all prongs of the test are met—payment, content, and conduct—a communication will be deemed coordinated: Payment . In general, the regulations provide that the "payment" standard is met if the communication is paid for, in whole or in part, by a person other than the candidate, a candidate committee, or party. Content . The "content" standard addresses the subject and timing of a communication. The content standard does not require that a communication contain express advocacy (i.e., expressly advocating the election or defeat of a clearly identified candidate, using terms such as "vote for," "elect," or "vote against"). Generally, the regulations provide that the content standard is met if a communication is an electioneering communication, which is defined to include a broadcast, cable, or satellite communication that refers to a federal candidate, made within 60 days of a general election or 30 days of a primary; a public communication that distributes or republishes, in whole or in part, candidate campaign materials, with certain exceptions; a public communication that expressly advocates election or defeat of a clearly identified candidate or is the "functional equivalent of express advocacy"; or a public communication that, in part, refers to a candidate or party and, for House or Senate elections, is disseminated within 90 days before a primary or general election or, for presidential and vice presidential elections, is disseminated within 120 days before a primary or nominating convention or caucus. Conduct . The "conduct" standard addresses interactions between the person paying for the communication and the relevant candidate or party. Generally, the regulations specify that the conduct standard is met if the communication is created at the "request or suggestion of" a candidate or party, or at the suggestion of the funder of the communication and the candidate or party assents to the suggestion; the candidate or party is "materially involved" in decisions regarding the communication; the communication is created after "substantial discussions" between the funder of the communication and the candidate or party; the funder of the communication employs a "common vendor" meeting certain criteria to create the communication; or a person who has previously been an employee or independent contractor of a candidate or party during the previous 120 days uses or conveys certain information to the funder of the communication. Exceptions or "Safe Harbors . " FECA regulations also set forth several "safe harbors" exempting communications from being deemed coordinated. Below are a few examples, summarized. Endorsements and Solicitations . A public communication in which a federal candidate endorses or solicits funds for another federal or nonfederal candidate is not considered coordinated with respect to the endorsement or the solicitation, unless the public communication "promotes, supports, attacks, or opposes" the endorsing candidate or another candidate running for the same office. Firewalls . The "conduct" standards are not met if the commercial vendor, former employee, or political committee established a firewall that meets certain requirements, including a prohibition on the flow of information between employees or consultants providing services for the funder of the communication, and employees or consultants providing services to the candidate or the candidate's opponent or a party. The firewall must be described in a written policy that is distributed to all relevant employees, consultants, and clients. Publicly Available Information . If information material to the creation of a communication was obtained from a publicly available source, the other "conduct" standards are not met, unless the communication was made at the "request or suggestion" of a candidate or party, or at the suggestion of the funder of the communication and the candidate or party assents to the suggestion. Legislative Inquiries . If a candidate or party responds to an inquiry about its position on a legislative or policy issue—but not including campaign plans, projects, activities, or needs—the "conduct" standards are not met. In addition to invalidating the BCRA provision setting forth aggregate contribution limits, discussed above, the Supreme Court has also invalidated the BCRA provisions establishing limits on contributions whose opponents significantly self-finance and the limits on contributions by minors. Furthermore, in a ruling that provided the legal underpinning for the establishment of super PACs, an appellate court has ruled that limits on contributions to groups that make only independent expenditures are unconstitutional. The following sections of the report briefly examine these rulings. In 2008, the Court held, in Davis v. Federal Election Commission , that a statute establishing a series of staggered increases in contribution limits for candidates whose opponents significantly self-finance their campaigns violates the First Amendment, because the penalty imposed on expenditures of personal funds is not justified by the compelling governmental interest of lessening corruption or its appearance. Enacted as part of BCRA, the invalidated provision of law is known as the "Millionaire's Amendment." The Millionaire's Amendment provided a complex statutory formula (using limits that were in effect at the time the Court considered Davis ) requiring that if a candidate for the House of Representatives spent more than $350,000 of personal funds during an election cycle, the individual contribution limits applicable to her opponent were increased from the then-current limit ($2,300 per election) to up to triple that amount (or $6,900 per election). Similarly, for Senate candidates, a separate provision generally raised individual contribution limits for a candidate whose opponent exceeded a designated threshold level of personal campaign funding that was based on the number of eligible voters in the state. For both House and Senate candidates, the increased contribution limits were eliminated when parity in spending was reached between the two candidates. While acknowledging the long history of jurisprudence upholding the constitutionality of individual contribution limits, the Court emphasized its definitive rejection of any limits on a candidate's expenditure of personal funds to finance campaign speech. The Court reasoned that limits on a candidate's right to advocate for his or her own election are not justified by the compelling governmental interest of preventing corruption—instead, the use of personal funds actually lessens a candidate's reliance on outside contributions and thereby counteracts coercive pressures and risks of abuse that contribution limits seek to avoid. Although conceding that the Millionaire's Amendment did not directly impose a limit on a candidate's expenditure of personal funds, the Court concluded that it impermissibly required a candidate to make a choice between the right of free political expression and being subjected to discriminatory contribution limits, and created a fundraising advantage for his or her opponents. In contrast, if the law had simply increased the contribution limits for all candidates—both the self-financed candidate as well as the opponent—the Court opined that it would have passed constitutional muster. Intrinsically, candidates have different strengths based on factors such as personal wealth, fundraising ability, celebrity status, or a well-known family name, and by attempting to level electoral opportunities, the Court reasoned, Congress is deciding which candidate strengths should be allowed to affect an election. And using election law to influence voters' choices, the Court warned, is a "dangerous business." In 2003, in McConnell v. F ederal Election Commission , by a unanimous vote, the Court invalidated as unconstitutional under the First Amendment a BCRA provision prohibiting individuals age 17 or younger from making contributions to candidates and political parties. Reasoning that minors enjoy First Amendment protection and that contribution limits impinge on such rights, the Court determined that the prohibition was not closely drawn to serve a sufficiently important government interest. In response to the government's assertion that such a prohibition protects against corruption by conduit—that is, parents donating through their minor children to circumvent contribution limits—the Court saw little evidence to support the existence of this type of evasion. Furthermore, the Court postulated that such circumvention of contribution limits may be deterred by the FECA provision prohibiting contributions in the name of another person, discussed above, and the knowing acceptance of contributions made in the name of another person. Even assuming that a sufficiently important interest could be provided in support of the prohibition, the Court determined that the prohibition was overinclusive. While observing that various states have adopted more tailored approaches to address this issue—for example, by counting contributions by minors toward the total permitted for a parent or family unit, imposing a lower cap on contributions by minors, and prohibiting contributions by very young children—the Court expressly declined to decide whether any such alternatives would pass muster. Providing the legal underpinning for the creation of super PACs, in 2010, the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) held that limits on contributions to groups making only independent expenditures are unconstitutional. In view of the Supreme Court's decision in Citizens United —decided only months before—holding that independent expenditures do not give rise to corruption, the D.C. Circuit, in SpeechNow.org v. F ederal E lection C ommission , concluded that campaign contributions to groups making only independent expenditures similarly do not give rise to corruption. Citizens United is discussed in greater detail below, in the portion of the report discussing source restrictions applicable to corporations and labor unions. In Citizens United , the Court relied, in part, on its ruling in Buckley holding that expenditures made "totally independently"—in other words, not coordinated with any candidate or party—do not create a risk of corruption or its appearance, and therefore, cannot be constitutionally limited. Accordingly, the D.C. Circuit in SpeechNow.org reasoned that the government does not have an anticorruption interest in limiting contributions to groups that make only independent expenditures. The SpeechNow.org court further concluded that FECA contribution limits are unconstitutional as applied to such groups. Such groups have come to be known as super PACs or Independent Expenditure-only Committees. Since SpeechNow was decided, the FEC has issued advisory opinions (AOs) providing guidance regarding the establishment and administration of super PACs. For example, the FEC concluded that a corporation that is exempt from tax under Section 501(c)(4) of the Internal Revenue Code may establish and administer a political committee that makes only independent expenditures, and may accept unlimited contributions from individuals. The FEC confirmed that such committees may also accept unlimited contributions from corporations, labor unions, and political committees, in addition to individuals. The FEC also determined that when fundraising for super PACs, federal candidates, officeholders, and party officials are subject to FECA fundraising restrictions. That is, they can solicit contributions only up to $5,000 from individuals and federal PACs. Should Congress decide to enact legislation that further restricts campaign contributions, the Supreme Court's campaign finance jurisprudence provides guidance as to the constitutional bounds reviewing courts may apply to such limits. As discussed above, the Court has expressly held several provisions of FECA unconstitutional: individual, party, and political committee contribution limits that the Court deemed to be unreasonably low; limits on how much money a donor may contribute in total to all candidates, parties, and political committees (i.e., "aggregate limits"); a series of staggered increases in contribution limits applicable to candidates whose opponents significantly self-finance their campaigns; and a prohibition on campaign contributions by minors age 17 or younger. More broadly, and perhaps most instructive for Congress in evaluating further legislative options, the Court has stated unequivocally, in McCutcheon , that the only legitimate justification for limiting campaign contributions is avoiding quid pro quo candidate corruption or its appearance. Hence, the Court has signaled that the likelihood of contribution limits being upheld increases to the degree that Congress can demonstrate that the limits are narrowly tailored to serve this governmental interest. In contrast, while acknowledging that Congress may seek to accomplish other "well intentioned" policy goals—such as lessening influence over or access to elected officials, decreasing the costs of campaigns, and equalizing financial resources among candidates—the Court has announced that such interests will not serve to justify contribution limits. As the Court reiterated in McCutcheon , when enacting laws that limit speech, the government bears the burden of proving the constitutionality of such restrictions. As discussed in earlier sections of this report, traditionally, the Court has subjected contribution limits to less rigorous scrutiny under the First Amendment than expenditure limits, and therefore, with some significant exceptions, the Court has generally upheld such limits. Some commentators have argued that the Supreme Court in McCutcheon may have signaled a willingness in future cases to evaluate contribution limits under a stricter standard of review than it has in the past. Should the Court decide to apply a stricter level of scrutiny to contribution limits in future cases, legislation providing for enhanced contribution limits would be less likely to survive constitutional challenges. Furthermore, a stricter standard of review could likewise result in successful challenges to existing contribution limits, including the limits on individual contributions to candidates and parties. Looking ahead, there are at least two cases recently appealed to the Supreme Court which, should the Court review, could potentially shed light on the constitutional bounds of contribution limits and provide Congress with guidance for evaluating legislative options. By a 2-to-1 vote, in Lair v. Motl , the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) upheld a Montana law establishing limits for how much individuals, political action committees, and parties could contribute to state candidates. The Ninth Circuit held that the limits were justified by and adequately tailored to the government's interest in avoiding quid pro quo corruption or its appearance. According to the Ninth Circuit, the state had sufficiently demonstrated a risk of actual or perceived quid pro quo corruption in Montana politics, including indications of attempts to exchange campaign contributions for legislative action. On appeal, the petitioners argue, among other things, that the Ninth Circuit decision conflicts with Supreme Court precedent requiring that a state provide evidence of quid pro quo corruption or its appearance and that showing a mere "risk" of such corruption is insufficient. Interpreting the Supreme Court's 2016 ruling in McDonnell v. U.S. —a case arising in the context of federal public corruption law rather than campaign finance law—to define quid pro quo corruption as "1) a quid (things of value given to an official); 2) a pro (the unambiguous agreement connecting the quid to the quo ); and 3) a quo (an official act)," the petitioners argue that Montana could not demonstrate such evidence. If the Court decides to review Lair , its ruling could clarify the extent to which the government is required to present evidence of quid pro quo corruption in order to justify contribution limits. Likewise, in Zimmerman v. City of Austin , a unanimous three-judge panel of the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) affirmed a lower court ruling that, among other things, upheld a base campaign contribution limit applicable to mayor and city council candidates of $300 per contributor, per election, adjusted annually for inflation, which was $350 at the time the suit was filed. Relying on Supreme Court precedent establishing that contribution limits are subject to "less searching scrutiny" than expenditure limits, the Fifth Circuit upheld the contribution limit, determining that the City of Austin had shown "a sufficiently important interest in preventing either actual corruption or its appearance." Among other evidence, the Fifth Circuit concluded that the government had demonstrated that prior to the enactment of the limits, the citizenry perceived that large campaign contributions had a corrupting impact, thereby transforming the city government into a "pay-to-play system." On appeal, the petitioner argues, among other things, that the City of Austin has not demonstrated a sufficient government interest for the contribution limit because a $350 limit is so "severe" that it belies perception that it was targeted to the threat of corruption and that furthermore, testimony at trial failed to evidence that any actual quid pro quo had occurred. A ruling by the Court in Zimmerman , depending on its contours, could clarify the extent of the burden on Congress to prove that any limits it may enact serve the governmental interest of avoiding quid pro quo corruption or its appearance. In addition to limits on how much a donor may contribute to a campaign, federal campaign finance law contains several bans—referred to as "source restrictions"—on who may make campaign contributions. The following sections of the report discuss key aspects of source restrictions, beginning with the ban on campaign contributions by corporations and labor unions and the Supreme Court's invalidation of limits on corporate and union independent spending on campaigns. Next, the report discusses the bans on campaign contributions by federal contractors and on contributions and expenditures by foreign nationals. Finally, the report assesses key Supreme Court holdings that may be instructive in evaluating the constitutionality of policy options, should Congress consider legislation regarding the sources of campaign contributions. FECA prohibits corporations and labor unions from making campaign contributions from their own funds or "general treasuries." Candidates, however, are permitted to accept contributions from separate segregated funds or PACs that a corporation or labor union establishes for the purpose of making contributions. Although the Supreme Court in 2010, in Citizens United , discussed below, invalidated the federal ban prohibiting corporations from funding independent expenditures out of their general treasuries, Citizens United did not appear to affect the ban on corporate contributions to candidates and parties. Providing the most recent precedent on this restriction, in 2003, in Federal Election Commission v. Beaumont , the Court upheld the constitutionality of the prohibition on corporations making direct campaign contributions from their general treasuries in connection with federal elections. According to the Court, its jurisprudence on campaign finance regulation—in addition to providing that limits on contributions are more clearly justified under the First Amendment than limits on expenditures—respects the judgment that the corporate structure requires careful regulation to counter the "misuse of corporate advantages." The Court observed that large, unlimited contributions can threaten "political integrity," necessitating restrictions in order to counter corruption. In the 2010 landmark decision of Citizens United v. F ederal E lection C ommission , the Supreme Court invalidated two FECA prohibitions on independent electoral spending by corporations and labor unions. The Court invalidated, first, the long-standing prohibition on corporations and unions using their general treasury funds for independent expenditures, and second, a 2002 BCRA prohibition on the use of such funds for electioneering communications. As a result of Citizens United , corporations and labor unions are permitted to use their general treasury funds to make independent expenditures and electioneering communications, and are not required to establish a PAC for such spending. Independent expenditures and electioneering communications are protected speech, the Court announced—regardless of whether the speaker is a corporation—and merely permitting a corporation to engage in independent electoral speech through a PAC does not allow the corporation to speak directly nor does it alleviate the First Amendment burden created by such limits. Prior to its decision in Citizens United , in 1978, the Court in First National Bank of Boston v. Bellotti had reaffirmed that the government cannot restrict political speech because the speaker is a corporation. On the other hand, its 1990 decision of Austin v. Michigan Chamber of Commerce had permitted a restriction on such speech in order to avoid corporations having disproportionate economic power in elections. In Bellotti , the Court struck down a state law prohibiting corporate independent expenditures related to referenda. In contrast, the Court in Austin upheld a state law prohibiting, and imposing criminal penalties on, corporate independent expenditures that supported or opposed any candidate for state office. According to the Court in Citizens United , in order to "bypass Buckley and Bellotti ," the Court in Austin had identified a new governmental interest justifying limits on political speech, the "antidistortion interest." In Citizens United , the Court rejected the antidistortion rationale it had relied upon in Austin . Independent expenditures, the Court announced, including those made by corporations, do not cause corruption or the appearance of corruption. The Austin precedent, according to the Court, "interferes with the 'open marketplace' of ideas protected by the First Amendment" by permitting the speech of millions of associations of citizens—many of them small corporations without large aggregations of wealth—to be banned. Notably, the Court also concluded that supporting the ban on corporate expenditures would have the "dangerous" and "unacceptable" result of permitting Congress to ban the political speech of media corporations. In sum, the Supreme Court in Citizens United overruled its holding in Austin and the portion of its decision in McConnell upholding the facial validity of a BCRA prohibition on electioneering communications, finding that the McConnell Court had relied on Austin . In Citizens United , in addition to the ban on corporations and labor unions using their general treasury funds for independent expenditures, the Court also struck down the ban on the use of such funds for electioneering communications. Notably, the Supreme Court, in a 2007 decision, FEC v. Wisconsin Right to Life, Inc. (WRTL) , had narrowed the definition of an electioneering communication in order to mitigate concerns that the law could prohibit First Amendment protected issue speech, known as issue advocacy. In WRTL , the Court interpreted the term to encompass only express advocacy (for example, communications stating "vote for" or "vote against") or the "functional equivalent" of express advocacy. That is, the Court advised that communications that could reasonably be interpreted as something other than an appeal to vote for or against a specific candidate should not be considered electioneering communications. Despite the limiting principle imposed by WRTL , the Court in Citizens United observed that both prohibitions were a "ban on speech" in violation of the First Amendment. In comparison to the prohibitions at issue in Citizens United , which include criminal penalties, the Court pointed out that it has invalidated even less-restrictive laws under the First Amendment, such as laws requiring permits and impounding royalties. Also of note, the statute prohibiting corporate expenditures contained an exception that permitted corporations to use their treasury funds to establish, administer, and solicit contributions to a PAC in order to make expenditures. The Court, however, rejected the argument that permitting a corporation to establish a PAC mitigated the complete ban on speech that the law imposed on the corporation itself, explaining that as corporations and PACs are separate associations, allowing a PAC to speak does not translate into allowing a corporation to speak. Enumerating the "onerous" and "expensive" reporting requirements associated with PAC administration, the Court announced that even if a PAC could permit a corporation to speak, "the option to form a PAC does not alleviate the First Amendment problems" with the law. Further, the Court announced that such administrative requirements may even prevent a corporation from having enough time to create a PAC in order to communicate its views in a given campaign. Another type of source restriction—known as a "pay-to-play" prohibition—bans federal office candidates from accepting or soliciting contributions from federal government contractors. Pay-to-play laws generally serve to restrict officials from conditioning government contracts or benefits on political support in the form of campaign contributions to the controlling political party or public officials. "Pay-to-play" can be viewed as a more subtle form of political corruption because it may involve anticipatory action, and potential future benefits, as opposed to any explicit, current quid pro quo agreement. This FECA prohibition applies at any time between the earlier of the commencement of contract negotiations or when the requests for proposals are sent out, and the termination of negotiations or completion of contract performance, whichever is later. FECA regulations further specify that the ban on contractor contributions applies to the assets of a partnership that is a federal contractor, but permits individual partners to make contributions from personal assets. The ban also applies to the assets of individuals and sole proprietors who are federal contractors, which include their business, personal, or other funds under their control, although the spouses of individuals and sole proprietors who are federal contractors and their employees are permitted to make contributions from their personal funds. As with corporate direct or "treasury fund" contributions, FECA provides an exception to the ban on government contractor contributions, permitting candidates to accept contributions from PACs that are established and administered by corporations or labor unions contracting with the government. In 2015, a unanimous en banc U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) upheld the ban on campaign contributions by federal government contractors, limiting the application of its ruling to the ban on contractors making contributions to candidates, parties, and traditional PACs that make contributions to candidates and parties. The 11-judge court held that the law comported with both the First Amendment and the equal protection component of the Fifth Amendment. According to the D.C. Circuit, the federal ban serves "sufficiently important" government interests by guarding against quid pro quo corruption and its appearance, and protecting merit-based administration. Further, the court held that the ban is closely drawn to the government's interests because it does not restrict contractors from engaging in other types of political engagement, including fundraising or campaigning. The number of convictions for pay-to-play infractions, dating back to when the ban was first enacted in 1940, justifies its continued existence, according to the D.C. Circuit, because the risk of quid pro quo corruption and its appearance has not dissipated. According to the D.C. Circuit, this suggests that if the ban were no longer in effect, "more money in exchange for contracts would flow through the same channels already on display." In 2016, the Supreme Court declined to hear an appeal of the ruling. FECA generally prohibits foreign nationals from donating or spending money in connection with any U.S. election. For the purposes of this prohibition, a foreign national is defined to include a foreign government, a foreign political party, and a foreign citizen, excepting those holding dual U.S. citizenship and those admitted as lawful permanent residents of the United States (i.e., "green card" holders). Specifically, the law prohibits foreign nationals from "directly or indirectly" making a contribution or donation of money "or other thing of value" in connection with any U.S. election, or making a promise to do so, either expressly or implied; or a contribution or donation to a political party. Furthermore, as with other coordinated expenditures, this ban on contributions would include any communication that a foreign national makes in coordination with a candidate's campaign or political party, which would be treated as an in-kind contribution. In addition, FECA expressly prohibits a candidate from soliciting, accepting, or receiving contributions from foreign nationals. The Act further prohibits foreign nationals from making expenditures; independent expenditures; or disbursements for electioneering communications. FECA regulations specify that it is unlawful to knowingly provide "substantial assistance" in the solicitation, making, acceptance, or receipt of a prohibited contribution or donation, or in the making of a prohibited expenditure, independent expenditure, or disbursement. Further, the regulations define "knowingly" to require that a person "have actual knowledge" that the source of the funds solicited, accepted, or received is a foreign national; have awareness "of facts that would lead a reasonable person to conclude that there is a substantial probability" that the source of the funds is a foreign national; or have awareness "of facts that would lead a reasonable person to inquire" whether the source of the funds is a foreign national, but fail to conduct a reasonable inquiry. In addition, FECA regulations further specify that foreign nationals are prohibited from directing or participating in the decisionmaking process of entities involved in U.S. elections, including decisions regarding the making of contributions, donations, expenditures, or disbursements in connection with any U.S. election or decisions concerning the administration of a political committee. In a series of advisory opinions, the FEC has provided specific guidance for compliance with the restrictions on foreign nationals. For example, the FEC has determined that a U.S. corporation that is a subsidiary of a foreign corporation may establish a PAC that makes contributions to federal candidates as long as the foreign parent does not finance any contributions either directly or through a subsidiary, and no foreign national participates in PAC operations and decisionmaking, including regarding campaign contributions. In 2012, the Supreme Court summarily affirmed a three-judge federal district court panel ruling that upheld the constitutionality of the prohibition on foreign nationals making campaign contributions and independent expenditures. In Bluman v. Federal Election Commission , a federal district court held that for the purposes of First Amendment analysis, the United States has a compelling interest in limiting foreign citizen participation in American democratic self-government, thereby preventing foreign influence over the U.S. political process. A key element of a national political community, the court observed, is that "foreign citizens do not have a constitutional right to participate in, and thus may be excluded from, activities of democratic self-government." Similar to the Court's decision in WRTL , discussed above, the district court in Bluman interpreted the ban on independent expenditures to apply only to foreign nationals engaging in express advocacy and not issue advocacy. In other words, under the court's interpretation, foreign nationals remain free to engage in "speaking out about issues or spending money to advocate their views about issues." As to the parameters of express advocacy, the district court defined the term as an expenditure for "express campaign speech" or its "functional equivalent," meaning that it "is susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate." As discussed above in the section on contribution limits, some commentators have argued that the Supreme Court in 2014 in McCutcheon may have signaled a willingness in future cases to evaluate contribution limits under a stricter standard of review than it has in the past. If this were to occur, it seems likely that a court could hold the ban on corporate contributions, and any related legislative proposals, unconstitutional. Moreover, one commentator has argued that, in Citizens United , the Court rejected the rationale behind the leading precedent upholding the ban on corporate contributions in Beaumont , thereby raising the prospect that in a future case, the Court could have another basis for overturning the ban on corporate contributions. That is, in reaching its holding in Beaumont , the Court seemed to rely on the fact that in view of state-conferred advantages—including limited liability, perpetual life, and favorable treatment of the accumulation and distribution of assets—corporations can accumulate and deploy wealth in a manner that provides them with an unfair advantage in the political marketplace. In Citizens United , however, the Court rejected a similar argument in invalidating the prohibition on corporations engaging in independent spending. On the other hand, as discussed above, the district court's ruling in Bluman , which the Supreme Court affirmed in 2012, seems to suggest that legislation to enhance the current ban on foreign nationals donating or spending money in connection with U.S. elections, so long as its scope was limited to the regulation of express advocacy or its functional equivalent, might withstand a First Amendment challenge to the extent that Congress could demonstrate that the restriction furthered the compelling governmental interest in preventing foreign influence over the U.S. political process. As Bluman upheld the ban on foreign nationals only to the extent that it applied to express advocacy or its functional equivalent, legislation that broadly regulates issue advocacy may be constitutionally vulnerable. As one commentator has cautioned, should Congress enact a statute that broadly prohibits issue advocacy by foreign nationals, including the type of communications that Russians are accused of making during the 2016 election, "such a statute would likely run into First Amendment resistance." FECA sets forth both disclaimer and disclosure requirements. The term disclaimer generally refers to statements of attribution that appear directly on a campaign-related communication, and the term disclosure generally refers to requirements for periodic reporting to the FEC, which are made available for public inspection. The following sections of the report provide an overview of FECA disclaimer and disclosure requirements, relevant Supreme Court rulings, and a discussion of constitutional considerations for legislation, should Congress decide to enact legislation to enhance or modify such requirements. Although FECA does not contain the term "disclaimer," the Act specifies the content of attribution statements to be included in certain communications, which are known as disclaimer requirements. FECA requires that any public political advertising financed by a political committee—including candidate committees—include disclaimers. In addition, regardless of the financing source, FECA requires a disclaimer on all public communications that expressly advocate for the election or defeat of a clearly identified candidate; electioneering communications; and all public communications that solicit contributions. For radio and television advertisements by candidate committees, FECA generally requires that the communication state who paid for the ad, along with an audio statement by the candidate identifying the candidate and stating that the candidate "has approved" the message. In the case of television ads, the candidate statement is required to be conveyed by an unobscured, full-screen view of the candidate making the statement, or if the candidate message is conveyed by voice-over, accompanied by a clearly identifiable image of the candidate, along with a written message of attribution at the end of the communication. Generally, for non-candidate-authorized communications—including ads financed by outside groups, corporations, and labor unions—FECA likewise requires a disclaimer to clearly state the name and permanent street address, telephone number, or website address of the person who paid for the communication and state that the communication was not authorized by any candidate or candidate committee. In radio and television advertisements, such disclaimers are required to include in a clearly spoken manner the following audio statement: "________ is responsible for the content of this advertising," with the blank to be filled in with the name of the entity paying for the ad. In addition, in television advertisements, the statement is required to be conveyed by an unobscured, full-screen view of a representative of the entity paying for the ad, in a voice-over, along with a written message of attribution at the end of the communication. In McConnell , by an 8-to-1 vote, the Supreme Court in 2003 upheld the facial validity of the disclaimer requirements in FECA, as amended by BCRA. Specifically, the Court determined that FECA's disclaimer requirement "bears a sufficient relationship to the important governmental interest of 'shedding the light of publicity on campaign financing.'" Similarly, in Citizens United , by an 8-to-1 vote, the Court in 2010 upheld the disclaimer requirement in BCRA as applied to a movie that an organization produced regarding a presidential candidate and the broadcast advertisements it planned to run promoting the movie. According to the Court, while they may burden the ability to speak, disclaimer and disclosure requirements "impose no ceiling on campaign-related activities," and "do not prevent anyone from speaking." According to the Court, the disclaimer requirements in BCRA "provid[e] the electorate with information," and "insure that the voters are fully informed" about who is speaking. Moreover, they facilitate the ability of a listener or viewer to judge more effectively the arguments they are hearing, and at a minimum, according to the Court, they clarify that an ad was not financed by a candidate or party. Under FECA, political committees—including candidate committees and super PACs—must register with the FEC and comply with disclosure requirements. Political committees are required to file periodic reports that disclose the total amount of all contributions they receive, and the identity, address, occupation, and employer of any person who contributes more than $200 during a calendar year. In addition, entities other than political committees—such as labor unions and corporations, including incorporated tax-exempt Section 501(c)(4) organizations—making independent expenditures or electioneering communications have generally been required to disclose information to the FEC, including the identity of certain donors over specific dollar thresholds. These requirements have been the subject of litigation, as discussed below. The FEC is required to make these reports publicly available on the internet within 48 hours of receipt or within 24 hours if the report is filed electronically. The FEC is also required to make the reports available for public inspection in their offices. Generally, FECA requires organizations making independent expenditures that aggregate more than $250 in a calendar year to disclose (1) whether an independent expenditure supports or opposes a candidate, (2) whether it was made independently of a campaign, and (3) the identity of each person who contributed more than $200 to the organization specifically "for the purpose of furthering an independent expenditure." FECA requires organizations to file these reports quarterly. Up to 20 days before an election, an organization must file a report each time it spends at least $10,000 on independent expenditures relating to the same election, within 48 hours of incurring the cost of the expenditure. Less than 20 days before an election, an organization must file a report each time it spends at least $1,000 on independent expenditures relating to the same election, within 24 hours of incurring the cost of the expenditure. FECA regulations require organizations that spend or have reason to expect to spend more than $50,000 on independent expenditures to file reports electronically. Until a recent court ruling discussed below, the donor disclosure regulation promulgated under the Act generally applied only to those donors who contributed money specifically "for the purpose of furthering the reported independent expenditure." As a result, unless a donation to an organization was made specifically for the purpose of funding a particular independent expenditure, the FEC has not required an organization to disclose the donor's identity. This "purpose requirement" for donor disclosure, however, has been challenged in court. In August 2018, in Citizens for Responsibility and Ethics in Washington (CREW) v. Federal Election Commission , a federal district court invalidated the regulation, holding that it requires significantly less disclosure than the statute mandates. As a result, unless successfully appealed, this ruling will require groups making independent expenditures to disclose more of their donors than was required under the invalidated regulation. The court stayed its order for 45 days, until September 17, in order to provide the FEC with time to issue interim regulations that comport with the underlying FECA disclosure requirement, but as of the date of this report, the FEC has not issued interim regulations. On September 18, the Supreme Court denied a request for a stay of the district court ruling, leaving the lower court's decision intact, unless it is successfully appealed. With regard to electioneering communications, FECA requires organizations making disbursements aggregating over $10,000 during a calendar year to disclose certain information, including the identity and principal place of business of the corporation making the disbursement, the amount of each disbursement over $200, and the names of candidates identified in the communication. Additionally, FECA requires the organization to disclose its donors who contributed at least $1,000. The statute also provides an option for an organization seeking to avoid disclosure of all its donors. If an organization establishes a separate bank account, consisting only of donations from U.S. citizens and legal resident aliens made directly to the account for electioneering communications, then the organization is required to disclose only those donors who contributed at least $1,000 to the account. Generally, FECA requires that organizations file electioneering communication reports by the first date in a calendar year that an organization makes a disbursement aggregating more than $10,000 for the direct costs of producing or airing an electioneering communication. In addition, FECA requires an organization to file a report each time it makes such disbursements aggregating more than $10,000 since the last filing. Similar to the exception contained within the disclosure regulation for independent expenditures, an FEC regulation provides an exception to the donor disclosure requirement for electioneering communications. The regulation permits organizations making disbursements for electioneering communications to disclose only the identity of each person who made a donation of at least $1,000 specifically "for the purpose of furthering" electioneering communications. This regulation—specifically, the purpose requirement contained in the regulation—has been the topic of ongoing litigation. Most recently, in 2016, a three-judge panel of the D.C. Circuit upheld the regulation, determining, among other things, that the exception contained in the regulation protects the First Amendment. In 2016, the D.C. Circuit denied an appeal for an en banc rehearing of the case. In Buckley —and, more recently, in McConne ll , Citizens United , Doe v. Reed , and a summary affirmance in Independence Institute v. Federal Election Commission —the Court has generally affirmed the constitutionality of disclosure requirements. While acknowledging that compelled disclosure can infringe on the right to privacy of association and belief as guaranteed under the First Amendment, the Court has identified overriding governmental interests—such as safeguarding the integrity of the electoral process by promoting transparency and accountability—that outweigh such infringement. In addition, as discussed below, the Court appears to have consistently determined that the First Amendment does not require limiting disclosure requirements to speech that is the functional equivalent of express advocacy. In Buckley , the Court identified three governmental interests justifying FECA disclosure requirements. First, the Court determined, disclosure provides the electorate with information as to the source of campaign money, how it is spent, and "the interests to which a candidate is most likely to be responsive"—in other words, an informational interest. Second, the Court stated that disclosure serves to deter corruption and its appearance by uncovering large contributions and expenditures "to the light of publicity," observing that voters with information regarding a candidate's highest donors are better able to detect "post-election special favors" by an officeholder in exchange for the contributions. Third, the Court identified disclosure requirements as an essential method of detecting violations to refer to law enforcement. In upholding the constitutionality of FECA's donor disclosure requirements for independent expenditures, the Court determined that so long as they encompass only funds used for express advocacy communications, the requirement is constitutional. Such donor disclosure "increases the fund of information" regarding who supports a given candidate, and that informational interest can be equally strong for independent spending as it is for spending that is coordinated with a candidate or party. The Court in McConnell rejected a facial challenge to the enhanced disclosure requirements set forth in BCRA. According to McConnell , the Court in Buckley distinguished between express advocacy and issue advocacy for the purposes of statutory construction, not constitutional command, and therefore, the First Amendment did not require creating "a rigid barrier" between the two in this case. In other words, the Court determined, because electioneering communications are intended to influence an election, the absence of "magic words" of express advocacy does not obviate the government's interest in requiring disclosure of such ads in order to combat corruption or its appearance. Furthermore, as in Buckley , the McConnell Court held that disclosure requirements in BCRA serve the "important state interests" of providing voters with information, deterring corruption and avoiding its appearance, and assisting with enforcement of the law. Expanding on its holding in Buckley , in Citizens United , the Court upheld FECA's disclosure requirements for electioneering communications as applied to a political movie and broadcast advertisements promoting the movie. Citing Buckley , the Court determined that while they may burden the ability to speak, disclosure requirements "impose no ceiling on campaign-related activities," and "do not prevent anyone from speaking." Accordingly, the Court evaluated the requirements under a standard of "exacting scrutiny," a less-rigorous standard than the "strict scrutiny" standard the Court has used to evaluate restrictions on campaign spending. Exacting scrutiny requires a "substantial relation" between the disclosure requirement and a "sufficiently important" government interest. Notably, in Citizens United , the Court expressly rejected the argument that the scope of FECA's disclosure requirements for electioneering communications must be limited to speech that is express advocacy, or the "functional equivalent of express advocacy." In support of its determination, the Court pointed out that in Buckley and other cases, it has simultaneously struck down limits on certain types of speech—such as independent expenditure communications—while upholding disclosure requirements for the same type of speech. In response to the argument that disclosure requirements could deter donations to an organization because donors may fear retaliation once their identity becomes known, the Court stated that such requirements would be unconstitutional as applied to an organization where there was a reasonable probability that its donors would be subject to threats, harassment, or reprisals. Similarly, in a case upholding the constitutionality of a Washington State public records law, Doe v. Reed , the Court relied on and underscored its holdings in Buckley and Citizens United regarding compelled disclosure. The Washington statute requires that all public records—including signatures on referendum petitions—be made available for public inspection and copying. Categorizing the Washington statute as a disclosure law and therefore "not a prohibition of speech," the Court evaluated its constitutionality under the First Amendment using the standard of exacting scrutiny. The Court upheld the law as substantially related to the governmental interest of safeguarding the integrity of the electoral process, and announced that public disclosure "promotes transparency and accountability in the electoral process to an extent other measures cannot." Regarding the argument that the disclosure law would subject petition signatories to threats, harassment, and reprisals, the Court concluded that there was insufficient evidence to support the assertion. In 2017, in Independence Institute v. Federal Election Commission , the Supreme Court summarily affirmed a three-judge federal district court ruling upholding the constitutionality of FECA's disclosure requirements for electioneering communications. In this case, the challengers of the law argued, among other things, that an ad they sought to run was constitutionally protected issue advocacy and therefore was exempt from disclosure requirements. Rejecting this argument, the district court observed that the Supreme Court has twice upheld the constitutionality of the FECA disclosure requirements for electioneering communications, first in McConnell , and once again in Citizens United , where the Court expressly held that the First Amendment does not require limiting disclosure requirements to speech that is the functional equivalent of express advocacy. According to the district court, "the First Amendment is not so tight-fisted as to permit large-donor disclosure only when the speaker invokes magic words of explicit endorsement." Should Congress consider legislation to increase FECA's disclaimer and disclosure requirements, the Supreme Court's relevant case law informs the constitutional bounds of such legislation. Regarding disclaimer requirements, as discussed above, the Court has upheld the constitutionality of current disclaimer requirements in FECA, by an 8-to-1 vote in 2003 in McConnell , and again by an 8-to-1 vote in 2010 in Citizens United . In upholding the current requirements, the Court has emphasized how disclaimers provide critical information about the source of advertisements so that the electorate can more effectively judge the arguments they hear. Hence, the Court has signaled that should Congress enact additional disclaimer requirements, such requirements are likely to be upheld to the extent they further the informational interests of the electorate. On the other hand, the Court in Citizens United emphasized and appeared to rely upon the fact that the disclaimer requirements being evaluated in that case did not prevent anyone from speaking. Therefore, should a disclaimer requirement be so burdensome that it impedes the ability of a candidate or group to speak—for example, a requirement that a disclaimer comprise an unreasonable period of time in an ad—it could be invalidated as a violation of the guarantees of free speech under the First Amendment. Similarly, regarding disclosure requirements, as discussed above, the Court has generally upheld their constitutionality, determining that they serve the governmental interests of providing voters with information, deterring corruption and avoiding its appearance, and facilitating enforcement of the law. Should Congress decide to consider legislation providing for enhanced disclosure requirements, it is notable that the Court in Citizens United expressly held that the First Amendment does not require limiting disclosure requirements to speech that is the functional equivalent of express advocacy. Therefore, it appears that a court would likely uphold legislation providing for increased disclosure of funding sources for communications containing express advocacy, as well as issue advocacy, to the extent that such regulation can be shown to further the governmental interests identified by the Court. In addition to a series of civil penalties, FECA sets forth criminal penalties for knowing and willful violations of the Act. This section of the report outlines the criminal penalties applicable to persons who violate the Act. Generally, FECA provides that any person who knowingly and willfully commits a violation of any provision of the Act that involves the making, receiving, or reporting of any contribution, donation, or expenditure of $25,000 or more per calendar year shall be fined under Title 18 of the U.S. Code , or imprisoned for not more than five years, or both. If the amount involved is $2,000 or more per calendar year, but is less than $25,000, the Act provides for a fine under Title 18, or imprisonment for not more than one year, or both. Notably, FECA provides specific penalties for knowing and willful violations of the prohibition on contributions made by one person "in the name of another person," discussed above in the section of the report entitled " Ban on Contributions Made Through a Conduit ." In addition to the possibility of fines being imposed, for violations involving amounts over $10,000 but less than $25,000, violators could be subject to imprisonment for not more than two years, and for violations involving amounts over $25,000, imprisonment for not more than five years. In most instances, the U.S. Department of Justice initiates the prosecution of criminal violations of FECA, but the law also provides that the FEC may refer an apparent violation to the Justice Department for criminal prosecution under certain circumstances. Specifically, if the FEC, by an affirmative vote of four, determines that there is probable cause to believe that a knowing and willful violation of FECA involving a contribution or expenditure aggregating over $2,000 during a calendar year, or a knowing and willful violation of the Presidential Election Campaign Fund Act or the Presidential Primary Matching Payment Account Act has or is about to occur, the FEC may refer the parent violation to the U.S. Attorney General. In such instances, the FEC is not required to attempt to correct or prevent such violation. | Federal campaign finance law is composed of a complex set of limits, restrictions, and requirements on money and other things of value that are spent or contributed in the context of federal elections. While the Federal Election Campaign Act (FECA, or Act) sets forth the statutory provisions governing this area of law, several Supreme Court and lower court rulings have had a significant impact on the Act's regulatory scope. Most notably, since 2003, a series of Supreme Court decisions has invalidated several FECA provisions that were enacted as part of the Bipartisan Campaign Reform Act of 2002 (BCRA), and in 2010, the Court invalidated a long-standing prohibition on independent expenditures funded from the treasuries of corporations and labor unions. Generally, the Court has overturned such provisions as unconstitutional violations of First Amendment guarantees of free speech. As a foundational matter, FECA distinguishes between a contribution and an expenditure: a contribution involves giving money to an entity, such as a candidate's campaign committee, while an expenditure involves spending money directly for advocacy of the election or defeat of a candidate. Generally, the Supreme Court has upheld limits on contributions, while invalidating limits on expenditures. FECA regulates campaigns in three primary ways: contribution limits, source restrictions, and disclosure and disclaimer requirements. Contribution Limits Contribution limits refer to how much a donor can contribute as well as how they can contribute. Contribution limits include specific limits on how much money a donor may contribute to a candidate, party, and political committee, which are known as base limits. FECA also provides for related restrictions, including the ban on contributions made through a conduit; the ban on converting campaign contributions for personal use; and the treatment of communications a donor makes in coordination with a candidate or party as contributions. While the Supreme Court has generally upheld base limits, the Court has struck down FECA's aggregate limits, which capped the total amount of money a donor could contribute to all candidates, parties, and political committees; limits on contributions to candidates whose opponents self-finance; and limits on contributions by minors. In addition, based on Supreme Court precedent, an appellate court ruling provided the legal underpinning for the establishment of super PACs. Source Restrictions FECA contains several bans, referred to as source restrictions, on who may make campaign contributions. Source restrictions include the ban on corporate and labor union campaign contributions directly from treasury funds—although the Supreme Court has held that limits on corporate and labor union independent spending are unconstitutional, the Court has upheld limits on contributions. Source restrictions also include the ban on federal contractor contributions—known as the "pay-to-play" prohibition—which the U.S. Court of Appeals for the D.C. Circuit upheld against a First Amendment challenge in 2015; the ban on foreign national contributions and expenditures; and the restrictions on foreign national involvement in U.S. campaigns. Disclaimer and Disclosure Requirements FECA also sets forth disclaimer and disclosure requirements. FECA's disclaimer requirements mandate that statements of attribution appear directly on campaign-related communications. FECA's disclosure requirements mandate that political committees register with the Federal Election Commission (FEC) and comply with periodic reporting requirements. In addition, the law requires other entities—such as labor unions and corporations, including incorporated organizations that are tax-exempt under Section 501(c)(4) of the Internal Revenue Code—that make independent expenditures or electioneering communications to disclose information to the FEC. Generally, the Supreme Court has upheld the constitutionality of disclaimer and disclosure requirements against First Amendment challenges as substantially related to the governmental interest of safeguarding the integrity of the electoral process by promoting transparency and accountability. Criminal Penalties For knowing and willful violations of any provision of the Act, FECA sets forth criminal penalties, including specific penalties for violations of the prohibition on contributions made through a conduit. In most instances, the U.S. Department of Justice initiates the prosecution of criminal violations of FECA, but the law also provides that the FEC may refer an apparent violation to the Justice Department for criminal prosecution under certain circumstances. |
The U.S. Department of Labor (DOL) published an updated rulemaking for the overtime exemptions for executive, administrative, and professional (EAP) employees on May 23, 2016, with an effective date of December 1, 2016. However, on November 22, 2016, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction blocking the implementation of the rule. In its ruling, the District Court concluded, in part, that DOL does not have the legal authority to use a salary level test as part of defining the EAP exemptions. Subsequently, on December 1, 2016, the Department of Justice (DOJ), on behalf of DOL, filed a notice to appeal the injunction to the U.S. Court of Appeals for the Fifth Circuit. On June 30, 2017, DOJ filed its reply brief in the case and requested that the Court of Appeals reverse the judgment of the district court (related to the legal authority of DOL to use salary level as part of the EAP exemption) but not rule on the validity of the salary level set in the 2016 rule. Finally, on August 31, 2017, the U.S. District Court for the Eastern District of Texas ruled that DOL exceeded its authority by setting the threshold at the salary level in the 2016 rule and thus invalidated the 2016 rule. Subsequently, DOJ dropped its June 30 appeal of the original district court ruling. DOL issued a request for information (RFI) related to the EAP exemptions on July 25, 2017. Specifically, DOL's RFI seeks information from the public regarding the EAP exemptions to assist in formulating a proposal to revise them. The Fair Labor Standards Act (FLSA) is the primary federal statute providing labor standards for most, but not all, private and public sector employees. Its major provisions include a federal minimum wage, overtime pay requirements, child labor protections, and recordkeeping requirements. The FLSA also created the Wage and Hour Division (WHD) within DOL to administer and enforce the act. The FLSA was enacted in 1938 and has been amended numerous times, primarily for the purposes of expanding coverage or increasing the federal minimum wage rate. In enacting the FLSA, Congress noted the "existence, in industries engaged in commerce or in the production of goods for commerce, of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers." As such, the FLSA was intended to "correct and as rapidly as practicable to eliminate" these detrimental conditions "without substantially curtailing employment or earning power." The correction of detrimental conditions was to be achieved through the establishment of a federal minimum wage, overtime pay requirements, and child labor protections. The FLSA applies to employees who have an "employment relationship" with an employer. That is, the FLSA covers most workers but does not include individuals not considered employees (e.g., independent contractors). FLSA provisions are extended to individuals under two types of coverage—"enterprise coverage" and "individual coverage." An individual is covered if they meet the criteria for either category. Around 132 million workers, or 83% of the labor force, are currently covered by the FLSA. It is important to note that while the FLSA sets standards for minimum wages, overtime pay, and child labor, it does not regulate many other employment practices. For example, the FLSA does not require certain practices or benefits often associated with an employment relationship, such as paid time off, premium pay for weekend work, or fringe benefits. In addition, the FLSA does not limit the number of hours an employee may be required to work in a day or a week. Rather, it requires that a covered employee be compensated with premium pay for overtime hours worked. Section 7(a) of the FLSA specifies requirements for overtime pay for weekly hours worked in excess of the maximum hours. In general, unless an employee is specifically exempted in the FLSA, he or she is considered to be a covered nonexempt employee and must receive pay at the rate of one-and-a-half times ("time-and-a-half") the regular rate for any hours worked in excess of 40 hours in a workweek. Employers may choose to pay more than time-and-a-half for overtime or to pay overtime to employees who are exempt from overtime pay requirements under the FLSA. Although coverage is generally widespread, the FLSA exempts certain employers and employees from all or parts of the FLSA. For example, exemptions are provided to EAP employees, individuals employed at retail stores that do not have interstate operations, and agricultural employees. The focus of this report is on the EAP exemptions provided in the FLSA. While the FLSA now extends broad minimum wage, overtime pay, and child labor protections to all individuals "employed by an employer," coverage was not as common when the law was enacted in 1938. Currently, the FLSA covers more than 80% of the labor force. Initially, the FLSA did not cover employees in entire sectors, including farm labor, retail trade, domestic and personal service, or public service, nor did it cover the self-employed. At the time of enactment, it was estimated that the FLSA covered about 11 million employees, or roughly one-third of wage and salary earners in the United States. The vast majority, or about 9.3 million, of these 11 million employees were in manufacturing, transportation, or mineral industries. Later amendments to the FLSA, most notably in 1961 and 1966, increased the scope of coverage so that most employees are now covered by the provisions of the FLSA. At the time the FLSA was enacted in 1938, employment was mostly in manual, or "blue-collar," occupations. Even though changes in data collection and occupational and industrial classification make comparing employment composition over time difficult, based on data from the Bureau of Labor Statistics (BLS), the broad trend in the past 80 years has clearly been toward an increasing share of employment in service occupations, many of which are "white-collar." Illustrative of this trend, employment in the "professional, technical, and kindred" occupations increased from less than 5% in 1910 to nearly 25% by 2000. More broadly, in their analysis of the 11 major occupation groups over time, Wyatt and Hecker find that Five of the major occupation groups increased as a share of the total, while six declined. All of the ones that declined, except for private household workers, consist of occupations that produce, repair, or transport goods and are concentrated in the agriculture, mining, construction, manufacturing, and transportation industries. The five that increased are the so-called white-collar occupations, plus service workers, except private household. The four major groups that are white-collar occupations include mostly occupations having to do with information, ideas, or people (many in the service group also work with people); are more concentrated in services-producing industries; and, at least for professional and managerial occupations, have higher-than-average education requirements. In aggregate, the five groups that increased [white-collar occupations] went from 24 percent to 75 percent of total employment, while the six groups that declined went from 76 percent to 25 percent over the 90-year period [1910-2000]. Putting the original estimates of FLSA coverage together with the changing occupational composition of the workforce since the FLSA was enacted indicates a workforce that is vastly different now than it was in 1938. While white-collar occupations are not a perfect proxy for those covered by the EAP exemptions in the FLSA (as will be discussed below), the increase of white-collar occupations and the decrease of blue-collar occupations since 1938 has implications for the EAP exemptions. This is discussed in more detail in subsequent sections of this report, but, in essence, an exemption enacted in 1938 that was designed to cover a portion (i.e., executive, administrative, and professional employees) of a minority of the workforce (white-collar occupations) is now relevant for a considerably higher share of the workforce. Section 13(a)(1) of the FLSA states, in part, that the minimum wage (Section 6) and overtime (Section 7) provisions of the act "shall not apply with respect" to any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman ( as such terms are defined and delimited from time to time by regulations of the Secretary . (Italics added.) Rather than define the terms "executive," "administrative," or "professional," the FLSA authorizes the Secretary of Labor to define and delimit these terms "from time to time" through regulations. The legislative history of the EAP exemptions does not provide much information on their intended scope. Although not necessarily elaborated upon at the time of enactment, the general rationale for including the EAP exemptions in the FLSA is often construed to be related to the type of work and the presumed labor market power of EAP employees: (1) the nature of the work performed by EAP employees seemed to make standardization difficult, and thus the output of EAP employees was not as clearly associated with hours of work per day as the output for typical nonexempt work (e.g., manual labor); and (2) bona fide EAP employees were considered to have other forms of compensation (e.g., above-average benefits, greater opportunities for advancement, greater job security, greater mobility) not available to nonexempt workers. Thus, the compensating advantages of being an EAP employee in 1938 (a small portion of the workforce) could have been seen as a tradeoff for being exempt from the overtime protections of the FLSA. Despite a lack of detailed legislative history on the intent of the scope of the EAP exemptions, two aspects of Section 13(a)(1) are notable in terms of the implied discretion given to the Secretary of Labor to define and delimit the exemptions for executive, administrative, and professional employees. First, the term "bona fide" was included as part of the EAP exemptions presumably to distinguish it from a general exemption for white-collar workers or even from the subset of all executive, administrative, or professional employees. More generally, of the 10 exemptions delineated in Section 13(a) of the originally enacted FLSA, only the exemptions in Section 13(a)(1) included the qualifier "in a bona fide ... capacity" for the class of employees to which the exclusion applies. The other exemptions in Section 13(a) were either specifically delineated or broadly defined. For example, Section 13(a)(8) provided an exemption from minimum wage and overtime provisions to "any employee employed in connection with the publication of any weekly or semiweekly newspaper with a circulation of less than three thousand the major part of which circulation is within the county where printed and published," while Section 13(a)(6) exempted from the minimum wage and overtime provisions "any employee employed in agriculture." Second, the statutory language of the FLSA directing the administrator of the WHD to define and delimit the EAP exemptions was nearly singular in the exemptions delineated in Section 13 and implies broad discretionary authority. That is, while almost all legislation involves some degree of interpretation on the part of the implementing agency, the authority given to DOL in the Section 13(a)(1) exemptions ("as defined and delimited by regulations of the Administrator") is notable for its explicitness. Of the 10 exemptions delineated in Section 13(a) of the originally enacted FLSA, the only other one that included an explicit requirement for DOL to define a term is Section 13(a)(10), which provided a minimum wage and overtime exemption to "any individual employed within the area of production (as defined by the Administrator), engaged in handling, packing, storing, ginning, compressing, pasteurizing, drying, preparing in their raw or natural state, or canning of agricultural or horticultural commodities for market, or in making cheese or butter or other dairy products." However, even the authority granted to the WHD administrator in Section 13(a)(10) was limited to defining an "area of production," rather than allowing for an exemption for an entire segment of the labor force as the authority granted in Section 13(a)(1) did. In summary, the Section 13(a)(1) exemptions stand out from the other Section 13(a) exemptions included in the original FLSA because of a qualifying condition ("bona fide") for the type of employee to be exempt and the authority given to DOL to operationalize the exemptions for bona fide EAP employees. The only guidance that the statute provided was that some executive, administrative, and professional employees, but not all, should be exempt from the minimum wage and overtime provisions of the FLSA. From the time of the first rulemaking around the EAP exemptions, DOL recognized the breadth of its authority in regulating the exemptions. For example, in the hearings conducted to make recommendations for the 1940 rule, the Presiding Officer noted that Congress's use of the "word 'delimited' as well as the word 'defined' is a further indication of the extent of the [WHD] Administrator's discretionary power under this section of the act" and that the administrator "is responsible not only for determining which employees are entitled to the exemption, but also for drawing the line beyond which the exemption is not applicable." Thus, the lack of statutory specificity for these exemptions and the delegation of authority to DOL to set their parameters has led to the use of a broadly similar methodology, but different and changing data and units of analysis, to set the salary level threshold in the almost 80 years since the FLSA was enacted. Although Congress has amended the FLSA multiple times since 1938, the statutory language creating the Section 13(a)(1) exemptions has remained largely unchanged and the operational EAP exemptions are changed, or not changed, depending on the priorities of a given administration. Although the determinations established through rulemaking have changed over time, to qualify for an exemption under Section 13(a)(1) of the FLSA, a current employee generally has to meet all of the following criteria: 1. An employee must be paid a predetermined and fixed salary (the "salary basis" test). 2. An employee must perform executive, administrative, or professional duties (the "duties" test). 3. An employee must be paid above the threshold established in the rulemaking process, typically expressed as a per week rate (the "salary level" test). These three tests were established through rulemaking starting in 1938. While the salary basis test (i.e., the requirement that an exempt employee is paid a fixed salary and not hourly) has remained constant throughout the EAP rulemakings, the duties tests and, particularly, the salary level tests have evolved. These two tests have worked in conjunction as screens for exemption. The main themes in the evolution of the duties and salary level tests are discussed in the sections below. The Appendix includes more detailed descriptions of the salary level methodologies used in each of the eight EAP rules from 1940-2016. Since its first rulemaking on the EAP exemptions, DOL has defined this part of the test in terms of "duties" actually performed rather than occupational titles. In recommending to DOL that duties-based (rather than occupation- or title-based) criteria for exemption be maintained in the 1940 rulemaking, the Presiding Officer at the DOL hearings noted that the final and most effective check on the validity of the claim for exemption is the payment of a salary commensurate with the importance supposedly accorded the duties in question. Furthermore, a title alone is of little or no assistance in determining the true importance of an employee to the employer. Titles can be had cheaply and are of no determinative value. This interpretation—consideration of actual duties performed rather than occupational titles—has been maintained in all subsequent regulations on the EAP exemptions. The duties tests for EAP exemptions have evolved in roughly three phases: Long Tests (1938-1949). Following enactment of the FLSA in 1938, DOL issued regulations defining required duties for exemption for two categories of employees—"executive and administrative" and "professional"—and required salary thresholds for exemption for each of these two categories. The 1940 rule split the first category into two—executive and administrative—thus creating the three distinct exempt EAP categories that remain in use today. These first two rules (1938 and 1940) established a series of tests that described the duties employees must perform in order to satisfy the duties test for EAP exemption from overtime. These duties tests, which became known as the "long" tests, were paired with corresponding salary levels to form the exemption tests. Long and Short Tests (1950-2003). Starting with the 1949 rule (effective in 1950), DOL created a second set of duties tests, which became known as the "short" test, to be used concurrently with the existing "long" duties tests. These two tests, and two separate corresponding salary levels, remained in place until the 2004 rule. The long tests combined relatively lower salary thresholds with a duties test that included quantitative limits on the percentage of work time an exempt employee could spend on nonexempt work. Specifically, to qualify under the long test (and thus the lower salary threshold), an EAP-exempt employee could spend no more than 20% of work hours in a workweek on nonexempt work activities (i.e., work not closely related to the duties of a bona fide administrative, executive, or professional employee). The short duties test developed in the 1949 rule was less stringent and combined a higher salary threshold with a shorter duties test that did not include a quantitative limit on nonexempt work. Instead, the short test required that an exempt employee must have as a "primary duty" those of a bona fide executive, administrative, or professional employee. The "primary duty" means the principal, main, or major duty and is not strictly defined in terms of time spent on particular activities. For example, assistant managers at retail establishments who supervise and direct other employees (exempt work) might have management as their primary duty even if they spend more than half of their time running a cash register (nonexempt work). Standard Tests (2004-present). The 2004 rule eliminated the long and short tests for EAP exemption and created a single "standard" duties test and a single salary level. The 2016 rule maintains the standard duties test for EAP exemption. The standard tests do not include a time limit on the performance of nonexempt work by exempt employees and are substantively similar to the defunct short tests. Table 1 provides a comparison of the elements of the duties tests used for EAP exemption over time. In addition to the salary basis and duties tests, DOL established a salary level in implementing the provisions of Section 13(a)(1) of the FLSA. Since the enactment of the FLSA in 1938, DOL has required that an employee earn above a certain salary in order to qualify for the EAP exemption. That is, a bona fide executive, administrative, or professional employee, as determined by duties performed, must also earn at least a certain amount in weekly (or less frequent) salary to be exempt from entitlement to overtime pay. Throughout the history of defining and delimiting the EAP exemption, DOL has frequently asserted that the salary paid to an EAP employee is the "best single test" of exempt status. In the 1949 rule, for example, DOL concluded that the salary level test added a "completely objective and precise measure" that served as an "aid in drawing the line between exempt and nonexempt employees." That said, setting the salary level threshold for exemption requires judgments about the appropriate line between exempt and nonexempt employees and, as demonstrated by the eight final rules since 1938, reflect the priorities and methods of the administrations regulating the exemptions. Since the FLSA was enacted, the salary level threshold has been raised eight times, including the 2016 increase (see Table 2 ). Increases have occurred through intermittent rulemaking by the Secretary of Labor, with periods between adjustments ranging from 2 years (1938–1940) to 29 years (1975–2004). From the first adjustment to the salary threshold in 1940 until the sixth adjustment in 1975, DOL issued rules periodically, in intervals ranging from 2 to 9 years. The two rules after 1975, however, were issued 29 and 12 years, respectively, after the previous rules. As noted above, DOL added the new short test to the already existing long test, creating a two-test system of exemption. From 1949 until 2004, the long duties test was accompanied by a lower salary threshold and the short test was accompanied by a higher salary threshold. Importantly, as will be discussed below, DOL determined the EAP salary level thresholds for the long test first, and the short test salary level was typically set as percentage of the long test salary levels. In the period when two tests existed (1949-2004), short test salary levels as a percentage of long test levels ranged from 182% (1949) to 130% (1963), with an average of 149%. Finally, the 2004 final rule combined the tests into a single standard duties test and one salary threshold, and the 2016 rule maintains the standard duties test and single salary level (though it raised this level). The methodologies that DOL used in the eight revisions to the EAP salary level since 1938 have differed in specifics but generally may be categorized into three periods based on the approaches used to define and delimit the EAP exemptions: the 1940 and 1949 rules; the 1958, 1963, 1970, and 1975 rules; and the 2004 and 2016 rules. The history of establishing salary level thresholds shows that while DOL has wide discretion in the operationalization of the statutory EAP exemptions, path dependence also plays in important role, as administrations generally incorporated parts of methodologies from previous rules into the current rule. In particular, once the concept of income-based proportionality was introduced in the 1958 rule, future rules incorporated it, albeit in distinctly different ways. A fundamental question, if not the fundamental question, facing DOL since it was authorized to define and delimit the EAP exemption has been where and how to draw the line between nonexempt employees (entitled to overtime pay) and exempt employees (not entitled to overtime pay). Each of the tests—salary basis, duties, and salary level—can be adjusted to make the exemption narrower or broader. For example, a broad exemption might include salaried and hourly employees, a duties test based on occupational titles, and a low salary threshold. On the other hand, a narrow exemption might include only salaried employees, a detailed duties test, and a high salary threshold. Under the broad exemption, many employees would qualify and therefore not be entitled to overtime pay, while under the narrow exemption, fewer would qualify and therefore more employees would be entitled to overtime pay. Because the salary basis has remained unchanged and duties tests have remained largely similar since the 1940s (with some exceptions in 1949 and 2004), the salary level test has provided much of the demarcation function. The level at which the salary threshold is drawn thus plays a decisive role in determining the scope of the EAP exemptions. The 2016 final rule notes that the regulatory history of the salary level test "reveals a common methodology used, with some variations" such that "in almost every case, the Department examined a broad set of data on actual wages paid to salaried employees and then set the long test salary level at an amount slightly lower than might be indicated by the data." The policy choices and emphases of the administration regulating the exemptions drive the variations embedded in the broadly common methodology. In evaluating the salary level thresholds, it is important to note that proposals to update them for "inflation" (whether a price or wage index) from a given point in time are not simply technical adjustments. Rather, as will be shown in the summary of the various rulemaking methodologies below, proposals to update the salary level thresholds from a given point in time through the use of an inflation measure essentially lock in prior methodological and data choices that were used in determining a particular salary level threshold in the past. The first two rules after enactment of the FLSA—1940 and 1949—used multiple sources of data and reference points to amend the salary thresholds. These included the salary threshold's distance from the prevailing federal minimum wage, the various state salary level thresholds for EAP exemptions in statute at the time, differences between "prevailing minimum salaries" for exempt personnel and average salaries for nonexempt personnel, government pay scales for administrative and professional employees, and data on average salaries in selected nonexempt occupations (e.g., office boys, hand-bookkeepers, clerks, workers in the full-fashioned hosiery industry). The range of sources used reflected in part the data available at the time, but it also illustrates the difficulty in comparing methodologies over time. For example, the 1949 rule relied heavily on the change from 1940 to 1949 in average weekly earnings for employees in manufacturing industries (not occupations) to determine the increase in the salary threshold for executive employees in 1949, which was increased from $30 to $55 per week. Given the data limitations, this method of basing a threshold increase for an exempt occupation on average wage increases for non exempt employees in an industry may have been reasonable at the time. However, once the new threshold was set at $55 in 1949, it provided a baseline (i.e., a dollar threshold) upon which future increases, using different sources of data, were established, thus locking in parts of previous methodologies. Although a specific percentile in a wage distribution (e.g., the 20 th percentile of wages for exempt occupations) was not used to establish the salary level for the EAP exemptions, both the 1940 and 1949 rules emphasized placing the thresholds "somewhere near the lower end of the range of prevailing salaries for these employees." Using the lower end of the range of prevailing salaries of EAP employees was based on DOL's goal of not denying bona fide EAP employees (based on an examination of the long test duties) the exemption. In addition, DOL rejected the use of regional or industry-based thresholds and indicated that a lower threshold would serve that goal by not excluding bona fide EAP employees in lower wage industries and regions of the country. Finally, it should be noted that these early decisions in setting the EAP salary levels for exemption—using the lower end of the salary range, using multiple criteria and data, and recognizing that using a single threshold should not deny the exemption to bona fide employees in low-wage industries and regions—took place in the context of a more robust "long" duties test. The rulemakings in 1958, 1963, and 1970 (and implicitly the 1975 rule because it updated existing salary levels by the Consumer Price Index-All Urban Consumers, or CPI-U) used the general approach of reviewing salary levels of exempt EAP employees and analyzing the minimum salaries they were paid compared to higher salaries of nonexempt employees. A central policy choice in rulemaking on the EAP exemptions has been, and continues to be, how to set the salary threshold at a level such that only a small percentage of bona fide EAP employees are denied the exemption, while also ensuring that an adequate differentiation exists between the salary of a nonexempt worker and the exempt worker supervising that nonexempt worker. The 1958 rule, however, was the first to introduce a specific percentile to define income-based proportionality. That is, while the pre-1958 rules noted the importance of setting the salary level threshold at the lower end of the salary range for EAP employees and of considering regional, firm-size, and industry differentials in wage levels, the 1958 rule operationalized the salary threshold with an explicit target of setting the thresholds at levels "at which no more than about 10 percent of those in the lowest-wage region, or in the smallest size establishment group, or in the smallest-sized city group, or in the lowest-wage industry of each of the categories would fail to meet the tests." Thus, the 1958 rule, also known as the "Kantor method" after the DOL administrator who developed it, established the principle that the salary threshold would not disqualify more than 10% of exempt EAP employees (as determined through passing the long duties test) in any of four categories: region, establishment size, city, or industry. All subsequent rules have used a specific percentile on a wage distribution to establish the threshold for exemption from overtime pay. It is important to note that the 10% principle established in 1958 and used in the three subsequent rulemakings on the EAP exemptions (1963, 1970, and 1975) was possible because of wage distribution data available from the Wage and Hour and Public Contracts (WHPC) division of DOL, a data source not available for the 2004 and 2016 rules. The WHPC reports typically included data on EAP-exempt employee salaries by geographic regions, establishment size, city size, and industry group. In addition, the reports included earnings data on the highest paid nonexempt employees who were being supervised by the lowest paid exempt executive employee in each establishment. The WHPC collected data on actual salaries paid to EAP employees as part of its investigations on compliance with the FLSA and the EAP exemptions. That is, as was noted by DOL in 1969, in the WHPC data "establishments selected for investigation by the WHPC are for the most part those in which there is a reason to believe that a violation [of the FLSA] exists." DOL noted that that a "large proportion of these establishments tend to be in the South and in nonmetropolitan areas." Thus, establishing the salary threshold for the EAP exemptions in this period primarily started with a wage distribution consisting of salaries of actually exempt EAP employees (based on the long duties test) in firms investigated by DOL. Even within this common wage distribution, however, the operationalization seems to have varied in at least two ways: The unit of analysis varied between the establishment and the employee. For example, in increasing the salary level threshold for executive exemption from $80 to $100 per week in the 1963 rule, DOL noted that 13% of the establishments in the survey paid one or more of their executive employees less than $100 per week. Yet, in increasing the salary level threshold for executive exemption from $100 to $125 per week in the 1970 rule, DOL noted that 20% of executive employees determined to be exempt based on the long duties test earned less than $130 per week. The Kantor method established the principle that the salary level threshold for EAP exemption should disqualify no more than 10% of EAP employees from exemption in four categories: region, establishment size, city, or industry. In practice, however, this was difficult to achieve. For example, the 1970 rule increased the salary threshold from $100 to $125 per week, a level which about 11% of all administrative employees' earnings were below. Yet, 18% of administrative employees in the South, 10% in the small-firm size category (0-9 employees), 16% in nonmetropolitan areas, and 16% in the retail industry earned below the $125 per week threshold. Unless there was convergence of salaries for EAP employees across all four categories, the Kantor method would be difficult to operationalize. The 2004 and 2016 rules maintained the concept of proportionality but the operationalization of this concept was different from past demarcations, mostly due to the changing nature of available data, making comparisons across time difficult. Specifically, the 2004 rule on the EAP exemptions eliminated the long and short duties tests in favor of a single, standard duties test (the 2016 rule kept the standard test) and used a wage distribution from a data source that included exempt and nonexempt employees to set the salary level threshold for exemption. In setting the standard salary level in the 2004 rule, DOL noted its intention to establish the updated level based on the methodology in the 1958 rule (the Kantor method, described above). DOL did not have available data on actual salaries paid to EAP exempt employees when it was creating the 2004 and 2016 rules (as it did when devising the methodology used in the 1958 rule and the similar methodologies used in setting the salary levels in the rulemakings from 1963 through 1975). Rather, DOL used survey data from the Current Population Survey (CPS) in determining the salary level for the standard test (which replaced the long and short tests). In recognition of the fact that the CPS salary data covered both exempt and nonexempt workers and of the creation of a standard duties test (as opposed to two tests with two different salary levels), DOL set the 2004 salary level at a point in the earnings distribution that would exclude from exemption approximately 20% of full-time salaried workers in the South (lowest wage region) and 20% of full-time salaried workers in the retail industry (lower wage industry). Thus, DOL set the salary level at the 20 th percentile of all full-time salaried employees (exempt and nonexempt) in the South and the retail industry, rather than at the 10 th percentile of exempt employees. In setting the standard salary level for exemption in the 2016 final rule, DOL again used CPS data on salaried workers to establish a wage distribution from which the threshold is derived. As with the 2004 rule, DOL established the salary level to exclude from exemption a certain percentage of EAP employees. However, it used different criteria than the 2004 rule and thus established a higher salary level than a methodology comparable to 2004 would have produced, based on the following: DOL set the standard salary level equal to the 40 th percentile (rather than the 20 th percentile) of weekly earnings of full-time salaried (i.e., nonhourly) workers in the lowest-wage Census region, which is currently the South region. That is, about 40% of full-time salaried workers in the South region earn at or below $913 per week ($47,476 annually); DOL does not include salaries in the retail industry as a demarcation point for exemption. In rejecting the inclusion of the retail industry salaries in the salary level estimation, DOL noted that the historical parity between low-wage areas and low-wage industries does not exist at the 40 th percentile and thus multiple duties tests would have been required to include these two salary levels. Specifically, DOL noted that the salary level at the 40 th percentile for the retail industry was below the historical range for the extant short test and would thus not serve as a demarcation in conjunction with the standard duties test; DOL does not exclude from its salary analysis employees who are excluded on a regulatory or statutory basis from FLSA coverage or the salary requirement for overtime exemption. In other words, the salary distribution includes employees who would not be subject to either the salary test for overtime exemption (e.g., doctors, lawyers) or those excluded from FLSA coverage. In establishing the salary level at the 40 th percentile of weekly earnings of full-time salaried employees, rather than the 20 th percentile used in 2004, DOL argues that the 2004 threshold was too low because of the elimination of the long tests and the adoption of a standard test based on the short duties test. That is, the individual long tests for the executive, administrative, and professional exemptions prior to 2004 had been accompanied by relatively lower salary thresholds, while the short test had been accompanied by a relatively higher salary threshold. DOL adopted the $913 salary level to "correct the mismatch" between the standard salary level, based on the previous long test levels, and the standard duties test, based on the previous short test. Thus, while the 2004 and 2016 rules followed the general methodology used in previous rules of setting a demarcation at a specific point on a wage distribution, the methodologies differ in important ways from previous rules and from each other. Specifically, the 2004 and 2016 rules established the salary level threshold on a wage distribution of all salaried employees , rather than on a distribution of exempt employees; accounted for some—region and industry in 2004, and region in 2016—but not all of the four-part criteria used in previous rules; and used different percentiles—20 th (2004) and 40 th (2016)—than were used in previous rules. Data in Figure 1 and Figure 2 compare the 2016 EAP standard salary level to two reference points often used in contextualizing the EAP salary levels—the Consumer Price Index-All Urban Consumers (CPI-U) and the federal minimum wage. The CPI-U, for example, was used to update the EAP salary levels in the 1975 rule and was proposed (but ultimately not adopted) as the automatic updating mechanism in the 2016 rule. The federal minimum wage has been used as a reference point for the EAP salary threshold as early as the 1940 rule, when DOL noted that the assumption that bona fide executive employees earn "compensatory privileges" would fail unless those employees earned "substantially higher" than the federal minimum wage. Thus, comparing the EAP salary levels over time to price changes (CPI-U) and another federally regulated wage (minimum wage) provides context for the rule changes. Data in Figure 1 show the 2016 standard salary level of $913 per week compared to the previous inflation-adjusted weekly salary levels used in the short test (1949-1975) and the standard test (2004). Data in Figure 2 compare the standard and short test salary levels and minimum wage historically. The standard duties and short duties tests have been used to illustrate how EAP salary levels established by DOL have changed over time. These two tests are used as the basis for this comparison here, because, as noted previously, the standard duties test is quite comparable to the short duties test and is thus more appropriate than the salary threshold associated with the long duties test for comparing the value of the salary threshold over time. Upon introducing the standard duties test in 2004, DOL acknowledged that differences between the standard and short duties tests were minimal: Given the lack of data on the duties being performed by specific workers in the Current Population Survey, the Department concludes that it is impossible to quantitatively estimate the number of exempt workers resulting from the deminimis differences in the standard duties tests compared to the current short duties tests. Compared to the 2016 salary level of $913 per week, the short test salary level would have been higher in 2016 had the short test's levels been indexed to the CPI-U at the time of enactment in all but the 2004 adjustment. That is, indexing the EAP salary levels to inflation at the point of any of the changes from 1949 through 1975 would have resulted in a 2016 salary level ranging from $991 per week ($78 above the 2016 level) to $1,231 per week ($318 above the 2016 level). On the other hand, if the EAP standard salary level had been indexed to CPI-U from the 2004 adjustment, it would be $575 per week in 2016 ($338 less than the 2016 level). Thus, as derived from the data in Figure 1 , the real value of the threshold for the standard test fell from an average of $1,106 in the 1950–1975 period to $575 in 2004 (a decrease of 48%). If the 2016 rule had not been invalidated, the 2016 threshold would have decreased in real terms by 17% from the average of the short test level but increased by 59% in real terms from the 2004 level. Data in Figure 2 show the ratios of the EAP short test salary level to the federal minimum wage over time. While the federal minimum wage rate is not regulated by DOL (i.e., rate changes are enacted only by amendments to the FLSA), it has traditionally been used explicitly by DOL as a benchmark when establishing the EAP salary thresholds. As noted in the 2004 rule, the legislative history indicates that the EAP exemptions were "premised on the belief that the workers exempted typically earned salaries well above the minimum wage." As one of many examples, the 1963 rule noted "[I]n nearly a quarter century of administering the act ... the salary test established for executives ... has fluctuated between 73 and 120 times the statutory hourly minimum wage applicable at the time, the arithmetical mean being 92." This comparison then guided DOL's establishment of the salary threshold for executive and administrative employees at 80 times the prevailing the prevailing hourly minimum wage at the time. To match the EAP salary level formats (weekly), federal hourly minimum wage rates were converted to full-time weekly amounts by multiplying the hourly wage by 40 hours. From 1950 through 1975, the ratios averaged 2.94. This ranged from 3.33 in the first half of the 1950s (when the EAP salary level was $100 per week, and the federal minimum wage was equal to a 40-hour weekly amount of $30) to 2.34 in 1968-1969 (when the EAP salary level was $150 per week, and the federal minimum wage was equal to a 40-hour weekly amount of $64). From 1976 through 2003, a period of time in which no adjustments were made to the EAP salary levels, the ratio of the EAP short test salary level to the federal minimum wage steadily declined, with brief plateaus due to minimum wage increases. The average ratio in the period from 1976 through 2003 was 1.7, bottoming out in the period from 1997-2003 at 1.21 (when the EAP salary level was $250 per week, and the weekly federal minimum wage was $206). Following the 2004 increase in the EAP short test salary level to $455 per week, the ratio increased to 2.21. It then declined to 1.57 following increases in the minimum wage in 2007 through 2009. Finally, the ratio increased to 3.15, with the 2016 EAP short test salary level of $913 per week and a federal minimum wage of $290 (on a weekly basis). 1940 Rule The Secretary of Labor updated the salary level for the EAP exemptions for the first time in 1940 (following the initial tests established at the time the FLSA became effective in 1938). The Secretary maintained the salary level for executive employees ($30 per week), increased it for administrative employees (from $30 to $50 per week), and added a salary level for a new category, professional employees ($50 per week). In setting the salary level in 1940, DOL noted two points about updating it. First, the terminology in the EAP exemptions in the FLSA (Section 13(a)(1)) "implies a status which cannot be attained by those whose pay is close to or below" the prevailing federal minimum wage, which was $0.30 per hour at the time. In other words, DOL argued that an EAP salary level too close to the federal minimum wage would not be indicative of an exempt employee as intended by the FLSA. Second, DOL noted that the "bona fide" aspect of the EAP exemptions (i.e., a "bona fide executive, administrative, or professional") was "best shown by the salary paid." In leaving the salary level for the executive exemption unchanged from the established level of $30 per week, DOL chose to "retain a comparatively low salary requirement," in part because of the absence "of data to show that the present $30 requirement has proved unsatisfactory." DOL reached its conclusion to maintain the $30 level primarily by determining that state overtime EAP exemptions salary thresholds at the time were near $30, considering "compensating advantages" that executives enjoy over nonexempt employees (e.g., authority over workers, opportunities for promotion, paid vacation, job security), and noting that a higher salary level for executives (thus increasing the "penalty" for overtime hours) would not result in "employment spreading" because the nature of executive work is not as shareable as administrative or professional work. In increasing the salary level for the administrative exemption from $30 to $50 per week, DOL did not include a limit on nonexempt work for employees in this category. As a result, DOL concluded that "when this valuable guard against abuse [i.e., the limit on the performance of nonexempt work] is removed, it becomes all the more important to establish a salary requirement for the exemption of administrative employees, and to set the figure therein high enough to prevent abuse." DOL also noted that if a large percentage of employees in a "highly routinized occupation" are exempted from overtime protection, then the salary level "fails to act as a differentiating factor between the clerical and the administrative employee." As such, DOL set the $50 per week salary level primarily on the basis of the federal government's wage schedule at the time for clerical and administrative employees, but also on the basis of data from two occupations in the private sector. WHD salary data for stenographers (a "highly routinized occupation") showed that less than 1% of them earned more than $2,400 annually ($200 per month) at the time, meaning that the exemption would only affect those with "truly responsible positions." The same WHD salary data showed that only 8% of bookkeepers ("one of the most routine of all the normal business occupations") earned more than $50 per week, but almost 50% of accountants and auditors (a group that "requires in general far more training, discretion, and independent judgement" than bookkeepers) earned at least $50 per week. Finally, DOL defined a new category of exempt workers—professional employees. The test for this new group, which like administrative employees did not include a cap on the percentage of time spent on nonexempt work, was set at $200 per month. Given the lack of available data on professional employees at the time, DOL relied primarily on data from the Federal Personnel Classification Board, which determined wage schedules for "professional" and "subprofessional" employees. The average annual salaries were $2,850 for the top grade of subprofessional workers and $2,250 for lowest grade of professional workers, thus making the dividing line about $2,550. The 1949 Rule The next change to the EAP exemptions occurred in 1949. The Secretary increased the salary level for executive employees from $30 to $55 per week, for administrative employees from $50 to $75 per week, and for professional employees from $50 to $75 per week. In addition, the 1949 rule established a short test that included a higher salary threshold of $100 per week paired with a shorter test of compliance with EAP duties. Similar to the 1940 rule, DOL concluded in the 1949 rule that the salary test was a "vital element" in the regulation of the EAP exemptions. Specifically, DOL noted that not using updated salary levels weakens the effectiveness of the salary level as a demarcation between exempt and nonexempt workers, increases misclassification, and complicates enforcement by failing to screen out "obviously nonexempt" employees. In considering the increased salary levels for the EAP exemptions, DOL noted that "actual data showing the increases in the prevailing minimum salary levels of bona fide executive, administrative, and professional employees" since the previous threshold was established in 1940 would be the "best evidence" on which to base the new levels. In the absence of data on actual minimum salary levels of bona fide EAP employees, DOL considered changes in wage rates and earnings of nonexempt employees as the "best and most useful evidence" available to establish new salary levels for exemption. DOL increased the salary level for executive employees from $30 to $55 per week. It primarily based its decision on the changes in average weekly earnings in the manufacturing industry. That is, average earnings in different parts of the manufacturing industry had increased by more than $25 per week from 1940 to 1949, which implied an increase to at least $55 per week for an executive to qualify for exemption. In justifying a new threshold at the lower end of changes in earnings for nonexempt employees, DOL indicated consideration must be given to lagging executive salaries in certain geographic regions, industries, and small establishments. DOL increased the salary level for administrative and professional employees from $50 to $75 per week. As with the 1940 rule, DOL relied on wage data for white-collar workers in general (rather than wage data for nonexempt workers that it used to update the threshold for executive employees), with a particular focus on clerical workers (e.g., bookkeepers), accountants, engineers, and federal government workers classified as "professional." More generally, DOL indicated that the updated salary level "must exclude the great bulk of nonexempt persons if it is to be effective." Finally, DOL added what would become known as the "short test" for EAP exemptions in the 1949 rule and created a two-test system of exemption (including the already established long test) that would remain in place until the 2004 rule. Specifically, DOL created special provisions for "high salaried" EAP employees, such that if an employee earned at least $100 per week and had a "primary duty" as an executive, administrative, or professional, he or she would be exempt from overtime protection. In setting the initial short test salary level at $100 per week, DOL noted that with "only minor or insignificant exceptions," employees who earned $100 per week and had as their "primary duty" work characteristic of an executive, administrative, or professional met all the requirements of exemption under the short test as well. DOL justified a new, separate short test for duties and salary on the basis of findings that the higher the salaries they were paid, the more likely employees were to meet all requirements for exemption; the use of a higher salary threshold with a lower, more qualitative duties test (compared to the percentage cap on nonexempt work in the long test) was intended to provide a "short-cut test of exemption" to ease administration of the EAP exemptions; the short test salary level needed to be "considerably higher" than the long test level so that it would include employees about whose exemption status there was normally no question; and the new short test was unlikely to lead to "injustice" because a bona fide EAP employee not meeting the higher salary test would still be likely to qualify for exemption under the long test. The 1958 Rule The next change to the EAP exemptions occurred in 1958. The Secretary increased the salary level for executive employees from $55 to $80 per week and for administrative and professional employees from $75 to $95 per week. In addition, the 1958 rule increased the salary threshold for the short test from $100 to $125 per week. The 1958 rule, consistent with the previous rulemaking on the EAP exemptions, emphasized the importance of setting the salary levels near the lower end of the salary range for each of the exempt categories, as part of demarcating bona fide EAP employees "without disqualifying [from exemption] any substantial number of such employees." Specifically, DOL attempted to establish a salary level for EAP exemptions at which no more than about 10% of EAP employees in the lowest-wage region, smallest-establishment group, smallest-city group, or lowest-wage industry would fail to qualify for exemption. To achieve this target of no more 10% of EAP employees failing to qualify for exempt status, DOL proceeded in two main stages. First, it used survey data on the range of salaries actually paid to employees who qualified for the overtime exemptions. DOL then compared the percentage of exempt employees at different salary levels across all four criteria—lowest-wage region, smallest-establishment group, smallest-city group, and lowest-wage industry—to determine the level at about which only 10% of actually exempt EAP employees in each category would not qualify. Because the salary thresholds differ across the four target groups, DOL could not set the level such that exactly 10% of employees in each group would not qualify. For example, DOL noted in the analysis for executive employees accompanying the 1958 rule that for employees found to be exempt, 10% in the lowest-wage region (South) were paid less than $75 per week, 10% in the smallest-establishment group (1-7 employees) were paid less than $75 per week, 9% in the smallest-city group (population of less than 2,500) were paid less than $75 per week, and 6% in the lowest-wage industry group (services) were paid less than $75 per week. In the 1958 final rule, DOL set the actual salary level threshold at $80 per week. Second, because the salary survey data were collected in 1955, DOL adjusted the salary levels indicated in the survey data by changes in nonexempt manufacturing worker earnings from 1955-1958. DOL adjusted the short test salary level to $125 per week by maintaining the approximate percentage differential established in the 1949 rule between the long test levels for administrative and professional employees and the short test levels for high earners. The 1963 Rule The next change to the EAP exemptions occurred in 1963. The Secretary increased the salary level for executive employees from $80 to $100 per week, for administrative employees from $95 to $100 per week, and for professional employees from $95 to $115 per week. In addition, the 1963 rule increased the salary threshold for the short test from $125 to $150 per week. The 1963 rule used WHD survey data from 1961 on actual salaries paid to EAP exempt employees, which showed that of establishments employing executive employees , 13% paid one or more of these employees less than $100 per week; of establishments employing administrative employees , 4% paid one or more of these employees less than $100 per week; and of establishments employing professional employees , 12% paid one or more of these employees less than $115 per week. In setting the updated salary levels, DOL noted that salary thresholds of $100 per week for executive and administrative employees and $115 per week for professional employees would "bear approximately the same relationship" to the salary thresholds established in the previous adjustment in 1958. That is, according to the 1963 rule, at the adoption of the 1958 salary levels, 10% of establishments employing executive employees paid one or more of these employees less than $80 per week and 15% of establishments employing administrative or professional employees paid one or more of these employees less than $95 per week. It is important to note here that one of the difficulties in comparing salary level thresholds over time is not only the different methodologies used but also the way the data are reported. The standard used in the 1963 rule—the percentage of establishments with "one or more employees" in a particular earnings category—is different from the 1958 standard, which referred to percentages of individuals in the earning distribution. Yet the 1963 rule characterized the 1958 findings in establishment terms (i.e., percentage of establishments with earners), not in individual terms (i.e., percentage of individuals). Finally, DOL adjusted the short test salary level to $150 per week (from $125 per week). Neither the proposed nor the final rule elaborated on the rationale for the increased short test salary level, but the increase to $150 per week maintained similar ratios of short-to-long test salary levels for executives (from 156% to 150%) and professionals (from 132% to 130%), while increasing the ratio for administrative employees (from 132% to 150%). The 1970 Rule The next change to the EAP exemptions occurred in 1970. The Secretary increased the salary level for executive and administrative employees from $100 to $125 per week and for professional employees from $115 to $140 per week. In addition, the 1970 rule increased the salary threshold for the short test from $150 to $200 per week. The 1970 rule relied on an approach similar to that used in the previous updates by analyzing actual salaries paid to EAP exempt employees. DOL found, as with previous rulemakings, that the survey data supporting the 1970 rule generally showed that the EAP salary level had become less of a line of demarcation for bona fide EAP employees since the previous salary level adjustment. Among the survey data findings were the following: In 19% of establishments with exempt executive employees, the lowest-paid executive employee earned less than the highest-paid nonexempt employee, which DOL noted was "very significant evidence that the current salary tests are no longer meaningful;" 5% of exempt executive employees had salaries of $100 per week (the exemption threshold at the time); 3% of exempt administrative employees had salaries of $100 per week (the exemption threshold at the time); and 5% of exempt professional employees had salaries of less than $120 per week (the exemption threshold at the time was $115). As a whole, DOL noted that the EAP exemptions salary levels had to be increased to maintain their role as a demarcation for bona fide EAP employees and to eliminate from exemption such employees whose status as bona fide executive, administrative, or professional employees was "questionable in view of their low salaries." The new salary levels set in the 1970 rule meant that the percentages of exempt executive, administrative, and professional employees earning below the new thresholds would rise to 14%, 11%, and 17%, respectively. Finally, DOL adjusted the short test salary level to $200 per week (from $150 per week). This increased the ratio of short-to-long test salary levels to 160% (from 150%) for executive and administrative employees and to 143% (from 130%) for professional employees. The 1975 Rule The next change to the EAP exemptions occurred in 1975. The Secretary increased the salary level for executive and administrative employees from $125 to $155 per week and for professional employees from $140 to $170 per week. In addition, the 1975 rule increased the salary threshold for the short test from $200 to $250 per week. The rates set in 1975 were based on adjusting the 1970 salary levels by changes in the Consumer Price Index from 1970 to 1975. Unlike any of the previous EAP rulemakings, DOL intended the updated levels to be in effect only for an interim period, pending the completion of a study by the Bureau of Labor Statistics (BLS). In setting the EAP salary levels in 1975, DOL noted that the "rapid increase in cost of living" since 1970 (the year of the previous EAP salary level adjustments) had "substantially impaired the current salary tests as effective guidelines" for determining the EAP exemptions. Thus, while the inflationary conditions necessitated the issuance of interim rates instead of waiting for the results of the BLS study, DOL also made it clear that the use of interim rates was not to be considered precedent for EAP exemptions rulemaking. The 2004 Rule The Secretary updated the salary level for the EAP exemptions for the seventh time in 2004. Following 29 years in which the EAP exemptions had not been changed, the Secretary made several changes to the EAP salary and duties tests; the two primary changes were the following: Creation of a s tandard salary level . The 2004 rule harmonized the salary tests across exemption categories into a single standard salary level test of $455 per week, which was approximately equal to the 20 th percentile of full-time salaried employees in the lowest-wage Census region (South) and in the lowest-wage industry sector (retail) in 2004; and Elimination of long and short tests. The 2004 rule created a single, standard duties test to replace the separate long and short tests. The 2004 rule required that an EAP employee's "primary duty" must consist of exempt work, as opposed to previous rulemaking limiting the percentage of work time an EAP employee could perform on work not considered executive, administrative, or professional. The elimination of the quantitative limit on nonexempt work made the standard test similar to the short test in use since 1949. In setting the standard salary level in the 2004 rule, DOL noted its intention to establish the updated salary level based on the methodology in the 1958 rule (the "Kantor long test"), which set the long test salary threshold at a level at which no more than about 10% of EAP employees in the lowest-wage region, smallest-establishment group, smallest-city group, or lowest-wage industry group would fail to qualify for exemption. In 2004, DOL did not have available the type of data (i.e., the actual salaries paid to EAP exempt employees) it used in devising the methodology used in the 1958 rule and the similar methodologies used in setting the salary levels in the rulemakings from 1963 through 1975. Rather, DOL used survey data from the Current Population Survey in determining the salary level for the single, standard test (which replaced the long and short tests). In recognition of the fact that the CPS salary data covered both exempt and nonexempt workers and of the creation of a standard duties test (as opposed to two tests with two different salary levels), DOL set the 2004 salary level at a point in the earnings distribution that would exclude from exemption approximately 20% of full-time salaried workers in the South (lowest-wage region) and 20% of full-time salaried workers in the retail industry (lower-wage industry). Thus, DOL set the salary level at the 20 th percentile of all full-time salaried employees (exempt and nonexempt) in the South and the retail industry, rather than at the 10 th percentile of exempt employees. As part of the estimation process, DOL excluded from its salary analysis employees who are excluded on a regulatory or statutory basis from FLSA coverage or the salary requirement for overtime exemption. The 2016 Rule The 2016 final rule, the eighth update since 1938, makes two main changes to the salary level exemptions: Increases the s tandard salary level . Effective December 1, 2016, the standard salary level for the EAP exemption is $913 per week, which is the 40 th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region (South); and Creates a utomatic updates to the salary level. The rule implements a mechanism to automatically update the EAP salary level thresholds. Starting January 1, 2020, and every three years thereafter, the standard salary level threshold will equal the 40 th percentile of weekly earnings of full-time nonhourly workers in the lowest-wage Census region (South). The 2016 rule does not change the duties tests for EAP exemptions, and it leaves in place the single, standard test established in the 2004 rule. In setting the standard salary level for exemption in the 2016 final rule, DOL again used CPS data on salaried workers to establish a wage distribution from which the threshold is derived. As with the 2004 rule, DOL established the salary level to exclude from exemption a certain percentage of EAP employees. However, it used different criteria than the 2004 rule and thus established a higher salary level than a methodology comparable to 2004 would have produced, based on the following: DOL set the standard salary level equal to the 40 th percentile (rather than the 20 th percentile) of weekly earnings of full-time salaried (i.e., nonhourly) workers in the lowest-wage Census region, which is currently the South region. That is, about 40% of full-time salaried workers in the South region earn at or below $913 per week ($47,476 annually); DOL does not include salaries in the retail industry as a demarcation point for exemption. In rejecting the inclusion of the retail industry salaries in the salary level estimation, DOL noted that the historical parity between low-wage areas and low-wage industries does not exist at the 40 th percentile and thus multiple duties tests would have been required to include these two salary levels; DOL does not exclude from its salary analysis employees who are excluded on a regulatory or statutory basis from FLSA coverage or the salary requirement for overtime exemption. In other words, the salary distribution includes employees who would not be subject to either the salary test for overtime exemption (e.g., doctors, lawyers) or those excluded from FLSA coverage. In establishing the salary level at the 40 th percentile of weekly earnings of full-time salaried employees, rather than the 20 th percentile used in 2004, DOL argues that the 2004 threshold was too low because of the elimination of the long tests and the adoption of a standard test based on the short duties test. That is, the individual long tests for the executive, administrative, and professional exemptions prior to 2004 had been accompanied by relatively lower salary thresholds, while the short test had been accompanied by a relatively higher salary threshold. DOL adopted the $913 salary level to "correct the mismatch" between the standard salary level, based on the previous long test levels, and the standard duties test, based on the previous short test. | The Fair Labor Standards Act (FLSA) is the primary federal statute providing labor standards for most, but not all, private and public sector employees. The FLSA standards require that "non-exempt" employees working excess hours in a workweek receive pay at the rate of one-and-a-half times their regular rate for hours worked over 40 hours. The requirements in the FLSA for overtime pay beyond this threshold refer to the "maximum hours," but the FLSA does not actually limit the number of hours that may be worked. Instead, it establishes standards for the pay required for hours beyond 40 hours in a workweek. The FLSA also provides several exemptions to the maximum hours requirement, some of the largest of which are the EAP (executive, administrative, and professional employees, or "white collar") exemptions. In effect, these exempt employers from overtime pay requirements for certain employees. The FLSA authorizes the U.S. Department of Labor (DOL) to "define and delimit" the EAP exemptions, rather than setting the specific parameters of the exemptions in the law itself. Since defining and delimiting the EAP exemptions upon the enactment of the FLSA in 1938, DOL has adjusted their parameters eight additional times, most recently in a 2016 rule. In August 2017, a U.S. District Court invalidated the 2016 rule and DOL has subsequently indicated that it is in the process of formulating a new proposal on the EAP exemptions. As will be discussed in detail in the remainder of this report, the major features of DOL's rulemaking on the EAP exemptions are as follows: In every rulemaking since 1938, DOL has required that EAP employees meet three tests to qualify for exemption from overtime pay (i.e., when employees are exempt, employers are not required to pay them for work in excess of 40 hours): (1) exempt employees must perform certain EAP duties ("duties" test), (2) exempt employees must be salaried ("salary basis" test), and (3) exempt employees must earn a salary in excess of the level set by DOL ("salary level" test). From 1949 to 2004, DOL used a "long" duties test paired with a relatively lower salary level along with a "short" duties test paired with a relatively higher salary level to determine exemption for EAP employees. The main difference between the long and short duties tests was a quantitative limit in the long test on the amount of time an EAP employee could spend performing nonexempt work (no more than 20% in a workweek). During this 55-year period of using long and short tests, the salary level for the short test averaged 149% of the salary for the long test. The logic of using the two approaches was that higher-salaried employees were more likely to meet all requirements for exemption, while lower-salaried employees needed a more-stringent duties test to qualify for exemption. In the 2004 rulemaking, DOL switched from the long and short tests to a standard duties test and salary level test for exemption. The standard duties test did not include a quantitative limit on the percentage of time performing nonexempt work, making it closer in nature to the defunct short duties test. In addition, the new standard salary level test was lower than the inflation-adjusted salary levels used in the previous short tests. In other words, the 2004 rule generally paired a short duties test with a salary level below the short test levels used in the past. The 2016 rule, which was subsequently invalidated, increased the standard salary level and left the standard duties test unchanged. Compared to the six previous rulemakings using the short and/or standard tests for exemption, the salary level in the 2016 rule ($913 per week) is below the inflation-adjusted levels in all but the 2004 rule. In addition, the ratio of the salary level test to the weekly minimum wage equivalent (40 hours per week at the prevailing minimum wage) in the 2016 rule is 3.15. The average ratio at the time of enactment of each new EAP salary threshold from 1949 through 2016 is 2.99, with a high of 3.33 (1949) and a low of 2.21 (2004). Since 1938, measures of the salary level have fluctuated according to DOL's identification of data sources most suitable for studying wage distributions and the department's determinations of the proportion and types of workers who should be below salary thresholds, as well as its determinations of whether regional, industry, or cost-of-living considerations should be factored into salary tests. |
Politics in Haiti have been generally violent and authoritarian, ever since Haiti became anindependent republic in 1804, when African-descended slaves revolted against their French colonialmasters. Between the end of the rule of Toussaint Louverture (leader of the slave rebellion) in 1803,and Francois Duvalier, founder of the 30-year dictatorship that fell in 1986 -- both of whom declaredthemselves president for life -- were some 30 other despotic rulers. This legacy would appeardifficult to overcome. In addition, most of the traditional centers of power in Haiti, such as themilitary, the Catholic and Protestant churches, the business sector, and the traditional elite, finddemocratic reformist ideas threatening in the Haitian context. The government apparatus is stillstaffed principally by Duvalierist appointees, many of whom have resisted change during thenumerous post-Duvalier governments and will most likely continue to do so. Haitian history is marked by conflict between two racial groups: the mulatto elite and themajority blacks. The vast majority of Haitians are black, poor, illiterate peasants. The mulattosestablished their economic power and elite status principally by controlling the business sector. Bothgroups enjoyed periods of political dominance. Black rulers generally emphasized Haiti's Africanroots and traditions, including the African-based folk religion, voodoo. The mulatto eliteemphasized a European, Catholic tradition. Because of their education, mulattos held somegovernment positions even during black rule. Race relations have improved in recent years: the once disdained Creole dialect used by themajority is now an official language spoken by all Haitians; interracial marriages are common; andthe government is no longer as dominated by mulattoes. But recent political events have againheightened racial and class tensions within Haiti. The poor black majority's only access to powerhas been through public protests, when tolerated, and the recent elections. The mulatto elite wieldsmost of the economic and political power in Haiti, and generally resists dramatic changes toward aredistribution of wealth and privilege to improve the lot of the poor majority. For much of this century, Haitian history was marked by occupation government or theauthoritarian Duvalier regime. The United States intervened in Haiti in 1915 to stop civil strife andprevent Germany from establishing a foothold there. By mid-August, 1915, there were more than2,000 U.S. Marines in Haiti. (1) The Marines stayed until 1934, overseeing public works, taxcollection, treasury management, and the development of a native Haitian Constabulary which wasHaiti's first professional military force. Some of these contributions were welcome and muchneeded. But the U.S. presence was also deeply resented as an affront to Haitian sovereignty. ManyHaitians charged the United States with discriminating against blacks by placing mulattoes inpositions of power. By 1932, the U.S. withdrawal from Haiti was well underway during the Administration ofHerbert Hoover. Because of growing concerns about the effects of the occupation, President Hooverhad appointed a commission 1930 to study the U.S. involvement in Haiti. The commissionconcluded that while the occupation had brought about material improvements to Haiti, the U.S.occupation also excluded Haitians from positions of real authority in the government and theconstabulary. Under President Franklin Roosevelt, a disengagement agreement was signed in August1933, and the last contingent of U.S. Marines left Haiti in August 1934. (2) Francois Duvalier and his son Jean-Claude ruled Haiti for nearly 30 years, leaving behind alegacy of repression and corruption. Francois, or "Papa Doc," Duvalier became President in 1957through elections marred by numerous irregularities. Although Duvalier originally ran on a platformcalling for political liberty and social reform, within a year he had established himself as a dictator. Under his rule, arbitrary imprisonment, torture, and unexplained deaths became commonplace. TheDuvaliers' private militia, the Tontons Macoutes, carried out most of this repression. The Macoutes,Creole for "bogeymen," were loosely organized armed gangs enlisted by the Duvaliers to eliminateopposition to their rule through violence and extortion. The Macoutes also served to counterbalancethe army's power, which the Duvaliers kept in check to prevent military coups. (3) In 1964, the elder Duvalierhad the constitution amended to make himself president-for-life. In 1971, three months before hisdeath, he had it amended again so that he could name his 19-year-old son Jean-Claudepresident-for-life. In the 1980s, "Baby Doc" Duvalier's marriage to a prominent mulatto and their opulentlifestyle stirred up much resentment among the poor black majority who lived in absolute poverty. In addition, fiscal corruption was rampant and widely recognized in Jean-Claude's government. Aspopular dissatisfaction rose, his regime grew increasingly repressive. In the face of massive populardemonstrations and pressure from abroad, Jean-Claude Duvalier fled the country for France onFebruary 7, 1986. The United States encouraged and helped arrange his departure. Aristide's 1991 ouster ushered in the seventh government in the five and one-half years sincethe young Duvalier's departure. The first interim government was a 6-man, military-dominatedNational Council of Government (CNG) that disbanded the Tontons Macoutes and allowed thedrafting of a new constitution. The new constitution, which over 99 percent of Haitian votersreportedly approved in a plebiscite, guaranteed personal liberties; distributed power among apresident, a Prime Minister, and two legislative houses; and transferred the police to the departmentof justice. It also created an independent electoral council to oversee elections leading to theinauguration of a civilian government in February 1988. Members of the armed forces and anyoneclosely associated with the Duvalier family dictatorship were barred from running for office. ButDuvalierists, in collaboration with the army, thwarted the November 1987 elections by mounting aviolent campaign that culminated in the killing of dozens of voters on election day; as a result of theviolence, the elections were suspended. In January 1988, the CNG ran its own elections, widely viewed as rigged in favor of LeslieManigat, a long-exiled academic. But less than 6 months later, on June 20, 1988, Manigat wasousted in a military coup when he tried to replace officials and reform the government. Lt. GeneralHenri Namphy, CNG president and close friend of Papa Doc's, seized power. During the 31 monthsthat Namphy ran the government (February 1986 to September 1988), human rights violationsincreased, with numerous political killings. Namphy was succeeded by Lt. Gen. Prosper Avril, whopromised a transition to democracy. But under Avril's regime, human rights continued to beroutinely violated, as reported by the U.S. State Department, human rights groups, and others. Violent popular protests forced Avril to resign after 18 months. As a result, in March 1990, a civilian government was appointed with the mandate of holdingelections as soon as possible. A coalition of political and civic organizations selected ErthaPascal-Trouillot, the only woman on the Supreme Court, as provisional President. A State Councilwas established with the objective of giving policy guidance to the executive branch. The Councilsevered relations with the executive branch, however, after the executive branch failed to consult theCouncil or to take action against political violence. President Trouillot headed what was generallyconsidered a weak civilian government, unable or unwilling to effectively control the military. Sheestablished and cooperated with an independent electoral council that organized successful electionsat the end of the year. Hopes that Haiti would leave behind its authoritarian past were raised on December 16, 1990,when Haitians elected a President, national legislators, and municipal officials. Despite securityconcerns and lack of a democratic tradition, voter turnout was estimated to be 70 percent on electionday, and international observers declared the elections generally free and fair. The elections werein part the result of a strong democratic movement that had emerged in the late 1980s in support ofan elected government that would establish order in a non-repressive manner. The democraticmovement encompassed many elements of Haitian society, including political parties as well aspeasant, labor, human rights, and professional organizations. Many observers also credited thesuccess and relatively peaceful nature of the elections to the heavy presence of internationalobservers, whose presence the government of Haiti had requested, and to the economic and materialsupport provided by many nations and international organizations. Jean-Bertrand Aristide was elected President with 67.5 percent of the vote, and wasinaugurated on the fifth anniversary of the collapse of the Duvalier dictatorship. A 37-year-oldpopulist Roman Catholic priest, he was the most controversial of 11 candidates ruled eligible to runby the independent Provisional Electoral Council (CEP). To his supporters, Aristide is a martyr,willing to risk his life to defend the poor. An advocate of "liberation theology," Aristide spoke outagainst Duvalier and the military rulers who followed him. In September 1988, an armed groupattacked and burned Aristide's church, killing 13 and wounding 70; surrounded by his parishioners,Aristide escaped unharmed. To his detractors, Aristide is a potentially dangerous demagogue, whoseinflammatory oratory they say encourages the rampages, known as dechoukajes , or "uprooting" inCreole, in which suspected Tontons Macoutes are attacked or killed by angry mobs. Aristidereportedly denies that his book, 100 Verses of Dechoukaj , condones violence. Nonetheless, theSalesian religious order expelled him for preaching politics from the pulpit, including what the ordercalled "class struggle." When Aristide became a candidate, he toned down his revolutionary and anti-U.S. rhetoric. Aristide previously opposed democratic elections in Haiti, arguing that free and fair elections wereimpossible as long as Duvalierists still had a hold on economic and political power. Nonetheless,he joined the race in response to former Tontons Macoutes chief Roger Lafontant's potentialcandidacy. Lafontant was ruled ineligible to run for the presidency, and in early January 1991, he led anattempted coup against President Trouillot in an effort to prevent Aristid, whom he called an"ultra-communist," from taking office on February 7, 1991. Lafontant seized the national palace andtried to declare martial law. Instead, the army arrested Lafontant and promised to have him tried inthe civilian courts. The popular celebration that followed turned violent as crowds hunted down andlynched dozens of suspected Macoutes. Mobs also burned down the 220-year old cathedral, inapparent retaliation for a homily by the Archbishop -- whose relations with Aristide have long beentense -- that warned of a coming "regime of authoritarian politics." Many foreign diplomatscriticized Aristide for not condemning the street violence quickly or forcefully enough. President Aristide was faced with some of the most serious and persistent social, economic,and political problems in the western hemisphere. After 8 months in office, Aristide had receivedmixed reviews. He was credited with curbing crime in the capital, reducing the number ofemployees in bloated state enterprises, and taking actions to bring the military under civilian control. But some observers questioned the new government's commitment to democracy. Neither Aristidenor his Prime Minister belonged to a political party, and leaders of other political parties criticizedhim for not reaching out and establishing a spirit of cooperation among the democratic elements. Many legislators, including some from Aristide's own coalition, protested the President'sappointment of Supreme Court judges and ambassadors without consulting the Senate as requiredby the constitution. Aristide later agreed to consult the legislature, but relations between the twobranches remained strained. Aristide was also criticized for his attitude toward the judicial system. Lafontant was triedin July 1991 for his role in the failed January coup attempt. Aristide called for a life sentence --which Lafontant received -- although the constitution limited sentences to 15 years. Aristidedeclared the next day a national holiday. Many observers expressed concern over the trial, sayingit differed little from trials under the Duvaliers: it lasted for over 20 consecutive hours, importantwitnesses were not called, and the court appointed five lawyer trainees to defend Lafontant becauseeven his own lawyer felt it too dangerous to defend him. Initially criticized for not having a clear plan, the Aristide government in July 1991 presenteda macroeconomic reform and public sector investment plan to representatives of several nations andinternational lending institutions, who lauded the plan and pledged $440 million in FY1992 aid. Most of that aid was suspended because of the coup that overthrew Aristide's government onSeptember 30, 1991. Aristide's Human Rights Record. In the area ofrespect for human rights, President Aristide also had mixed reviews. He was criticized for appearingto condone mob violence, but was also credited with significantly reducing human rights violationswhile he was in office. Some observers believe that as President, Aristide helped to polarize the situation in Haitiby refusing to condemn violent acts of retribution, and holding out the threat of mob violence againstthose who disagreed with him. For example, Aristide refused to condemn the practice of "perelebrun", or burning someone to death with a "necklace" consisting of a gasoline-soaked auto tire. After the former head of the Tontons Macoutes was sentenced to life in prison, Aristide gave aspeech in which he noted that without popular pressure and the threat of "pere lebrun" in front of thecourthouse, the life sentence would not have been chosen. Moreover, in a September 27, 1991 speech, Aristide appeared to threaten former TontonsMacoutes with "pere lebrun." Aristide reportedly said, "You are watching all macoute activitiesthroughout the country. We are watching and praying. We are watching and praying. If we catchone, do not fail to give him what he deserves. What a nice tool! What a nice instrument! What anice device! It is a pretty one. It is elegant, attractive, splendorous, graceful, and dazzling. It smellsgood. Wherever you go, you feel like smelling it. It is provided for by the Constitution, which bansmacoutes from the political scene." (5) In exile Aristide condemned the practice of necklacing. (6) Observers contend that in the speech Aristide also threatened the bourgeoisie for not havinghelped his government enough. (7) Some saw the speech as another factor leading to his overthrowjust days later, and maintain that members of the bourgeoisie were financially supporting the coupleaders. In a report on the Aristide government's human rights record, Americas Watch and two otherhuman rights groups wrote: It is unfortunate but understandable thatAristide's speeches in support of Pere Lebrun have overshadowed other speeches in which headvocated lawful redress for abuse....President Aristide had a duty to refrain from any statement thatcould be understood to support Pere Lebrun, and to speak out firmly and consistently against thisbarbaric practice. His failure to fulfill this duty is a serious blemish on his human rights record. (8) The report also reflected the views of many in the international community when itrecognized President Aristide as the "sole legitimate Haitian head of state," elected with a two-thirdsmajority, an unusual mandate in the hemisphere. The report further stated: "While we recognize theneed to correct the human rights shortcomings of the Aristide government ... we believe firmly thatthese failings cannot be used to justify committing yet a further, serious human rights violation bydepriving the Haitian people of the right to elect their government." (9) Most human rights monitors credit the Aristide government with being the first Haitiangovernment to address the need to improve respect for human rights, and the needs of the poormajority. They assert that progress made during his term was undone by the military regime thatfollowed. Most sources credit Aristide with creating a much greater sense of security in Haiti thanthere had been in years. He greatly reduced common crime in the city; the removal of the "chefs desections," or sheriffs, many of whom had ruled rural Haiti through extortion and violence fordecades, brought greater security to the countryside as well. According to the State Departmenthuman rights reports for 1991 and 1992, there were no reports of disappearances during Aristide'sterm, and dozens in the months following the coup. The number of political killings also rosedramatically after Aristide was ousted. The September 1991 coup began just four days after Aristide addressed the United Nations,an event he reportedly said marked the end of Haiti's dark past of dictatorship. The State Departmentestimated coup-related deaths at 300-500, while Amnesty International estimated them to numberover 1,500. Role of the Military in the Democratic Process. Under the military-dominated interim governments, the Haitian army frequently impeded thedemocratic process. After the departure of the last military dictator in March 1990, however, someobservers believed there had been a transformation of the army to one supportive of democracy. Throughout the 1990 electoral process, the 7,000-man army proved itself capable of establishing andmaintaining order. Several factors accounted for the change, including attrition of anti-democraticelements with the downfall of the various interim governments; the army's inability to form a viablegovernment; a new generation of officers interested in reform and professionalization of the armedforces; and growing domestic and international pressure for a civilian democracy. Initially, the armyaccepted Aristide's assertion of authority, including his purge of the Haitian army high command. Brig. General Cedras, who oversaw security for the December elections, was reportedly a reluctantparticipant in the coup. But as its spokesman, he said Aristide was ousted for "meddling in armyaffairs." Some analysts argue the army does not want to relinquish control so that it can continueto profit from contraband- and narcotics-trafficking. In its attempts to implement provisions of the Haitian constitution that impose civilianauthority over the military, the Aristide government met significant army resistance. For example,the constitution calls for the separation of the police from the army, with the police under thecommand of the Ministry of Justice. The law also mandates that cases involving military abusesagainst civilians be tried in civilian courts, not by the military. The military had resisted previousefforts to execute those laws. No military personnel were prosecuted for human rights abuses underany of the interim governments. When he was overthrown, Aristide was opening an attack oncorruption, pressing reforms in the army, and creating a civilian police force. The military's trend toward improved human rights under the Aristide government wasreversed after the coup, according to the State Department's 1991 human rights report. That andother human rights reports stated that the military used violence to intimidate political opposition,popular organizations, the urban poor, and the media. (10) During the numerous interim governments as well as under Aristide's rule, many formermembers of the army and the Tontons Macoutes still had weapons and terrorized the populace. Dealing in contraband, robbery, and extortion, they profited from insecurity and chaos. None of theinterim governments prosecuted perpetrators of past human rights violations or sent consistentsignals that Macoute violence would not be tolerated. The public sometimes took matters into itsown hands, carrying out "popular justice" or summary public executions of suspected Macoutes. TheAristide government has been charged with appearing to condone such tactics, but was also creditedwith lowering the crime rate in the capital, and with detaining many "terrorists". After Aristide'souster, there was a resurgence of Tontons Macoutes activity. (11) Area: 10,714 square miles (slightly larger than Maryland); occupies the eastern halfof the island of Hispaniola Capital: Port-au-Prince Population: 6.4 million Language: French, spoken by only 10% of the population, and Creole, spoken by theentire population. Ethnic Groups: About 95% of African origin and the remaining 5% of mixedAfrican-European origin (mulatto) and European origin Religions: About 80% is Roman Catholic, but a majority of this group also practicesVoodoo. Another 16% belong to numerous Protestant groups. Gross National Product (GNP): $2.27 billion (1991) GNP Real Growth: -0.6% (1980-1991) GNP Per Capita: $370 (1991) Real GNP Per Capita Growth: -2.4% (1980-1991) Life Expectancy at Birth: 55 years (1990) Adult Literacy: 47% (1990) Infant Mortality Rate (per 1,000 live births): 94 Sources: Central Intelligence Agency. World Factbook 1993 ; World Bank. World DevelopmentReport 1993 ; World Bank. The World Bank Atlas, 1992. | The overthrow of Haiti's first democratically elected president in September 1991 propelledHaiti into its worst crisis since popular protests brought down the 29-year dictatorship of theDuvalier family in 1986. Father Jean-Bertrand Aristide was elected President of Haiti in a landslidevictory on December 16, 1990, in what was widely heralded as the first free and fair election in thecountry's 186-year history. A Catholic priest of the radical left, he was inaugurated on February 7,1991, and overthrown by the military on September 30. Politics in Haiti have been generally violent and authoritarian, ever since Haiti became anindependent republic in 1804. The legacy of despotic rulers has been difficult to overcome. The United States intervened in Haiti in 1915 to stop civil strife and prevent Germany fromestablishing a foothold. The U.S. Marines occupied Haiti until 1934, overseeing public works, taxcollection, treasury management, and the development of a native Haitian Constabulary which wasHaiti's first professional military force. While many of these contributions were welcomed and muchneeded, many Haitians deeply resented the U.S. presence as an affront to Haitian sovereignty. From 1957 through 1986, Francois Duvalier and his son Jean-Claude rule Haiti for nearly30 years, leaving behind a legacy of repression and corruption. After Duvalier's ouster in 1986, aseries of short-lived governments, most military-dominated, ruled through 1990. This report provides background information on the violent and authoritarian traditions thathave characterized Haiti's political dynamics since Haiti attained independence in 1804. It examinesHaiti's difficult path toward democracy after the fall of the Duvalier regime, from numerousshort-lived governments until the election of Aristide in December 1990. Finally, the report alsobriefly surveys Aristide's rule from February 1991 until his subsequent overthrow by the Haitianmilitary 8 months later, in September 1991. |
Title XVII of the Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015 ( P.L. 113-291 ) established the National Commission on the Future of the Army (NCFA) to conduct a comprehensive study of the structure of the Army (see the Appendix ). The NCFA reported its findings to Congress and the Administration on January 28, 2016, and made a number of recommendations that may or may not be acted upon. The NCFA is likely to participate in congressional briefings and/or hearings detailing the NCFA's recommendations. Some have suggested the historical post-war practice of reducing defense budgets, in part, contributed to the perceived need for a commission to address proposed changes to the Army. One defense analyst characterized this situation, noting: The decline in the size of the active-duty force caused by reduced budgets has sparked tension among the Active, Guard, and Reserve components over their respective missions and corresponding resources. Lacking the ability to fund the existing arrangement of Active, Reserve, and Guard forces adequately, service chiefs have had to reallocate funding, forcing reconsideration of what each component needs to have and for what purpose. On May 6, 2014, Senators Patrick Leahy and Lindsey Graham introduced a bill to establish an NCFA and highlighted the concerns of some Members: Mr. LEAHY. Mr. President, yesterday Senator GRAHAM and I introduced a bill to establish a National Commission on the Future of the Army, an independent panel that will bear the responsibility of analyzing some major changes to the U.S. Army that were proposed in the President's budget. The Army's budget for Fiscal Year 2015 sets a path toward major, irreversible changes to Army capacity and capability, particularly in the Army National Guard and Army Reserves that cannot be ignored by the Congress. Senator GRAHAM, my fellow co-chair of the Senate National Guard Caucus, has said repeatedly that these changes fundamentally alter what it means for the National Guard to be a combat reserve of the Army. The changes would also render the Nation's operational reserve insufficient in its ability to retain gains in experience and readiness that the reserve has achieved over a decade of continuous deployment. Most dramatically, these changes would transfer all of the National Guard's AH–64 Apaches to the active component, leaving the Nation without any combat reserves for one of the aircraft most essential to ground operations. The decision to establish an NCFA was also likely influenced by two previous commissions that also addressed contemporary military issues—the 2014 National Commission on the Structure of the Air Force and the 2015 Military Compensation and Retirement Modernization Commission. Both commissions provided a number of recommendations that have been either adopted by the Air Force or, in the case of the Military Compensation and Retirement Modernization Commission, enacted through legislation or policy changes and applicable to all U.S. servicemembers. Some say the Army's 2013 Aviation Restructuring Initiative (ARI) significantly influenced the decision to establish the NCFA. An April 27, 2015, U.S. Government Accountability Office (GAO) report, Force Structure: Army's Analyses of Aviation Alternatives , describes the ARI: In October 2013, the Army Chief of Staff approved a force-structure proposal—called the Army Aviation Restructuring Initiative—that would cut approximately 10,700 military positions from the Army's end strength by eliminating active-component and reserve-component [aviation] units from the Army's force structure. The proposal would enable the Army to divest nearly 800 older and less-capable helicopters [OH-58D Kiowa Warrior] from the force, and rebalance combat capabilities across the regular Army, Army National Guard, and Army Reserve. The Army would accomplish this by removing all AH-64 Apache helicopters from the reserve component and increasing the number of AH-64 Apaches in the active component. According to the Army, once implemented the aviation restructuring initiative would save roughly $1 billion annually. GAO further noted: The National Guard Bureau, although agreeing with many aspects of the Army's proposal, has opposed the effort to remove the AH-64 Apache helicopters from the Army National Guard. Bureau officials said that in their view the removal of these helicopters will degrade the Army National Guard's role as a combat reserve; establish a precedent for removing other combat capabilities from the Army National Guard; and disrupt Army National Guard units and force structure across 20 states. The disagreement between the Army and the National Guard Bureau over the ARI was visible to the public, the Administration, and Congress and reportedly became acrimonious. It is possible this lack of consensus between the Army and National Guard and their perceived contentious relationship suggested a need for an independent body to examine the ARI as well as other Active and Reserve Component force structure issues. On January 28, 2016, the NCFA released its final report. As part of the report, the NCFA produced a classified appendix (see topic outline and access instructions in Appendix E of the report), which is available to those with the appropriate clearance and a "need to know." The 208-page report contained 63 recommendations for the Nation, the President, Congress, the Department of Defense, the Joint Staff, Combatant Commands, the Army, and Army Service Component Commands, and these recommendations are summarized in Appendix B of the report. The commission's major findings and recommendations are summarized below: An Army of 980,000 soldiers (Regular Army of 450,000; Army National Guard of 335,000; and an Army Reserve of 195,000) is the minimally sufficient force to meet current and anticipated missions with an acceptable level of risk. This finding is consistent with the endstrength and force mix minimums established by Army leadership in 2014. The Army should retain an 11 th Regular Army Combat Aviation Brigade (CAB) instead of drawing down to 10 CABs as proposed under the ARI. This 11 th CAB should be forward stationed in South Korea. The commission believes there is significant risk in terms of aviation safety given terrain and aviation mission complexities for rotational aviation forces in Korea. Forward stationing of this CAB in South Korea would provide aircrew greater familiarity with the demanding environment and enhance interoperability with South Korean allies. The Army should forward station an Armored Brigade Combat Team (ABCT) in Europe. While the Army is currently rotating an ABCT through Europe, both the changing European security environment, as well as the advantages of deploying from Europe if the ABCT is required for a Middle Eastern contingency, support the permanent stationing of an ABCT in Europe. Based on its analysis, the commission believes little additional staffing would be required to accommodate the forward stationed ABCT. The commission noted a significant shortfall in Army air defense capability as a result of post-Cold War changes in force structure. Noting the security situations in the Ukraine and Syria, concern was expressed that no short-range air defense battalions were in the Regular Army and a sizeable percentage of the National Guard's short-range air defense capability was devoted to protecting the National Capital Region, leaving little spare capacity for contingency operations. The commission also found shortfalls in tactical mobility; missile defense; chemical, biological, radiological, and nuclear (CBRN) defense—particularly as it relates to homeland defense; field artillery; fuel distribution; water purification; Army watercraft; and military police. If the Army's 980,000 soldier strength cannot be increased to address the creation of units to address the aforementioned shortfalls, the Army should consider eliminating two Regular Army Infantry Brigade Combat Teams (IBCTs) to free up spaces to create these units. While such an action might provide the needed spaces, equipping these units would likely require the dedication of significant budgetary resources unless equipment already exists within the Army's inventory. Regarding the Army's proposed Aviation Restructuring Initiative (ARI), the commission recommends the Army maintain 24 manned AH-64 Apache battalions—20 in the Regular Army and 4 in the National Guard. The Regular Army Apache battalions would be equipped with 24 AH-64s, and the National Guard battalions would have 18 Apache helicopters and would need to cross level helicopters between units prior to deploying. To help decrease the costs to the commission's recommendation, only 2 UH-60 Black Hawk transport helicopter battalions would be added to the National Guard as opposed to the 4 Black Hawk battalions under the Army's ARI proposal. As previously noted, Title XVII of the Fiscal Year 2015 National Defense Authorization Act ( P.L. 113-291 ) established the National Commission on the Future of the Army (NCFA). It is detailed in the Appendix , but the commission's charter, structure, and operations are summarized in the following sections. Title XVII spells out the NCFA's duties as follows: Conducting a comprehensive study of the structure of the Army as well as policy assumptions related to the size and force mixture of the Army in order to: Make an assessment of the size and force mixture of the Active Component (AC) and Reserve Components (RC); and Make recommendations on modifications (if any) to the Army's structure as it relates to the Army's current and anticipated mission requirements. These recommendations must be at acceptable levels of national risk and in a manner consistent with both available resources and anticipated future resources. Conducting a study of the transfer of Army National Guard AH-64 Apache aircraft from the Army National Guard to the Regular Army. When conducting these studies, the NCFA is directed to consider the following: When evaluating and making recommendations on a force structure for the Army, that structure should: Have the depth and scalability to meet current and anticipated Combatant Command requirements; Achieve cost efficiency between regular and reserve components, manage military risk, take advantage of the strength and capabilities of both components, and consider fully burdened lifecycle costs; Ensure both components have the capacity to support current and anticipated homeland defense and disaster assistance missions in the United States; Provide sufficient numbers of regular forces to form a base of trained personnel from which reserve component personnel can be recruited; Maintain a peacetime rotation force to avoid exceeding operational tempo goals of 1:2 (1 year deployed followed by 2 years at home station) for AC members and 1:5 (1 year deployed followed by 5 years at home station) for RC members; and Manage strategic and operational risks by means of tradeoffs in: Readiness; Efficiency; Effectiveness; Capability; and Affordability. Identify and evaluate Army force generation policies with respect to size and force mix needed to fulfill current and anticipated mission requirements, consistent with current resources and anticipated future resources. These policies should include: Readiness; Training; Equipment; Personnel; and Maintaining the RC as an operational reserve to capitalize on the expertise and experience gained by the RC since September 11, 2001. Identify and evaluate the authority and responsibility for the allocation of Army National Guard personnel and force structure to the states and territories. Identify and evaluate the strategic basis or rationale, analytical methods, and decisionmaking processes used for the allocation of Army National Guard personnel and force structure to the states and territories. The NCFA is required to submit a report to the President and congressional defense committees no later than February 1, 2016, that sets forth a detailed statement of the commission's findings and conclusions as well as recommendations for legislative and administrative actions based on the results of the NCFA's studies. The final report was released on January 28, 2016. While not explicitly stated in Title XVII, the NCFA commissioners are likely to participate in briefings and hearings related to the commission's final report. In accordance with Title XVII, the NCFA is composed of eight appointed commissioners, including a chair and vice chair who were selected by the commissioners. As per the Title XVII mandate, four commissioners were appointed by the President and four others by the individual chairmen and ranking Members of the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives. An April 20, 2015, press advisory provides some basic background on the NCFA's commissioners: Retired Army General Carter Ham (Chair) . General Ham, currently an advisor at Jefferson Waterman International, was most recently Commander of U.S. Africa Command where he led all U.S. military activities across the continent. Former Assistant Secretary of the Army for Manpower and Reserve Affairs Thomas Lamont (Vice Chair) . Secretary Lamont, who was Assistant Secretary from 2009 to 2013, also served as an attorney in private practice and as the State Staff Judge Advocate General for the Illinois Army National Guard. In addition to General Ham and Secretary Lamont, appointees to the Commission are listed below in alphabetical order: Retired Sergeant Major of the Army (SMA) Raymond Chandler . SMA Chandler served in every key enlisted position from combat armor units to being the most senior enlisted member of the Army from 2011 to 2015. Retired Army General Larry Ellis , President and Chief Executive Officer (CEO) of VetConnexx. General Ellis served in a number of command and leadership positions in the United States, Bosnia and Herzegovina, Germany, South Korea and Vietnam and commanded Army Forces Command from 2001 to 2004. The Honorable Robert Hale , a Fellow at Booz Allen, Mr. Hale previously served as DOD Comptroller and Chief Financial Officer from 2009 to 2014 and as Assistant Secretary of the Air Force for Financial Management from 1994 to 2001. The Honorable Kathleen Hicks , Director of the International Security Program at the Center for Strategic and International Studies. Dr. Hicks formerly served as Director for Policy Planning at the Office of the Under Secretary of Defense for Policy. Retired L ieutenant General Jack Stultz , member of the Board of the VSE Corp., and former Chief of the U.S. Army Reserve. He also served as the Commanding General of the U.S. Army Reserve Command from 2006 to 2012. Retired General J.D.Thurman served as the commander of the United Nations Command for the Republic of Korea, U.S. Combined Forces Command and U.S. Forces Korea from July 2011 until October 2013 and also commanded Army Forces Command from 2010 to 2011. Title XVII provides for the detailing of federal government employees to the NCFA to serve as staff. The NCFA staff consisted of approximately 40 personnel from the Active Army, Army National Guard, and Army Reserve assigned to the commission on a temporary basis. Department of Defense and Department of the Army Civilians were also assigned to the staff, as was a Congressional Research Service Specialist in Military Ground Forces. About half a dozen members of the Washington Headquarters Service (WHS) were assigned in a support capacity, and a small number of contractors were hired by the commission to provide additional support. Length of service for the individual staff members varied based on the needs of the commission running through the commission's termination (90 days after the date on which the commission submitted its report). In order to facilitate the completion of the report, the NCFA staff was organized into five subcommittees. Commissioners chaired the subcommittees, and staff was assigned to the subcommittees; staff members typically served on more than one subcommittee. The subcommittee breakout and responsibilities are as follows: Operational Subcommittee The Operational Subcommittee will assess the size, force mixture, and component mixture of the active and the reserve components of the Army and make proposals on the modifications, if any, of the Army's structure and policies to meet current and anticipated mission requirements at acceptable levels of national risk and in a manner consistent with available and anticipated future resources. The Operational Subcommittee is also responsible for developing a risk framework for all subcommittees. Institutional Subcommittee The Institutional Subcommittee will assess the impact of various sizes, force mixes, and component mixes on the institutional elements of the Army and make proposals on the modifications, if any, of the Army's structure to meet current and anticipated mission requirements at acceptable levels of national risk and in a manner consistent with available and anticipated future resources. Force Generation Subcommittee The Force Generation Subcommittee will develop conclusions and proposals on the Army's projected force generation process and the viability of maintaining "peacetime rotation" rates with operational tempo goals of 1:2 for active members of the Army and 1:5 for members of the reserve components of the Army. Aviation Subcommittee The Aviation Subcommittee will study the transfer of Army National Guard AH–64 Apache aircraft from the Army National Guard to the Regular Army. The study will consider the depth, scalability, and cost-efficiency between the components; strengths, limitations, and capabilities of each component; a "peacetime rotation" force that does not exceed operational tempo goals of 1:2 for the Regular Army and 1:5 for members of the Army National Guard and Army Reserves; the risks within and across readiness, efficiency, effectiveness, capability, and affordability; and policies affecting readiness, training, equipment, personnel, and maintenance of the reserve components as an operational reserve. Drafting Subcommittee The Drafting Subcommittee will consolidate and consider all information and input provided to the Army Commission, including information presented by the other subcommittees; articulate the future threats and mission demands in a manner consistent with the Commissioners' input and opinions; and synthesize the Commission's conclusions and recommendations into a coherent draft report." In order to be compliant with the Federal Advisory Commission Act (FACA) (5 U.S.C. Appendix—Federal Advisory Committee Act; 86 Stat. 770, as amended) a Designated Federal Officer (DFO) and Alternate DFOs were assigned to the NCFA Staff. The DFO's duties are described as calling, attending, and adjourning committee meetings; approving agendas; maintaining required records on costs and membership; ensuring efficient operations and adherence to FACA and other applicable laws; maintaining records for availability to the public; and providing copies of committee reports to the Committee Management Officer for forwarding to the Library of Congress. As previously noted, the NCFA operates under the provisions of the Federal Advisory Commission Act (FACA) (5 U.S.C. Appendix—Federal Advisory Committee Act; 86 Stat. 770, as amended). It should be noted, however, that Title XVII does not contain legislative language requiring the NCFA to operate under the provisions of FACA, but the Department of Defense required that the NCFA adhere to the provisions of FACA. CRS Report R44253, Federal Advisory Committees: An Introduction and Overview , discusses the origins and basic requirements of FACA: By the 20 th century, some Members of Congress believed the executive branch's advisory bodies were inefficient and not accessible to the public. Some Members believed that the public harbored concerns that a proliferation of federal advisory committees had created inefficient duplication of federal efforts. Moreover, some citizens argued that the advisory entities did not reflect the public will, in part because many committees' policies of closed-door meetings. Congress was called on to increase oversight of the proliferating advisory boards. Subsequently, Congress enacted the Federal Advisory Committee Act (FACA) in 1972. The legislation requires advisory bodies that fit certain criteria to report a variety of information—including membership status, costs, and operations—annually to the General Services Administration (GSA), which then aggregates and reports the information to Congress. In addition to commission meeting-related responsibilities, NCFA DFOs also ensure that notices of opened and closed NCFA meetings are posted in the Federal Register ; taking, reviewing, and approving minutes of NCFA meetings; and attending all meetings when some or all NCFA commissioners are present. The NCFA established a public website ( http://www.ncfa.ncr.gov/ ) to provide the public access to the commission's activities as well as briefings, studies, and testimony used to inform the commission's analysis of the Army's force structure. This website has been updated frequently and is viewed as a useful resource for those trying to gain a better understanding of the Army force structure and aviation restructuring debates as well as track the progress of the commission's activities over time. One means by which the NCFA gathered information to support its efforts was a series of meetings conducted at various locations in the United States. Two types of meetings were conducted: (1) open meetings , where the public could attend and participate, and (2) closed meetings , where classified matters were discussed and only holders of a U.S. government security clearance commensurate with the classification level of the meeting could attend. According to the NCFA website, between May and December 2015, the NCFA held 11 open and 8 closed meetings, with the minutes as well as other supporting material available on the NCFA website. Another method employed by the NCFA to obtain information was site visits. Site visits covered a wide range of interactions at locations in the United States and overseas. The NCFA conducted 26 site visits between May and November 2015, including, for example the following: discussions with the Deputy Secretary of Defense, Under Secretary of Defense for Personnel and Readiness, Chief of Staff of the Army, and Director, Army National Guard at the Pentagon; Senate Armed Services Committee Staff and the House National Guard and Reserve Component Caucus on Capitol Hill; U.S. Army Europe and U.S. Army, Africa (both headquartered in Germany); and Active and Reserve Component installations such as Ft. Bragg, NC; Ft. Hood, TX; Camp Shelby, MS; and Ft. Indiantown Gap, PA. These site visits varied from opened to closed, from office visits to observing live fire exercises, and included commissioner and staff interactions with individuals ranging from governors to junior enlisted soldiers. Site visits usually encompassed interactions with both Active and Reserve Component units and personnel. Details on site visits, including minutes and other supporting material, are available on the NCFA website. Classified materials and minutes, however, are not available on the public website. The primary means by which the NCFA commissioners interacted with NCFA staff were subcommittee meetings. As in the case of meetings and site visits, subcommittee meetings were subject to FACA and DFOs were in attendance; minutes were taken and published (see NCFA website under "Subcommittees"). Subcommittee meetings were closed events although NCFA commissioners and staff did ask outside experts, on occasion, to present briefings and participate in discussions. Information provided by these outside experts is reflected in the minutes, and any associated supporting materials (briefings, studies, papers) are posted on the NCFA website. A detailed examination of publicly available material and press reports suggests four primary groups—the Army, state governments, Congress, and the public—expressed varied opinions regarding the need for, and the recommendations offered by, the commission. There have been mixed feelings within the Army, by component, about the need for the NCFA. In 2014, then 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 [ARI] 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, on the other hand, 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. The current Chief of Staff of the Army, General Mark Milley, may be more receptive to the NCFA than his predecessor. Speaking at the National Guard Association (NGAUS) Conference September 11, 2015, General Milley reportedly was open to considering input from the NCFA, including its recommendations on the ARI. General Milley is also reportedly interested in reexamining the number of annual training days required for National Guard soldiers as well as establishing composite or round-out units —initiatives also considered by the NCFA. A number of governors met with the NCFA and expressed their support of Regular Army bases in their state but, in particular, the National Guard. In addition to echoing the aforementioned National Guard common themes, they also stressed the importance of the Guard's role in disaster response and expressed concern that Guard reductions in their state could have dire consequences. The National Governor's Association, in its discussions with the NCFA, expressed similar sentiments. Many in Congress have taken an active interest the activities of the commission. On the NCFA website under "Statements," letters from Members to the NCFA address a variety of concerns. Examples of these concerns include Member opposition to the ARI; maintaining the National Guard as an operational reserve; concerns about the overall conduct of the commission; and the belief that the commission's work was not in keeping with the provisions and spirit of Title XVII. In addition to individual and group letters to the commission, a number of Members provided written or oral statements expressing their personal concerns. There was a wide range of public involvement in the NCFA's activities. Particularly in the case of site visits, private citizens and veterans, as well as local leaders and businessmen, almost universally expressed support for their respective military installation and its troops and their families. There was also a widespread misconception within the public that the NCFA visit was part of an effort to close down their base along the lines of the Base Realignment and Closure Commission (BRAC). Also, as part of public discourse, a number of academics and defense analysts offered suggestions and provided analysis to the NCFA. Defense industry representatives also participated in NCFA activities. Apart from the commission's major findings detailed earlier in this report, the commission presented thematic findings, each of which contains a number of specific recommendations, and it is here where the vast majority of the commission's 63 recommendations are found. It should be noted that many of these less prominent recommendations, like the major findings, could prove to be both difficult and costly to implement. The commission notes the Army is intended to operate as one force—the Regular Army, Army National Guard, and the Army Reserve—but gaps and seams exist in the Army's stated Total Force Policy. The commission believes the Army must fully implement its Total Force Policy and offers some of the following recommendations to achieve this end: Expand the use of multicomponent units and organizations with the Army. The commission specifically recommended a substantial pilot program to test multicomponent approaches to aviation units. Establish pilot programs that align the recruiting efforts of the Regular Army, Army National Guard, and Army Reserve so the Army does not "compete with itself" for a diminishing pool of qualified individuals. Congress should enact legislation to allow Regular Army officers and soldiers to be assigned to Army National Guard positions without prejudice to their federal standing as well as permitting National Guard officers and soldiers to serve in a similar manner without prejudice in Regular Army units. Establish a true regionalization of the Army's school system and implement immediately the One Army School System to achieve savings sooner. Congress, the Department of Defense, and the Army should continue to support and adequately fund the Integrated Personnel & Pay System–Army (IPPS-A) as the cornerstone of effective management and integration of the components of the Army. The commission recommends that the Army must continue to treat readiness as its most important funding priority and particularly training readiness. Some of the commission's recommendations that address readiness and training include the following: the reduction of the Army's tactical wheeled vehicle fleet, largely driven by budgetary constraints, has created significant risk in many units Army-wide; the Army should increase the number of annual rotations for Army National Guard BCTs at Combat Training Centers (CTCs) beginning in FY2017 without decreasing the number of Regular Army BCT rotations; noting the Army has over 1,000 directives, regulations, pamphlets, and messages regarding mandatory training and that the Army National Guard and Reserve have too many mandatory training requirements in one year, the commission recommends the Army reduce the number of mandatory training activities; and the Army should consider increasing flying hours available for peacetime training, as the commission found that training proficiency has decreased due to funding issues related to flying hours. Appendix E of the NCFA report is classified and not included with the report. The classified appendix addresses the strategic environment in terms of the threat to the homeland; gray-zone warfare and information operations; and functional threats. Appendix E also contains classified information on how the commission modelled and analyzed force structure in terms of size and mix. Finally, the appendix addresses the impacts of strategic lift, the cluster munitions ban, and cyberwarfare on the commission's work. While the "Future Challenges" section of the report attempts to address some of these issues on an unclassified level, a thorough review of Appendix E could provide policymakers with a greater degree of clarity and context. As previously discussed, the NCFA final report contained 63 recommendations for the Nation, the President, Congress, the Department of Defense, the Joint Staff, Combatant Commands, the Army, and Army Service Component Commands (Appendix B of the report). The majority of the report's "action items" would fall to the Army to implement. For example, the commission recommends the Army: Establish Pilot Programs to : Permit recruiters from all three components to recruit individuals into any component (Recommendation 38); Test multicomponent approaches for Army aviation force structure (Recommendation 34); and Assign Regular Army officers and soldiers to Army Reserve full-time support positions by February 28, 2017, and then evaluate this program in two years for effectiveness (Recommendation 36). Conduct a R eview /Assessment o f : The Army School System and report to Congress by February 28, 2017, on the efficiencies gained by consolidating under-used capacity (Recommendation 42); The risk in current and planned tactical mobility and how to close readiness gaps with the report due to Congress by February 28, 2017, (Recommendation 8); and The mission effectiveness of the current sourcing solution for the Ground-based Midcourse Defense (GMD) mission (Recommendation 21). Implement: The commission's ARI recommendation (Recommendation 57); Immediately implement the entire One Army School System to realize savings sooner (Recommendation 44); and Implement a more aggressive modernization program for aviation forces (Recommendation 60). The aforementioned actions are examples of some of the requirements that could fall to Army leadership and the Army staff—the "Corporate Army"—for action, with a number of recommendations having relatively short timelines for implementation. Given the scope and complexity of some of the recommendations, questions might arise as to how much capacity the "Corporate Army" can dedicate to NCFA recommendations approved by the Administration and Congress, given the Army's current worldwide role in active conflicts as well as other military operations. The commission's comprehensive approach described on page 19 of the report under "The Fact-Finding Phase" identified a number of initiatives instituted by the Army, including Multi-Component Units; Integrated Personnel & Pay System-Army (IPPS-A); Generating Force Model; One Army School System; Reduction in Mandatory AR 350-1 Training Requirements; and Objective-T Methodology for Assessing the Progression of Training Readiness. Each of these aforementioned initiatives have a unique history and set of challenges that will influence if and how these initiatives are implemented as part of the commission's recommendations. In terms of multicomponent units, the commission acknowledges the "long history of mixed results using multicomponent units" and notes that in "many cases, the Army tried to implement multicomponent constructions in units or with policies that were not suited to the model." The commission further notes the Army currently has 37 multicomponent units already in service. In other cases, programs such as the Integrated Personnel & Pay System-Army (IPPS-A) and the One Army School System have experienced a variety of issues such as budgetary constraints, developmental and technical issues, and bureaucratic hurdles, which have, to varying degrees, influenced the Army's ability to successfully implement these initiatives. As an example, the Pentagon's Director of Operational Test and Evaluation notes in his FY2015 Annual Report that the IPPS-A program continues to have significant problems with data correctness on a widespread basis across the Active Duty, Army National Guard, and Army Reserve. While the commission was made aware of the associated histories and challenges of these initiatives, it might be considered prudent for the Administration and Congress to examine these initiatives in greater detail to determine if the implementation of these commission recommendations is feasible. If the implementation proves feasible but difficult, progress by the Army on implementing these recommendations might be worth monitoring to ensure the Army gives these initiatives an opportunity to succeed in the face of potential preliminary setbacks and bureaucratic resistance. An examination of the NCFA's final report to the President and Congress and the provisions of Title XVII suggests the commission addressed all of the requirements mandated by Congress. While not explicitly stated in Title XVII, there are other force structure-related issues that might be worth considering. While not normally associated with conventional Army force structure discussions, U.S. Army Special Operations Forces (SOF) and the Army's Commands, Direct Reporting Units, and Army Service Component Commands are part of the Army's overall force structure. While the commission met with U.S. Army Special Operations Command during its June 2015 North Carolina site visit, there are no recommendations related to U.S. Army SOF—both Active and Reserve units. U.S. Army SOF also consists of combat units that operate with Army General Purpose Forces in a variety of operational scenarios so their omission in the report is noteworthy. While the commission might have considered an examination of U.S. Army SOF force structure and mix outside of its mandate, a detailed examination of these forces, to include Army-provided "enabling units," might have provided the Administration and Congress with some valuable insights. In a similar manner, there was no discernable examination of the Army's Commands, Direct Reporting Units, and Army Service Component Commands by the commission. While less closely associated with force structure discussions than U.S. Army SOF, these organizations also consume Army manpower and resources. With 3 major commands (such as Training and Doctrine Command [TRADOC]), 11 Direct Reporting Units (such as U.S. Army Corps of Engineers), and 9 theater and functional Army Service Component Commands (ASCCs) (such as U.S. Army Pacific and Space and Missile Defense Command), the commission might not have had the time and resources to adequately address what appears to be a substantial analytical undertaking. Despite these limitations on the commission, these organizations might also benefit from a review in terms of their necessity, potential "redundancies" and opportunities for consolidation, and their added value in an increasingly dynamic, decentralized, and resource-constrained security environment. With the issuance of the final report, two potential questions arise. First, by what means or process would the Administration, Congress, and the Army evaluate the NCFA's recommendations and then decide which ones to implement? Second, should the Administration, Congress, and the Army agree upon which recommendations to implement, how would this be accomplished? Without an established process to vet evaluations and an implementation plan, the commission's work might become more informative in nature as opposed to an actionable plan. The commission's 63 recommendations run the gamut from creating new units, forward stationing units overseas, creating new military school and pay systems, to not implementing the Army's Aviation Restructuring Initiative. One common aspect of these varied recommendations is they each have an associated cost, and finding "offsets" might not be practical or possible to fund these initiatives. Another consideration, dependent on the number of recommendations adopted for implementation, is that in many cases, costs must be established for these recommendations and this might prove to be a difficult and lengthy undertaking. Once costs are estimated, there would likely be some process initiated to determine what recommendations are affordable under current and projected budget constraints and which recommendations might have to be deferred. There are a number of potential difficulties associated with implementing the commission's recommendations. Perhaps the most significant hurdle to implementation is affordability but this can be addressed by a variety of means including "offsets," providing the Army additional budgetary authority, or modifying or time-phasing the implementation of the commission's recommendations. Developmental and technical issues and bureaucratic opposition can also pose significant challenges to the implementation of the commission's recommendations. Just as it is important to have a clear understanding of the costs associated with a recommendation, policymakers may wish to consider potential developmental and technical problems and possible bureaucratic push-back in order to facilitate the effective implementation of the commission's recommendations. The final stage of implementation is oversight. While some recommendations can be implemented in fairly short order, others might take a number of years to fully realize. It is not readily apparent how Congress would choose to oversee the implementation of potentially dozens of the commission's recommendations. One possible mechanism might be to establish special hearings dealing exclusively with NCFA recommendation implementation or possibly the Army's annual posture or modernization hearings might be the appropriate oversight venue. Other possible means of oversight could be semiannual or annual reports to Congress or periodic updates to Members, staffs, and congressional defense committees. The formal establishment and designation of a means of congressional oversight could prove to be beneficial to all concerned parties. TITLE XVII — NATIONAL COMMISSION ON THE FUTURE OF THE ARMY Subtitle A — Establishment and Duties of Commission Sec. 1701. Short T itle. Sec. 1702. National Commission on the Future of the Army. Sec. 1703. Duties of the Commission. Sec. 1704. Powers of the Commission. Sec. 1705. Commission P ersonnel M atters. Sec. 1706. Termination of the Commission. Sec. 1707. Funding. Subtitle B — Related Limitations SEC. 1701. SHORT TITLE. This subtitle may be cited as the "National Commission on the Future of the Army Act of 2014''. SEC. 1702. NATIONAL COMMISSION ON THE FUTURE OF THE ARMY. (a) Establishment.—There is established the National Commission on the Future of the Army (in this subtitle referred 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 the 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 one 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 subparagraph. (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. 1703. 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 related to current and anticipated mission requirements for the Army at acceptable levels of national risk and in a manner consistent with available resources and anticipated future resources. (2) Considerations.—In undertaking the study required by subsection (a), the Commission shall 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) manages strategic and operational risk by making tradeoffs among readiness, efficiency, effectiveness, capability, and affordability. (B) An evaluation and identification of force generation policies for the Army with respect to size and force mixture in order to 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 subsections (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. 1704. 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 subtitle. (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 subtitle. 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 under the same conditions as other departments and agencies of the Federal Government. SEC. 1705. 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. 1706. TERMINATION OF THE COMMISSION. The Commission shall terminate 90 days after the date on which the Commission submits its report under this subtitle. SEC. 1707. 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 subtitle. | Title XVII of the Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015 (P.L. 113-291) established the National Commission on the Future of the Army (NCFA) to conduct a comprehensive study of the structure of the Army. The NCFA reported its findings to Congress and the Administration on January 28, 2016, and made a number of recommendations that may or may not be acted upon. Some have suggested the historical post-war practice of reducing defense budgets contributed to the perceived need for a commission to address proposed changes to the Army. The perceived success of two previous commissions—the 2014 National Commission on the Structure of the Air Force and the 2015 Military Compensation and Retirement Modernization Commission—also likely played a role in the establishment of the commission. Some say controversy surrounding the Army's 2013 Aviation Restructuring Initiative (ARI) significantly influenced the decision to establish the NCFA. As part of its final report, the NCFA produced a classified appendix, which is available to those with the appropriate clearance and a "need to know." The 208-page report contained 63 recommendations for the Nation, the President, Congress, the Department of Defense, the Joint Staff, Combatant Commands, the Army, and Army Service Component Commands. Some of the report's major recommendations include forward stationing an Armored Brigade Combat Team (ABCT) in Europe; retaining an 11th Regular Army Combat Aviation Brigade (CAB) and forward stationing it in Korea; and recommending the Army maintain 24 manned AH-64 Apache battalions—20 in the Regular Army and 4 in the National Guard. Major themes of the NCFA's report include developing "One Army" and the prioritization of training and readiness. Some general observations of the commission's recommendations include the importance of the NCFA classified appendix; the impact of the commission's recommendations on the "Corporate" Army; the history and challenges of past and current Army initiatives; and force structure issues outside the Title XVII mandate. Potential issues for Congress include to what extent will Congress and the Administration implement NCFA's recommendations; how much would it cost to implement the recommendations; potential difficulties in implementing the NCFA's recommendations; and how Congress would oversee the implementation of the NCFA's recommendations. The author of this report served on the staff of the National Commission on the Future of the Army from June 1, 2015, until September 30, 2015. The information and analysis contained in this report are derived from open source data. Participation on this commission informed but did not influence the content of this report. |
Article 1, Section 8 of the United States Constitution provides Congress with the explicit power to collect taxes. Implicit in that power to collect revenue is also the power to spend that revenue. This clause is known as the Taxing and Spending Clause of the Constitution, and the Supreme Court has found that it grants Congress wide latitude to promote social policy that the federal government supports. One way that Congress may exercise its spending power to encourage the implementation of policies that the federal government supports is through appropriations. "Appropriations are comparable to tax exemptions and deductions which are also a matter of grace that Congress can, of course, disallow as it chooses." One common example of Congress exercising spending power to impose its will is the National Minimum Drinking Age Act of 1984. That act conditioned the receipt of a percentage of federal highway funding on states agreeing to raise the minimum drinking age to 21. While states were not required by the act to raise the drinking age, they could not receive the funds if they did not, thus creating a powerful incentive for states to adopt Congress's chosen policy on the subject of the legal drinking age. Congress has wide discretion to provide subsidies to activities that it supports without incurring the constitutional obligation to also provide a subsidy to activities that it does not necessarily encourage. However, the power to spend money only on policies that Congress supports is not without limits. Congress may not place what have come to be known as "unconstitutional conditions" on the receipt of federal benefits, even benefits Congress was not required to provide in the first place. Which conditions on the receipt of federal funds are and are not constitutional is a longstanding question with somewhat unclear answers, particularly when it comes to conditions placed upon the speech of the recipients of federal funds. Most recently, the Supreme Court heard a case challenging the constitutionality of a provision of the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act). The relevant provision prohibited the government from making funds available to grant recipients that do not have a policy of opposing prostitution. The question facing the Court in this case was whether the Leadership Act's requirement that recipients affirmatively adopt a policy that applied to the entire organization, and not just to the federal funds received, violated the First Amendment. In an opinion announced on June 20, 2013, the Court held that this provision does violate the First Amendment because it requires private actors to adopt the approved opinion of the government. The decision outlines an important limitation on the ability of Congress to place conditions upon the receipt of federal funds. The Constitution grants Congress the power to subsidize some activities and speech without subsidizing all speech, or even all viewpoints on a particular topic. There is a certain amount of discrimination inherent in the choices Congress makes to provide funds or tax deductions to one organization's activities, but not to another. As noted in footnote 1 , Congress allows tax deductions for interest paid on home mortgages, but does not allow a similar deduction for those who rent their homes. Congress makes funds available to support non-commercial broadcast stations through the Corporation for Public Broadcasting, but commercial broadcast stations are ineligible to receive those funds, even though they also engage in broadcasting. In other words, Congress discriminates frequently in the types of activities it chooses to support. Congress also has a fair amount of discretion to condition the funding it provides on the recipients of those funds performing some other task ancillary to the receipt of the funds. For example, as previously discussed, in exchange for federal highway funding, states were required to raise the minimum age for the legal consumption of alcohol to 21. States were free to keep their minimum drinking age lower than the age of 21, but doing so meant they would have forfeited federal dollars. Conditions on the receipt of federal funds are, therefore, not uncommon. However, when the condition on the receipt of federal funds is an agreement to espouse, or to refrain from espousing, a particular point of view that is in line with the government's favored viewpoint, questions related to whether Congress is infringing upon the First Amendment freedoms of fund recipients may arise. While the principle that Congress may choose to subsidize whatever speech or behavior it may desire may seem simple enough; in practice, the case law has been described as complicated and contentious. Nonetheless, some core principles may be distilled from the case history. One of the first instances in which the Supreme Court addressed the question of discrimination in a tax subsidy on the basis of speech was in the case of Speiser v. Randall . The State of California had decided to deny any and all tax deductions to persons who advocated the unlawful overthrow of the United States government. In order to alleviate the administrative burdens of figuring out exactly which Californians were advocating the violent overthrow of the government, the state decided instead to require all Californian taxpayers seeking to avail themselves of tax deductions to sign a loyalty oath that affirmed that the taxpayer did not advocate the overthrow of the government by force or violence. A group of honorably discharged World War II veterans declined to sign the oath and sued claiming that the requirement violated their First Amendment rights. In this particular case, the Supreme Court did not reach the question of whether the oath violated the First Amendment because the California Supreme Court had construed the provision to apply only to speech that fell outside the First Amendment's scope. Nonetheless, the Supreme Court did make clear that "a discriminatory denial of a tax exemption for engaging in speech is a limitation on free speech" and that to deny exemptions to persons who engage in certain types of speech is tantamount to penalizing them for that speech. Therefore, discriminatory denial of tax deductions could implicate the First Amendment, depending on the nature of the discrimination. Of particular concern to the Court was whether the requirement placed on the receipt of the benefit was "aimed at the suppression of dangerous ideas." Where the suppression of an idea is the apparent object of a condition on the receipt of a benefit, the fact that a person could simply decline the benefit was not enough to overcome the concerns of the Court regarding the coercive nature of the requirement. Asserting the principle that Congress may not coerce citizens to engage in or to refrain from certain speech through the tax code, a group known as Taxation with Representation (TWR) challenged Congress's denial of certain tax deductions to organizations that engage in substantial lobbying activities as a violation of the group's core First Amendment rights. Important to this case are two federal, tax-exempt, non-profit structures: the 501(c)(3) organization and the 501(c)(4) organization. Taxpayers who donated to 501(c)(3) organizations could deduct those donations from their taxes. 501(c)(3) organizations were prohibited from engaging in substantial lobbying. Taxpayers who donated to 501(c)(4) organizations could not deduct those donations from their federal income taxes. 501(c)(4) organizations were permitted to engage in lobbying activities. TWR had been operating with a dual structure wherein its lobbying activities were accomplished via contributions to a 501(c)(4) organization and its other activities were funded through a 501(c)(3). TWR argued that the federal government was unconstitutionally discriminating against a form of fully protected speech, in this case lobbying, based solely upon its content, and that this discrimination violated the First Amendment. The Supreme Court disagreed and found that the refusal to allow a tax deduction for lobbying activities was within Congress's power to tax and spend. In short, Congress was not discriminating against lobbying. It was merely choosing not to pay for lobbying activities. The Court pointed toward "the broad discretion as to classification possessed by a legislature in the field of taxation," and found that Congress could choose not to subsidize lobbying activities without running afoul of the First Amendment, so long as adequate alternative avenues for engaging in lobbying activities remained available. The Court pointed out that TWR was not prohibited from lobbying under the statute. It was merely prohibited from lobbying with funds it received pursuant to its 501(c)(3) structure. TWR was free to continue its lobbying activities under the dual tax structure described above. The Court noted that this would be a different case if Congress had discriminated against lobbying speech in such a way as to "aim at the suppression of dangerous ideas." Finding no such circumstances in Congress's general refusal to subsidize lobbying activities, with a narrow exception for certain veterans organizations, the Court held that Congress did not have to provide a tax deduction in this circumstance. As the Court explained, "the issue in these cases is not whether TWR must be permitted to lobby, but whether Congress is required to provide it with public money with which to lobby." The Court held that it was not. This case appears to ultimately stand for the principle that as long as Congress provides other avenues for engaging in protected speech, it may constitutionally choose not to provide funds to certain classes of speech in which an organization may wish to engage. One year later, the Supreme Court considered another case in which it appeared that the federal government was refusing to subsidize a particular class of speech and refined Congress's authority to create spending conditions yet further. In FCC v. League of Women Voters , the Court examined whether Congress could constitutionally prohibit non-commercial broadcast stations that received federal funds through the Corporation for Public Broadcasting from engaging in editorializing. The government, relying on Regan v. Taxation with Representation , argued that the prohibition on editorializing was justified because Congress was simply refusing to fund the editorial activities of non-commercial broadcasters. The Court disagreed, distinguishing this case from TWR , because in TWR the organization remained free to engage in lobbying. In this case, non-commercial broadcasters were prohibited completely from editorializing if they received federal funds. A non-commercial broadcaster that received only 1% of its funding from the federal government was subject to the editorializing prohibition and could not, for example, segregate its federal funds so as to prevent the use of those funds for editorializing activities, while using its private funds to editorialize. The Court conceded, however, that if Congress were to amend the statute at issue to prohibit the use of federal funds to support editorializing activities, but allow the broadcasters to engage in such speech with private funding, the statute would then be constitutional. This case appears to stand for the proposition that, while Congress has wide discretion to control the ways in which federal funds may not be spent, its reach is more circumscribed should Congress also attempt to impose its spending conditions upon the use of private funds. The key to this case was that Congress prohibited all editorializing with whatever money the broadcasters may have possessed. The Court considered that to be too much of an imposition on First Amendment activity. Following FCC v. League of Women Voters , a few rules governing the constitutional exercise of the spending power appeared evident. First, Congress was entitled to subsidize the activities it supported, including speech activities, without being required to subsidize all activities. Congress must also allow those who might benefit from congressional largesse the freedom to express their opinions outside the bounds of the congressional subsidy. However, Congress could not prohibit speech that fund recipients might wish to engage in with non-federal dollars. Along with these principles, when designing future funding conditions, Congress was also prohibited from attempting outright to suppress dangerous ideas, because such laws, regardless of their style as a prohibition or spending prerogative, would always raise constitutional concerns. In Rust v . Sullivan , grant recipients challenged the administration of Title X of the Public Health Service Act. Title X was intended to provide federal funding to subsidize health care for women prior to the conception of a child that included counseling, preconceptive care, education, general reproductive health care, and preventive family planning. However, the regulations made clear that no federal money was to be spent to provide counseling for abortion, nor were any participants in the Title X program permitted to provide patients with a referral to an abortion provider, even when the patient may have requested such a referral. Title X programs could not advocate or lobby for abortion rights. Title X programs were also required to be kept physically and financially separate from other programs in which a grantee might be engaging in. The grantees that received Title X funds were permitted to advocate for abortions outside of the auspices of their Title X programs, however. Title X participants sued, claiming that these restrictions violated their First Amendment rights and interfered with the doctor-patient relationship. They argued that the restrictions were viewpoint discriminatory because they prohibited all discussion of abortion as a lawful option and compelled the clinic doctor or employee to espouse views that s/he might not hold (e.g., that abortion was not supported as an appropriate method of family planning). Unlike TWR , where they were permitted to lobby so long as they did not use tax-subsidized funds to do so, the plaintiffs here argued that speech about abortion was being discriminated against invidiously by Congress because Title X program participants were being forced to communicate the message of the government about abortion. The Supreme Court disagreed. The Court reasoned that Congress is entitled to subsidize the public policy message it chooses to fund without funding other opinions on the same topic. Congress was within its constitutional rights to control the message that it preferred to encourage family planning methods other than abortion with funding conditions. The Court wrote, "this is not a case of the Government suppressing a dangerous idea, but of a prohibition on a project grantee or its employees engaging in activity that was outside of the project's scope." Congress was not denying a benefit based upon the grantees' support for abortion, but was instead preventing the use of federal funds for purposes outside the intended use of the program those funds were intended to support. Important for the Court's analysis in this case was the fact that the restrictions on speech only applied to the administration and employees of the Title X program itself. The grantee, on the other hand, was free to receive funds for a variety of programs from a variety of sources and these other activities were not subject to the Title X speech restriction. As a result, Title X did not suffer from the same fatal flaw as the funding restriction in FCC v. League of Women Voters . The government had not placed a speech restriction on the recipient of the funds, as it had in League of Women Voters . Instead, the government had only restricted the types of activities for which federal funds pursuant to the Title X program could be used. Outside of that program, the organizations and doctors were free to espouse any abortion-related opinion they might choose. As in TWR , Congress had simply chosen not to fund it. Following Rust came two significant cases wherein the law of unconstitutional conditions was further refined. First, in Legal Services Corporation v. Vasquez , the Supreme Court struck down a restriction on the use of federal funds by lawyers employed by the Legal Services Corporation (LSC) to challenge existing welfare laws. In Rust , the government had used restrictions on the use of federal funds to subsidize and control the government's own message. In this case, however, the government was attempting to use restrictions on the use of federal funds to hinder private speech. In the Court's analysis, lawyers for the LSC were not speaking for the federal government or administering the federal government's message. They were representing the views and interests of their clients. The restrictions placed on LSC attorneys would have interfered with the attorney-client relationship by preventing potentially valid challenges to the welfare laws. The Court found that such restrictions unquestionably raised First Amendment questions. Because the LSC funded private expression, and not the message of the government, the Court found that Congress could not limit the types of cases that LSC attorneys could bring on behalf of their clients because such restrictions violated the First Amendment. The second case outlining some limits to Congress's ability to condition its spending was Rosenberger v. Rector and Visitors of Univ. of Va . In this case, plaintiffs challenged a University regulation that provided funds to student publications, but refused to provide funding to student publications with religious affiliations. The university claimed that it was choosing not to subsidize religious activity. The Court found the university's restriction to be unconstitutional. Where the government creates a quasi-public forum, as it had in this case by making funds generally available to all university student publications, the government could not then discriminate against students seeking to use that forum on the basis of content. Taken together these cases seem to indicate that where Congress has appropriated funds to support the government's own message, Congress has wide latitude to condition the receipt of those funds on the espousal of the government's approved message, unless that condition invidiously discriminates against the espousal of dangerous ideas. In conditioning the use of federal funds on making sure the funds are only used to support Congress's approved message, ample opportunity for the recipients of those funds to exercise their protected constitutional rights outside of the federal program in which they are participating must be preserved. However, where Congress has provided funds for private speech or created a public or quasi-public forum, the ability to restrict speech funded by that money on the basis of content is narrower. In 2003, Congress passed the United States Leadership Against HIV/AIDS, Tuberculosis and Malaria Act (Leadership Act), 22 U.S.C. 7601 et seq . The Leadership Act was intended to address Congress's finding that HIV/AIDS, Malaria, and Tuberculosis posed grave health threats around the world. Congress found that the United States had the capacity to enhance the effectiveness of the fight against these various diseases on a number of fronts including providing financial resources to various aid groups, providing needed vaccines and medical treatments, promoting research, and promoting lifestyles that would diminish the chances of spreading these diseases. Particularly in relation to HIV/AIDS, Congress found that it should be the policy of the United States to promote abstinence, marriage, and monogamy as methods of diminishing the spread of HIV/AIDS, as well as promotion of the use of condoms. In addition to advocating the promotion of monogamous lifestyles, Congress also found that "prostitution and other sexual victimization are degrading to women and children and it should be the policy of the United States to eradicate such practices." The findings went on to describe the sex industry, and sex trafficking, as an additional cause of the spread of HIV/AIDS and that eliminating or reducing prostitution and sex trafficking would reduce the spread of the virus in keeping with the goals of the act. To that end, when Congress provided funds in the Leadership Act to private entities to assist in the fight against HIV/AIDS, Congress conditioned the receipt of those funds in two important ways. First, Congress made clear that no funds received pursuant to the Leadership Act may be used to "promote or advocate the legalization or practice of prostitution or sex trafficking." Second, and more controversially, Congress also forbid any funds from being disbursed to any group or organization that did not have a policy explicitly opposing prostitution and sex trafficking. In other words, unless an organization adopted a policy explicitly opposing prostitution and sex trafficking, it could not receive funds under the Leadership Act, not even if the group remained silent as to prostitution and sex trafficking. Some organizations that wished to receive funds pursuant to the Leadership Act objected to the act's requirement that they affirmatively adopt a policy opposing prostitution. The organizations argued that they were being required to adopt and espouse the government's message on a topic that was tangential to the purpose of the act. In their view, the requirement to affirmatively speak, as opposed to simply remaining silent on the issue of prostitution and sex trafficking, was a violation of their First Amendment rights and an unconstitutional condition on the receipt of federal funds under the Leadership Act. As a result, this provision had been the subject of two circuit courts of appeal cases analyzing its constitutionality and administration, which appeared to reach opposite conclusions. In the first case, the U.S. Court of Appeals for the District of Columbia upheld the provision against a First Amendment challenge. The D.C. Circuit panel found that the federal government, through the distribution of Leadership Act funds, was essentially using private actors to deliver the government's message. Under Rust v. Sullivan , Congress has wide latitude to take measures ensuring that the agents of the government's message adhered to the government's chosen script. In this case, according to the D.C. Circuit, Congress had provided funds to combat the spread of HIV/AIDS. In Congress's estimation, one of the sources of the spread of this disease was the proliferation of prostitution and sex trafficking abroad. As a result, part of the message Congress wished to convey in its government-funded fight against the spread of the disease was an opposition to prostitution and sex trafficking. The court determined that part of Congress's prerogative in restricting the use of the federal funds was the selection of the agents for the delivery of the government's message. Under this reasoning, it appears that the D.C. Circuit believed that the government was entitled to choose vehicles for its message that explicitly agreed with its message, and could do so without running afoul of the First Amendment. In the second case, the Second Circuit Court of Appeals found that the provision likely did violate the First Amendment, and furthermore found that the guidelines issued by the United States Agency for International Development (USAID) were not sufficient to overcome the provision's constitutional deficiencies. As a result, the appeals court upheld a preliminary injunction against the provision's enforcement. The majority of the panel agreed with the plaintiffs that the funding conditions at issue in the Leadership Act fell "well beyond what the Supreme Court and [Second Circuit] have upheld as permissible." It distinguished the Leadership Act's requirement for the adoption of the policy from previous cases because it did not merely restrict expression, it pushed "considerably further and mandate[d] that recipients affirmatively say something." In the eyes of the majority of the Second Circuit panel, this requirement for affirmative adoption of the government's viewpoint was compelled speech and therefore warranted heightened scrutiny. Applying a heightened scrutiny standard to the provision, a majority of the Second Circuit panel found the policy requirement to be unconstitutional. In part to resolve this apparent circuit split, the Supreme Court agreed to hear the appeal from the Second Circuit's decision. After the Second Circuit declined to rehear the case en banc , the Supreme Court granted certiorari, and struck down the policy requirement as a violation of the First Amendment, but under different reasoning from the Second Circuit panel. The Court did not hold, as the Second Circuit did, that the policy requirement must be subjected to heightened scrutiny because it required affirmative speech on the part of grant recipients. Indeed, the Court appeared to make no distinction between compelled and prohibited speech for First Amendment purposes. Instead, the majority applied the existing precedent found in Regan , League of Women Voters , and Rust to hold that the policy requirement violated the First Amendment because "the condition by its very nature affects 'protected conduct outside the scope of the federally funded program" in contravention of the holding in Rust . The majority began its opinion, written by Chief Justice Roberts, by outlining the funding conditions for HIV/AIDS outreach in the Leadership Act. Particularly, the Court noted that there are two conditions on the receipt of federal funds under the act: the first prohibited spending any federal dollars to promote prostitution or sex trafficking, and the second required the adoption of the policy opposing prostitution. The Court pointed out that if the requirement that private persons adopt a policy opposing prostitution was directly enforced, rather than a condition on the receipt of federal funds, the requirement would be unconstitutional. However, Congress has more leeway under the Spending Clause to place restrictions, including speech restrictions, on the receipt of federal funds, and the Court reviewed the Leadership Act with that leeway in mind. To frame its opinion, the majority first distilled the relevant cases regarding unconstitutional conditions on the receipt of federal funds including Regan , League of Women Voters , and Rust . The Court pointed out that each decision turned primarily on whether the restriction at issue was cabined to control only the use of federal dollars within a federal program. If the restriction prohibited the use of funds for the delivery of a message within the scope of a federally funded program, each case upheld the restriction as constitutional. In cases in which the government had overreached, the overreach occurred when Congress attempted to regulate speech accomplished with private funds outside the federal program at issue. The Court called the distinction drawn in these cases the difference "between conditions that define the federal program and those that reach outside it" and noted that the line between the two is not always clear but it is crossed when the government seeks "to leverage funding to regulate speech outside the contours of the program itself." Turning to the Leadership Act, the majority pointed out that the government conceded that preventing the expenditure of federal funds for the promotion of prostitution, which the act does, ensures that no federal dollars would be used for any prohibited purposes. That provision, which was not challenged in this case, effectively prohibits the use of federal money to promote prostitution or sex trafficking within the federal program created by the Leadership Act. If the restriction on the expenditure of federal funds prevents the use of funds for purposes in contravention to the act, according to the Court, the added requirement for the adoption of the anti-prostitution policy "must be doing something more—and it is." Essentially, the Court found, that the policy requirement forces funding recipients to adopt the government's view as their own on an issue of public concern. "By requiring recipients to profess a specific belief, the policy requirement goes beyond defining the limits of the federally funded program to defining the recipient," and that the government cannot do. The Court went on to hold that the guidelines issued by USAID allowing funding recipients to affiliate with organizations that did not have the required policies were insufficient to save the act from being struck down. The Court explained that it has allowed speech by affiliates of funding recipients to be sufficient where an organization bound by a funding condition was thereby allowed to express its beliefs outside of the scope of the federal program. The Court held that "[a]ffiliates cannot serve that purpose when the condition is that a funding recipient espouses a specific belief as its own." Either the funding recipient is left without any avenue for expressing its true beliefs, or the recipient is forced into evident hypocrisy by espousing the government's policy in one affiliate and its own beliefs in another. In the Court's view, this is a result the First Amendment does not support. Under this decision, it is now clear that speech conditions on the receipt of federal funding are permissible insofar as they define the scope and permissible uses of funding within a federal program, and prevent undermining federal intent in appropriating and distributing the funds. The government runs afoul of this general rule when it attempts to restrict speech outside the federal program or to define the recipient of the funds rather than the program being funded. The Court found that the policy requirement at issue in the Leadership Act committed both of these errors by requiring fund recipients "to pledge allegiance to the Government's policy of eradicating prostitution." For that reason, it violated the First Amendment. | Article 1, Section 8 of the United States Constitution provides Congress with the explicit power to collect taxes. Implicit in that power to collect revenue is also the power to spend that revenue. This clause is known as the Taxing and Spending Clause of the Constitution, and the Supreme Court has found that it grants Congress wide latitude to promote social policy that the federal government supports. One way that Congress may exercise its spending power to encourage the implementation of policies that the federal government supports is through appropriations. One common example of Congress exercising spending power to impose its will is the National Minimum Drinking Age Act of 1984. That act conditioned the receipt of a percentage of federal highway funding on states agreeing to raise the minimum drinking age to 21. While states were not required by the act to raise the drinking age, they could not receive the funds if they did not. Congress has wide discretion to provide subsidies to activities that it supports without incurring the constitutional obligation to also provide a subsidy to activities that it does not necessarily encourage. However, the power to spend money only on policies that Congress supports is not without limits. Congress may not place what have come to be known as "unconstitutional conditions" on the receipt of federal funds. Which conditions on the receipt of federal funds are and are not constitutional is a longstanding question with somewhat unclear answers, particularly when it comes to conditions placed upon the speech of the recipients of federal funds. To what extent may the federal government prevent recipients of federal funds from using that money to communicate a message that may not be supported by the federal government? To what extent may the federal government require fund recipients to espouse a particular point of view as a condition upon the receipt of funds? Courts have struggled with these issues time and again. Most recently, the Supreme Court heard a case challenging the constitutionality of a provision of the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (Leadership Act). The relevant provision prohibited the government from making funds available to grant recipients that do not have a policy of opposing prostitution. The question facing the Court in this case was whether the Leadership Act's requirement that recipients affirmatively adopt a policy that applied to the entire organization, and not just to the federal funds received, violated the First Amendment. The Supreme Court decided that the requirement is unconstitutional and struck it down in an opinion released on June 20, 2013. The case makes it clear that, while the government has wide latitude to control the message conveyed with federal dollars within a federal program, the First Amendment prohibits the government from controlling speech outside the federal program. |
The President's FY2016 budget seeks new authority under the federal foster care, adoption assistance, and kinship guardianship assistance program (authorized in Title IV-E of the Social Security Act) to support services intended to prevent children's entry to foster care and ensure appropriate care and treatment for those in foster care. It also proposes additional federal support for tribes to implement Title IV-E programs, makes some policy proposals related to permanency planning for children in care and serving youth who have "aged out" of care, and again proposes a requirement that child support payments be used only in a child's best interests. These proposals, which would require congressional action (legislative authority) to implement, are proposed as part of the budget for the Children's Bureau. The Children's Bureau is the agency within the U.S. Department of Health and Human Services (HHS), Administration for Children and Families (ACF) that administers nearly all federal child welfare programs. This brief report provides information on child welfare proposals under the Title IV-E program only. Information on other child welfare proposals in the FY2016 budget, including the request for renewal of mandatory funding for Family Connection Grants (under Section 427 of the Social Security Act) and others related to programs with discretionary funding, are not discussed in this report. Under the Title IV-E program, states are entitled to open-ended reimbursement for a part of the cost of providing to eligible children foster care, adoption assistance, and (in states that choose to provide it) kinship guardianship assistance. States also receive capped entitlement funding to provide services for children and youth who have either "aged out," or who are expected to "age out," of foster care. In addition, some mandatory (capped) funding is provided each year to help tribes develop a Title IV-E program plan and, more broadly, to support technical assistance related to providing child welfare services to tribal children. Each year Congress appropriates funding (budget authority) for the Title IV-E program based on the estimated federal costs of the program as discussed in the President's budget. The FY2016 current law request for Title IV-E funding is $7.601 billion. This is $258 million more than funding expected to be used under the Title IV-E program for FY2015 ($7.343 billion). HHS/ACF expects this additional funding will be needed to meet current law needs in FY2016 because it assumes more children will be receiving Title IV-E-supported foster care, adoption assistance , and kinship guardianship assistance (in some part due to continued implementation of the Fostering Connections to Success and Increasing Adoptions Act of 2008, P.L. 110-351 ) and assumes there will be greater foster care "administrative" costs as states implement new requirements of the Preventing Sex Trafficking and Strengthening Families Act of 2014 ( P.L. 113-183 ). Table 1 shows expected FY2015 budget authority for the Title IV-E program under current law and the comparable current law request for FY2016. It also shows projected caseloads. Apart from the request for additional funds to meet current law commitments, the Administration seeks $430 million in additional FY2016 Title IV-E budget authority to support various legislative proposals. Not all of this requested funding is expected to be spent in FY2016, however. For example, the Administration seeks more than half of the additional FY2016 budget authority, $250 million, for the Title IV-E portion of its "demonstration to address over-prescription of psychotropic drugs for children in foster care." However, it does not anticipate requesting any additional Title IV-E budget authority for this proposal in later years (i.e., $250 million is both the 1-year and the 10-year cost). Figure 1 shows Title IV-E obligations or budget authority as projected by HHS/ACF for FY2014-FY2025. All of the Title IV-E proposals that would require additional budget authority are tied to the foster care component of the program. The dotted line at the top of the figure represents final or projected budget authority for foster care under the President's Title IV-E budget proposals. The solid line just below it represents final or projected budget authority for Title IV-E foster care under current law. The bottom two solid lines show final or projected budget authority for Title IV-E adoption assistance and Title IV-E kinship guardianship, separately. The FY2016 spike in proposed law budget authority is primarily related to the Administration's request for $250 million to competitively award demonstration grant funding to states to improve oversight and use of psychotropic medication for children in foster care, as well as to build capacity for states to offer alternative effective treatments. The Administration seeks the full budget authority for this competitive grants funding in the FY2016 appropriations act but estimates it would spend out those funds over 10 years (with most of the outlays occurring in FY2017-FY2022). As mentioned earlier, the Administration seeks legislative authority to implement several new policies under the Title IV-E program. The combined cost (budget authority) of the proposals included in the President's FY2016 budget is estimated by HHS/ACF to be $430 million for FY2016 and $1.358 billion over 10 years. The proposals, along with some policy proposals that do not have any associated costs, are briefly described in the remainder of this report. The Administration seeks authority to provide federal Title IV-E reimbursement for a part of the cost states incur in providing "evidence-based" or "evidence-informed" services to prevent the otherwise expected entry (or re-entry) of children into foster care. Services provided to these "candidates" for foster care (and their families) could include crisis counseling, respite care, or emergency assistance, among others. Under current law and policy, "candidates" are described as children at "imminent" or "serious" risk of entry (or re-entry) into foster care as evidenced by the Title IV-E agency making required "reasonable efforts" to prevent a child's removal from his/her home and/or its pursuit of court action to bring the child into foster care. States may now claim Title IV-E support for administrative tasks related to making these efforts on behalf of foster care candidates (provided they are expected to be Title IV-E eligible ) . However, states may not use Title IV-E funds to pay for any related services provided to the candidate or his/her family. According to HHS/ACF, states serve approximately 160,000 candidates on an average monthly basis. In FY2013 (the most recent data publicly available), states submitted Title IV-E foster care claims totaling nearly $591 million for administrative work carried out with regard to candidates for foster care, and they received federal reimbursement of 50% of those costs (more than $295 million). The Administration notes that this proposal is intended to support provision of both pre-placement and after care services, including services for kin families, if the lack of those services would effectively mean the child's entry, or re-entry, into foster care (that is, if the child meets the current law description of a candidate). Because of the nature of a candidate these services would be expected to be offered on a relatively short-term, rather than an ongoing, basis. To receive this proposed Title IV-E services funding, states would need to maintain their current level of investment in child welfare services. The Administration assumes states will need time to build capacity to provide these services (of which it says no fewer than 70% must be evidence-based or evidence-informed). It estimates this proposal, which assumed 50% federal reimbursement for provision of services to the same population of candidates, would cost $30 million in FY2016 and $587 million across 10 years. The Children's Bureau, along with others in the child welfare field, asserts that most children and youth are best served in a family setting: "Stays in congregate care should be based on the specialized behavior and mental health needs or clinical disabilities of children. It should be used only for as long as is needed to stabilize the child or youth so they can return to a family-like setting." Congregate care is any foster care setting that is not family-based, including group homes, shelters, residential treatment centers, or other institutions. A Children's Bureau analysis of state-reported data found that as many as 41% of foster children placed in congregate care had no obvious clinical indicators suggesting need for this level of care, while the remainder had a "child behavior problem" identified as a circumstance of their entry to foster care (32%), a diagnosed mental health condition (20%), or a clinical disability (7%). Additionally, this data analysis showed that while state child welfare agencies' use of congregate care has declined in the past decade, progress has been uneven across the states. Further, children with a diagnosed mental health condition or who had a "child behavior problem" tend to stay in congregate care for a longer time than those with no clinical indicators. The Children's Bureau recommends measures to both ensure appropriate use of congregate care and support family-based care for children with behavioral or mental health issues. To ensure appropriate use of congregate care, the Administration proposes a new Title IV-E eligibility requirement for any child placed in a congregate care facility. Specifically, for the child to be eligible for Title IV-E assistance the state would need to conduct an assessment to determine that a child's placement in a congregate care setting is the "least restrictive" and "most family-like" placement available for the child. Further, states would need to document this assessment in the child's case plan and secure a judicial determination (within six months of the child's placement in congregate care and every six months thereafter while the child remains in that care) to confirm that the congregate care placement remains the child's best placement option and that the child is making progress toward readiness for a family-based placement. To enable more children to be cared for in family settings—including children with mental, behavioral, or other issues—the Administration seeks authority to permit Title IV-E reimbursement for daily supervision of children needing specialized day-treatment services. It also seeks authority to provide enhanced federal Title IV-E support for costs related to specialized training and salaries to allow therapeutic foster parents to meet a child's behavioral and/or mental health challenges, and for specialized training and smaller caseloads for caseworkers assigned to work with family-based care providers and children with mental or behavioral health needs. The enhanced support would be provided in the form of a higher federal reimbursement rate—ranging from 5 percentage points to 10 percentage points above the regular reimbursement rate for such costs, depending on the type of activity. The Administration assumes that this proposal will have initial costs, but will reduce costs over time by reducing the use of congregate care (which is more expensive than family-based care). It estimated this proposal would have an initial one-year cost of $78 million in FY2016, but that across 10 years it would reduce Title IV-E spending by $69 million. As of FY2010, tribes or tribal consortia are allowed to apply for direct Title IV-E funding , provided they meet the same Title IV-E requirements (generally) that apply to states. Tribes may also apply for funds to help develop a Title IV-E plan that meets all federal requirements (these grants are supported with a part of the $3 million dollars shown in Table 1 for Tribal IV-E Plan Development and Technical Assistance). Five tribes or tribal entities have an approved Title IV-E plan (and more are working toward approval this year). As of February 2015, however, only two had been able to implement their approved Title IV-E plan. According to a Children's Bureau official, this is due to a lack of needed start-up funding, which is likely also to be an issue for tribes expecting approval. Accordingly, the Administration seeks authority under Title IV-E to permit tribal entities to apply for start-up funding at the time of the Title IV-E plan approval. Successful applicants would, for a limited time, receive a higher federal reimbursement rate for Title IV-E administrative costs, along with a temporary waiver of cost allocation requirements. The Administration estimates this proposal would cost $27 million in FY2016 and $114 million across 10 years. Nearly all children in foster care are eligible for Medicaid and are generally entitled to the same set of benefits as other children enrolled in Medicaid, including coverage for psychotropic medications (i.e., prescribed drugs that affect the brain chemicals related to mood and behavior to treat a variety of mental health conditions). Certain factors, including being of school age and living in a group setting, forecast a greater likelihood that a child in foster care takes psychotropic medications. Limited research has been conducted to show that psychotropics alone are effective and safe for children with mental health disorders. As part of 2011 child welfare legislation ( P.L. 112-34 ), Congress required state child welfare agencies to adopt specific protocols for the use of psychotropic medications for children in foster care. To address continued concerns about the "over-prescription" of psychotropic medications for these children, as well as the lack of alternative psychosocial treatments (e.g., counseling), the Administration seeks new funds (and program authority) under the Title IV-E program for capacity and infrastructure building efforts led by state child welfare agencies. At the same time, the Administration seeks additional funding (and authority) under the Medicaid program to make incentive payments to states that make measureable outcome improvements for children served by child welfare agencies. As noted, most children in foster care are eligible for Medicaid—and an overriding purpose of this joint proposal is to increase communication and collaboration between state child welfare and state Medicaid agencies to ensure timely assessments of mental health needs and ensure appropriate services. More specific goals of the proposal, which was also included in the President's FY2015 budget but not acted on by Congress last year, include ensuring appropriate prescription of psychotropic medication that adheres to best practice guidelines for children; increasing use of "trauma-informed" as well as evidence-based/evidence-informed screening, assessment, and psychosocial interventions (e.g., cognitive behavioral therapy) as first-line treatments for emotional and behavioral health needs; and making measurable improvements to the physical, social, and emotional well-being of youth along with specific child welfare outcomes (e.g., reduced disruption of adoptions). In communications with CRS, HHS/ACF explained that the $250 million in requested Title IV-E funds would be used to make competitive ("demonstration") grants to state child welfare agencies to fund efforts related to, for example, (1) providing valid and reliable mental health screening and assessment tools; (2) coordinating the case planning and management activities of child welfare agencies with provision of Medicaid services (especially the Medicaid benefits available under the Early and Periodic, Screening, Diagnosis, and Treatment (EPSDT) program); (3) enhancing the child welfare workforce and training child welfare workers, foster and adoptive parents, guardians, judges, and clinicians; (4) evaluating and monitoring services offered (to ensure fidelity to planned treatment models and identify effectiveness); and (5) providing for relevant data collection and information technology systems. The Administration is requesting $250 million in FY2016 budget authority for the Title IV-E part of this proposal. However, as the proposal does not anticipate additional funding requests after FY2016, the anticipated 10-year cost to the Title IV-E program is $250 million. Separately, the Medicaid request is for $500 million in new budget authority (to be spent across multiple years). The Administration seeks to require that all child support payments made on behalf of children in foster care are used in the best interest of the child, rather than as an offset to state and federal child welfare costs. Among other things, this proposal would end the current law requirement that states return a portion of child support collected on behalf of children in foster care (who are Title IV-E eligible) to the federal government as reimbursement for a part of the cost of providing foster care maintenance payments to the child. This proposal, which has been included in several recent budget requests, is part of a larger, related Child Support Enforcement proposal. With regard to the Title IV-E program, it is estimated to cost $45 million in FY2016 and $476 million across 10 years. The Administration proposes to eliminate APPLA as a permanency plan for any child in care. It sees this proposal as consistent with the understanding that foster care is a temporary living arrangement (made to ensure a child's safety) and with its focus on promoting family-based care for all foster children. Under current law, as a condition of Title IV-E funding, states must ensure every child in foster care has a "permanency" plan designed to allow the child to be reunited with his/her family, or to find the child a new permanent family via adoption, legal guardianship, or placement with a fit and willing relative. However, current law also provides that if a state documents for a court a "compelling reason" why none of those permanency options is in the child's best interest, a child's permanency plan may be designated as "another planned permanent living arrangement." As of September 29, 2015 (or September 29, 2017, for children under tribal authority), P.L. 113-183 will eliminate APPLA as a permanency option for children in foster care who are under the age of 16. At the same time, it requires ongoing and additional permanency efforts for any child with APPLA as his/her permanency goal. The Administration's proposal to eliminate APPLA for children of any age would require a change in the authorizing law. However, there is no estimated cost (or savings) for implementing the policy. The Administration would permit some states to use funding under the Chafee Foster Care Independence Program (CFCIP) to serve young people who were formerly in foster care up to the age of 23. (Current law limits this spending to youth under the age of 21 in most cases.) The Administration proposes this increased flexibility only for those states that have taken the current law option to extend Title IV-E assistance to youth up to 21 years of age (as of February 2015, 22 states, including the District of Columbia, offer extended Title IV-E assistance), or for any state that provides comparable extended Title IV-E foster care assistance using state or other funding. This proposal would require a change to the authorizing legislation but would not require additional funding (because the CFCIP is a capped entitlement). Table A-1 shows the final or projected budget authority as well as the final or projected outlays under the Title IV-E program by each of the program components that receive open-ended entitlement funding (foster care, adoption assistance, and kinship guardianship assistance). Roughly speaking, "outlays" represent the amount of dollars that leave the federal treasury during a fiscal year for purposes of a given program. By contrast, "budget authority" is the amount of funding Congress permits an agency to use to enter into obligations with states or other entities under that program. Budget authority that is granted by Congress but not used does not result in an outlay from the federal treasury. (Because of the way budget authority is granted under Title IV-E, HHS describes final federal budget authority as equivalent to those "obligations.") The numbers in the table reflect assumptions made by HHS about the cost of the program under current law as well as under any applicable proposed-law policies discussed in this report. Proposed-law estimates are only shown for the foster care component of the Title IV-E program because this is the only part of that program for which the President's FY2016 budget proposals are expected to result in a change in spending. The estimated effect of all proposed policies is combined. Table A-1 shows that if all of the proposals discussed in this report were enacted this year, HHS projects Title IV-E foster care outlays would increase by $182 million in FY2016 and by differing amounts across each of the following nine years (low of $77 million, high of $191 million). Although these HHS projections are instructive, it is worth noting that estimates made by the Congressional Budget Office (CBO) determine a proposal's "cost" for purposes of congressional scoring. CBO uses its own model and assumptions to project program outlays under both current law and proposed law. Further, when "scoring" the cost of a policy proposal, CBO looks at projected "outlays" rather than "budget authority." Any positive difference between outlays under proposed law compared to outlays under current law (as estimated by CBO) is scored by CBO as a cost. CBO is expected to provide its own projection of proposals included in the President's FY2016 budget in March 2015. | Under Title IV-E of the Social Security Act, states are entitled to open-ended reimbursement for the cost of providing foster care, adoption assistance, and (in states that choose to provide it) kinship guardianship assistance. Additional mandatory funding is available, on a capped basis, for services to youth who "age out" of foster care, or are expected to, and for Tribal Title IV-E plan development and technical assistance. Each year the President's budget estimates the amount of funding necessary to meet federal commitments under Title IV-E based on current law and, if included in the budget, provides estimates related to proposed changes to the law. While the current law estimate reflects funding needed to support policies that have already been placed in statute, Congress would need to make changes to the law to enable the proposed policies (and any related spending) to be implemented. For FY2016, the U.S. Department of Health and Human Services (HHS), Administration for Children and Families (ACF) estimates that, under current law, $7.601 billion will be needed to meet the costs of all Title IV-E program components (including those with open-ended funding and those with capped funding). The overall funding level is $258 million above what HHS/ACF expects to need under the program for FY2015 ($7.343 billion). The primary reasons HHS/ACF assumes a need for this additional FY2016 funding are expected growth in the number of children receiving Title IV-E foster care maintenance, adoption assistance, and guardianship assistance payments; and increased program administrative costs tied to implementation of new program requirements. The Administration also seeks legislative authority to implement several new policies under the Title IV-E program. Combined, it estimates these policies would require an additional $430 million in Title IV-E budget authority in FY2016 and a total of $1.358 billion in additional funding across 10 years (FY2016-FY2025). Specifically, it seeks budget authority of $30 million in FY2016 ($587 million across 10 years) to enable federal support for a part of the cost of providing services needed to prevent the entry or re-entry to foster care of children who are at imminent risk of this outcome; $78 million in FY2016 (but an estimated savings of $69 million across 10 years) to require states to meet new Title IV-E requirements before placing a child in a congregate care setting, while also providing enhanced Title IV-E support to expand the capacity of states to provide family-based care for children in foster care, including those with identified behavioral problems or clinical mental health concerns; $27 million in FY2016 ($114 million over 10 years) to offer enhanced Title IV-E support to enable tribes with approved Title IV-E plans to implement them; $250 million in FY2016 (total 10-year cost of $250 million) to address concerns about prescription of psychotropic medication for children in foster care (additional funding is sought under the Medicaid program as part of this same proposal); and $45 million in FY2016 ($476 million over 10 years) to ensure child support payments for children in foster care are used only in the child's best interest (and not as reimbursement to federal or state government). Finally, the Administration also proposes two policy changes that do not have an associated cost (or savings): (1) requiring states to have a permanency plan for each child in foster care that involves reunification, adoption, legal guardianship, or placement with a fit and willing relative (by eliminating entirely the permanency plan option known as "another planned permanent living arrangement," or APPLA); and (2) permitting states that offer foster care assistance to youth up to age 21 to spend Chafee Foster Care Independence (CFCIP) funds for otherwise eligible youth up to age 23 (current law limits the use of these funds to otherwise eligible youth up to age 21). |
In recent years Congress has shown considerable interest in promoting the strength and international competitiveness of U.S. industry. Several recent legislative proposals have concerned the intellectual property laws, a widely recognized mechanism for promoting innovation. In the 113 th Congress, H.R. 2466 , the Private Right of Action Against Theft of Trade Secrets Act of 2013, would introduce a private cause of action for misappropriation of trade secrets under federal law. S. 1770 , the Future of American Innovation and Research Act of 2013, would establish a private cause of action against a person who misappropriates a trade secret while located outside the United States, provided that the misappropriation causes or is reasonably anticipated to cause an injury within the United States or to a U.S. person. As of the date of publication of this report, neither bill had been enacted. The term "trade secret" generally refers to secret, commercially valuable information, including such subject matter as confidential formulae, techniques for manufacturing a product, and customer lists. Trade secret protection is largely a matter of state law. Under those laws, misappropriation of a trade secret may be enjoined by a court and the defendant may also be liable for compensatory and punitive damages. One notable federal statute, the Economic Espionage Act of 1996, makes the theft or misappropriation of a trade secret a federal crime under certain circumstances. Trade secrets play a role in U.S. innovation policy. Trade secrets may establish incentives to innovate because they provide a mechanism for firms to capture the benefits of their inventions. Yet trade secrets also have proven controversial because they suppress, rather than disclose, particular innovations to the public. They also may have a significant impact upon the mobility of highly trained employees between firms. Further, because innovators often face a mutually exclusive choice between patenting their inventions or maintaining them as trade secrets, alterations to one of these regimes may alter the perceived attractiveness of the other. This report provides an overview of the law and policy of trade secrets. It discusses the role of trade secrets in U.S. innovation policy. It then reviews the sources of trade secret law and the substantive rules that they provide. The report then provides a more detailed review of existing federal legislation that pertains to trade secrets. In its next section, the report then discusses the relationship between patent law and trade secret law. The report closes with an identification of congressional issues and options within this field. Many businesses have developed proprietary information that provides a competitive advantage because it is not known to others. This category may include "high-tech" information such as chemical formulae, manufacturing techniques, product design, and technical data. But it may also include relatively "low-tech" information such as customer lists, business leads, marketing strategies, pricing schedules, and sales techniques. Potentially of additional competitive value is "negative know-how": previously attempted, but flawed techniques or "blind alleys" that did not achieve their intended results. As the United States continues its shift to a knowledge- and service-based economy, the economic strength and competitiveness of firms increasingly depend upon their know-how and intangible assets. Leonard I. Nakamura, Assistant Vice President and Economist of the Federal Reserve Bank of Philadelphia, explains that in the U.S economy over the past half-century, "mass production and tangible investment have become less important, while new products . . . and intangible investment have become more important." One recent estimate placed the value of trade secrets owned by U.S. publicly traded companies at five trillion dollars. Another way of measuring the increasing importance of intangible assets is by considering the value of the Standard & Poor's 500. The "S&P 500" consists of the marketplace value of 500 large publicly held companies. In 1975, 16.8% of the total value of the S&P 500 reportedly consisted of intangible assets. In 2005, intangible assets reportedly constituted 79.7% of the total value of these firms. According to attorney R. Mark Halligan, "the vast bulk of intangible assets are trade secret assets." Yet the rise of computer technology, the ubiquity of cell phones and the Internet, and our transition to the Information Age have increased the difficulty that firms encounter in maintaining the confidentiality of their proprietary information. Years ago, the theft of trade secrets may have involved the taking of laboratory notebooks, memoranda, or other papers from a competitor's office despite the presence of security personnel or surveillance cameras. Today, a trade secret misappropriator can download proprietary information from company computers, or take photographs of confidential documents using a cell phone camera, within moments. As attorney Victoria A. Cundiff concisely states: "The digital world is no friend to trade secrets." As U.S. firms become increasingly immersed in global competition, some observers believe that foreign firms and even foreign governments have devoted significant resources towards industrial espionage. According to the Office of the National Counterintelligence Executive, "[t]he United States remains the prime target for foreign economic collection and industrial espionage by virtue of its global technological leadership and innovation." These efforts have been linked not just to the economic competitiveness of the United States, but also to its national security. The legal concept of trade secrets addresses these circumstances. Principles of trade secret law guard against the misappropriation of information that is not generally known. In view of the increasing prominence of information, it is unsurprising that Michael Risch, a member of the law faculty of the West Virginia University College of Law, asserts that trade secrets are "arguably the most important and most heavily litigated intellectual property right." Framing the trade secret law requires a balancing of competing interests. A robust trade secret law that provides strong protection to proprietary commercial information potentially holds many advantages. It may allow firms to capture the benefits of the costs and time it takes to develop the information, without having to share the benefits of that information with others. Trade secret law therefore may be seen as providing incentives to innovate. Trade secret law may also encourage firms to invest in human capital. A firm is more likely to invest in employee development if it has some confidence that employee cannot immediately use his knowledge in the service of a competitor. Firms may also establish a trade secret easily through self-help measures. Commercially valuable information is protected once a firm makes reasonable efforts to maintain it in confidence. There is no need for formal government involvement, in contrast to patents. Trade secret law also confirms and regulates standards of commercial ethics and morality. The misappropriation doctrine applies only against wrongdoers—those who have breached a duty of confidence, engaged in espionage, or otherwise acted in bad faith. Trade secret law thus recognizes that even within a marketplace based open free competition, certain kinds of competitive behavior step beyond our social norms and should be discouraged. On the other hand, trade secret laws potentially have negative aspects. First, although trade secret law may promote advancement, it might facilitate a particular kind of innovation—the development of information that is itself amenable to being kept secret. In addition, the protection of trade secrets necessarily requires firms to conceal their new developments. But as Judge Goldberg observed 40 years ago, "for our industrial competition to remain healthy there must be breathing room for observing a competing industrialist." Thus, while some degree of information protection may be needed to promote innovation, some amount of information sharing may be essential for competition and proper functioning of the market. As well, firms must expend resources to maintain information as a trade secret. Employees must sign confidentiality agreements, locks and safes must be installed, and electronic protection measures must be in place on computer systems. These measures entail time and expense. Employers also may be encouraged to limit access to valuable information to select employees. Disclosing valuable trade secrets on a "need to know" basis to one's employees may restrict employee development and ultimately hinder the operation of the firm. Trade secret law may negatively impact employee mobility. Individuals who are unable to take their knowledge from job to job may be limited in their ability to change employers. As explained by Alan L. Durham, a member of the law faculty of the University of Alabama, an overly robust view of trade secret law potentially may "limit individual freedom, weaken employee bargaining power, and harm society through diminished competition." The various rules that together comprise the discipline of trade secret law may be fashioned in an effort to maximize the potential advantages of trade secrets while minimizing their disadvantages. This report next provides a more detailed review of the doctrines that regulate the acquisition and enforcement of trade secrets. While it has been written that an "exact definition of a trade secret is not possible," a trade secret generally consists of secret, commercially valuable information. As explained by Henry Perritt, Jr., a member of the faculty of the Chicago-Kent College of Law, "trade secret subject matter includes any of the major functions of business enterprise: production and operations, engineering and research and development, marketing, finance, purchasing, and management." Specific examples of trade secret subject matter include customer lists, manufacturing processes, marketing strategies, pricing information, product design, recipes, and sales techniques. One court has described trade secrets as follows: A trade secret is really just a piece of information (such as a customer list, or a method of production, or a secret formula for a soft drink) that the holder tries to keep secret by executing confidentiality agreements with employees and others and by hiding the information from outsiders by means of fences, safes, encryption, and other means of concealment, so that the only way the secret can be unmasked is by a breach of contract or a tort. Whether information qualifies as a "trade secret" is a question of fact that may be determined by a jury. Among the factors in assessing whether certain subject matter is a trade secret are: the extent to which the information is known outside of the company; the extent to which it is known by employees and others involved in the company; the extent of measures taken by the company to guard the secrecy of the information; the value of the information to the company and to its competitors; the amount of effort or money expended by the company in developing the information; and the ease or difficulty with which the information could be properly acquired or duplicated by others. The law protects trade secrets from misappropriation by others. Misappropriation is a tort that may occur in several distinct ways. One is when an individual acquires the trade secret through improper means, such as theft, bribery, misrepresentation, or espionage. Another is when the individual uses or discloses the trade secret through a breach of confidence. For example, an employee might switch jobs, and then disclose his previous employer's trade secrets in violation of a confidentiality agreement. Finally, a trade secret may be misappropriated if it is used or disclosed with knowledge that the trade secret had been acquired improperly or through mistake. A person who uses information that he knows to have been stolen by another is therefore also guilty of misappropriation. Misappropriation of a trade secret may be enjoined by a court and the defendant may also be liable for compensatory and punitive damages. Conversely, it is not a violation of trade secret law for another firm to discover the subject matter of a trade secret independently. "Reverse engineering" is also considered to be an appropriate means for one firm to acquire the subject matter of another's trade secret. A firm that discerns the subject matter of the trade secret by inspecting products available to the public also has not engaged in misappropriation. Trade secret protection may extend indefinitely. So long as information is not generally known to the public, confers an economic benefit to its holder, and is subject to reasonable efforts to maintain its secrecy, it may be considered a trade secret. However, the trade secret status of information may be lost if the information is accidentally or intentionally disclosed by an employee. Once a trade secret has been exposed to the public, its protected character is lost and cannot later be retrieved. However, disclosures of trade secrets to third parties for certain limited reasons do not waive trade secret protections, so long as the trade secret owner took reasonable measures to maintain its secrecy before and during disclosure, such as requiring non-disclosure or confidentiality agreements from each recipient of confidential information. The discipline of trade secrets was traditionally developed through state common law. State courts developed the essential principles of trade secret law through their decisions, which were then observed as precedent in subsequent litigation. In 1939, the American Law Institute (ALI), a group of lawyers, judges, and legal scholars, published a treatise titled the "Restatement of Torts." The Restatement of Torts included two sections dealing with the law of trade secrets. Section 757 explained the subject matter of trade secrets, while Section 758 spelled out the elements of a trade secret misappropriation cause of action. Although this treatment was succinct, many commentators believe that these definitions proved influential in the courts. Trade secrets were not addressed in the Second Restatement of Torts published in 1978. The ALI at that time concluded that trade secret law had grown "no more dependent on Tort law than it is on many other general fields of law and upon broad statutory developments," and opted not to house trade secrets there. The ALI addressed this gap in its 1993 Restatement (Third) of Unfair Competition, which deals with trade secrets in sections 39–45. In addition, the National Conference of Commissioners on Uniform State Law (NCCUSL) issued the Uniform Trade Secrets Act (UTSA) in 1979. The NCCUSL consists of a group of academics, attorneys, and judges who draft statutes addressing a variety of issues, and then propose that each state enact them. The NCCUSL lacks direct legislative authority itself. Its uniform acts become law only to the extent that state legislatures adopt them. The UTSA has arguably proven successful, as it has reportedly been enacted in 47 states, the District of Columbia, and the Virgin Islands. The three states that have reportedly not enacted the UTSA are Massachusetts, North Carolina, and New York. These states do recognize trade secrets, but provide protection through a distinct statute or the common law. It should be appreciated that many jurisdictions have enacted the UTSA after making some changes to the original text of the proposed legislation. Opinions vary on how significant these modifications have been. While some commentators view state-by-state variations as "generally minor," others have opined that "they include fundamental differences about what constitutes a trade secret, what is required to misappropriate it, and what remedies are available." As noted previously, trade secrets have traditionally been the subject of state law. Prior to 1996, arguably the most significant federal legislation on point was the Trade Secrets Act. Although broadly titled, this 1948 statute is actually of narrow application. It forbids federal government employees and government contractors from making an unauthorized disclosure of confidential government information, including trade secrets. The sanctions for violating this criminal offense are removal from office or employment, and a fine and/or imprisonment of not more than one year. The law does not apply to state or local government actors or to private sector employees. In 1996, motivated by concerns over growing international and domestic economic espionage against U.S. firms, Congress enacted new legislation pertaining to trade secrets. The Economic Espionage Act (EEA) criminalizes both "economic espionage" and the "theft of trade secrets." The "economic espionage" provision punishes those who knowingly misappropriate, or attempt or conspire to misappropriate, trade secrets with the intent or knowledge that the offense will benefit a foreign government, instrumentality or agent. The "theft of trade secrets" prohibition is of more general application. The principal elements of an EEA claim for theft of trade secrets are: (1) the intentional and/or knowing theft, appropriation, destruction, alteration, or duplication of (2) a trade secret placed in interstate commerce (3) with intent to convert the trade secret and (4) intent or knowledge that such action will injure the owner. The EEA provides for substantial fines and imprisonment penalties. For economic espionage, the maximum penalties increase to $500,000 for individuals and imprisonment of 15 years, or $10 million for corporations. Theft of trade secrets is punishable by a fine of up to $250,000 for individuals as well as imprisonment of up to 10 years. Organizations can be fined up to $5 million. The EEA also provides for criminal forfeiture of property and court orders preserving the confidentiality of trade secrets. The EEA has been subject to critical commentary. Attorney R. Mark Halligan expressed the view that the legislation was "ineffective" and observed, in 2008, that there had been fewer than 60 prosecutions in keeping with its provisions. Susan W. Brenner, a member of the law faculty of the University of Dayton, and security expert Anthony C. Crescenzi opine that the "paucity" of prosecutions under the EEA are due to a number of factors, including the complexity of the cases, the desire of the Department of Justice only to bring cases it can win, the diplomatic repercussions of bringing such a case, and the unwelcome possibility of additional disclosure of trade secrets during the litigation. Brenner and Crescenzi conclude that the "individual and combined effect of the systemic factors discussed above is to erode the EEA's effectiveness as a weapon against economic espionage." Trade secrets and patents form two distinct fields within the U.S. intellectual property system. In one sense, trade secrecy serves as the chief alternative to the patent system. Most inventors must choose one of three options: (1) maintain a technology as a trade secret, (2) seek patent protection, (3) or decline to seek intellectual property protection at all and allow the technology to enter the public domain. In view of the close relationship between trade secrets and patents, this report next provides an overview of the patent system and its interaction with trade secret law. An inventor may seek the grant of a patent by preparing and submitting an application to the U.S. Patent and Trademark Office, or USPTO. USPTO officials known as examiners then determine whether the invention disclosed in the application merits the award of a patent. The USPTO examiner will consider a number of legal requirements, including whether the submitted application fully explains and distinctly claims the invention. In particular, the application must enable persons skilled in the art to make and use the invention without undue experimentation. In addition, the application must provide 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 meet four primary requirements. First, the invention must fall within at least one category of patentable subject matter. According to the Patent Act, an invention which is a "process, machine, manufacture, or composition of matter" is eligible for patenting. Second, the invention must be useful, a requirement that is satisfied if the invention is operable and provides a tangible benefit. Third, the invention must be novel, or different, from subject matter disclosed by an earlier patent, publication, or other state-of-the-art knowledge. Finally, an invention is not patentable if "the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains." This requirement of "nonobviousness" prevents the issuance of patents claiming subject matter that a skilled artisan would have been able to implement in view of the knowledge of the state of the art. If the USPTO allows the patent to issue, its owner obtains the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention. Inventors who do not wish to dedicate their technologies to the public domain must, as a general matter, choose between trade secret and patent protection. A number of factors inform this decision. One is whether the inventor will practically be able to keep the technology secret. A knowledgeable observer may readily be able to inspect a motor, machine, or other mechanical technology in order to learn its design, for example. On the other hand, the composition of a chemical compound may be much more difficult to discern. The costs associated with acquiring and maintaining patents are another factor. In this respect, it should be appreciated that a U.S. patent provides rights only with the United States. However, virtually anyone in the world may review a U.S. patent to learn of its contents. As a result, U.S. inventors may need to obtain patents in many foreign countries in order to secure meaningful protection. In addition, the process of acquiring a patent may take many years. A USPTO examiner in 2009 would not review a patent application until, on average, 25.8 months after it was filed. The "first action pendency" during 2000 was 13.6 months. Many observers believe that if current conditions continue, the backlog and delay are likely to grow at the USPTO in coming years. These delays may prove too lengthy for innovators in fast-moving industries, suggesting that trade secret protection is the more appropriate choice. Also, trade secrets may potentially extend indefinitely, so long as the requirements for trade secret protection are maintained. In contrast, patents expire after a set period of time, normally 20 years after the date they were filed. On the other hand, trade secret protection may be lost through a competitor's reverse engineering or independent discovery. As explained by Dan Burk, a member of the faculty of the University of California, Irvine School of Law, "the inventor's choice is an election between twenty years of certain patent protection or perpetual, but less certain, trade secret protection." It should also be appreciated that when an inventor obtains a patent on an invention, the USPTO publishes that patent in a formal document. That publication destroys the trade secret status of any previously confidential information disclosed within it. In addition, the USPTO publishes many, but not all, pending patent applications "promptly after the expiration of a period of 18 months" after they are filed. This measure also destroys the trade secret status of information contained within the published application, even if the USPTO subsequently rejects the application and no patent ever issues on that invention. The trade secret and patent systems are sometimes viewed as acting in conflicting ways. Trade secret protection is predicated upon the maintenance of the protected information in confidence. In contrast, each patented invention is the subject of a formal document, the patent instrument, which provides a complete description of the invention. As a result, while the patent system appears to promote the public disclosure of new technologies, the trade secret discourages disclosure. As described previously, it could be argued that trade secret law encourages the development of technologies that are capable of being kept secret. However, some commentators believe that patents and trade secrets generally act in a complementary manner. Mark Lemley, a member of the faculty of the Stanford Law School, has explained that trade secret law provides valuable incentives to innovate in areas where the patent law does not reach, such as customer lists and business plans. Lemley further explains that although the law requires that reasonable efforts must be made to maintain secrecy, absent trade secret law, firms might need to engage in even more physical and contractual measures to prevent disclosure. As a result, a society without trade secret law might potentially have more, rather than less secrecy. In any event, Congress modified the usual rules governing the relationship between trade secrets and patents when it established the "first inventor defense" in the American Inventors Protection Act of 1999, which in turn was replaced by the "prior commercial user defense" in the Leahy-Smith America Invents Act (AIA) in 2011. The earlier, 1999 legislation in part provided an infringement defense for an earlier inventor of a "method of doing or conducting business" that was later patented by another. The AIA subsequently expanded the range of individuals who may assert this defense in court. Even more significantly, the new legislation eliminated the restriction of the prior commercial use defense to business method patents. Under the AIA, a patent claiming any type of invention may be subject to the prior commercial user defense. The prior commercial user defense accounts for the complex relationship between the law of trade secrets and the patent system. Trade secrecy protects individuals from misappropriation of valuable information that is useful in commerce. One reason an inventor might maintain the invention as a trade secret rather than seek patent protection is that the subject matter of the invention may not be regarded as patentable. Such inventions as customer lists or data compilations have traditionally been regarded as amenable to trade secret protection but not to patenting. Inventors might also maintain trade secret protection due to ignorance of the patent system or because they believe they can keep their invention as a secret longer than the period of exclusivity granted through the patent system. The patent law does not favor trade secret holders, however. Well-established patent law provides that an inventor who makes a secret, commercial use of an invention for more than one year prior to filing a patent application at the USPTO forfeits his own right to a patent. This policy is based principally upon the desire to maintain the integrity of the statutorily prescribed patent term. The patent law grants patents a term of 20 years, commencing from the date a patent application is filed. If the trade secret holder could make commercial use of an invention for many years before choosing to file a patent application, he could disrupt this regime by delaying the expiration date of his patent. Settled patent law principles established that prior secret uses would not defeat the patents of later inventors. If an earlier inventor made secret commercial use of an invention, and another person independently invented the same technology later and obtained patent protection, then the trade secret holder could face liability for patent infringement. This policy is based upon the reasoning that once issued, published patent instruments fully inform the public about the invention, while trade secrets do not. Between a subsequent inventor who patented the invention, and thus had disclosed the invention to the public, and an earlier trade secret holder who had not, the law favored the patent holder. An example may clarify this rather complex legal situation. Suppose that Inventor A develops and makes commercial use of a new manufacturing process. Inventor A chooses not to obtain patent protection, but rather maintains that process as a trade secret. Many years later, Inventor B independently develops the same manufacturing process and promptly files a patent application claiming that invention. In such circumstances, Inventor A's earlier, trade secret use does not prevent Inventor B from procuring a patent. Furthermore, if the USPTO approves the patent application, then Inventor A faces infringement liability should Inventor B file suit against him. The American Inventors Protection Act of 1999 somewhat modified this principle. That statute in part provided an infringement defense for an earlier user of a "method of doing or conducting business" that was later patented by another. By limiting this defense to patented methods of doing business, Congress responded to the 1998 Federal Circuit opinion in State Street Bank and Trust Co. v. Signature Financial Group . That judicial opinion recognized that business methods could be subject to patenting, potentially exposing individuals who had maintained business methods as trade secrets to liability for patent infringement. Again, an example may aid understanding of the prior commercial user defense. Suppose that Inventor X develops and exploits commercially a new method of doing business. Inventor X maintains his business method as a trade secret. Many years later, Inventor Y independently develops the same business method and promptly files a patent application claiming that invention. Even following the enactment of the American Inventors Protection Act, Inventor X's earlier, trade secret use would not prevent Inventor Y from procuring a patent. However, should the USPTO approve Inventor Y's patent application, and should Inventor Y sue Inventor X for patent infringement, then Inventor X may potentially claim the benefit of the first inventor defense. If successful, Inventor X would enjoy a complete defense to infringement of Inventor Y's patent. Prior to the AIA, the prior commercial user defense could "be asserted only by the person who performed the acts necessary to establish the defense.... " The AIA also allowed the defense to be asserted by "any other entity that controls, is controlled by, or is under common control with such person.... " In addition, the AIA eliminated the restriction of the prior commercial user defense to business method patents. As a result, any type of patented invention may be subject to the prior commercial user defense. The new legislation also exempted patents held by universities from the prior commercial user defense when it stipulates that this is not available if "the claimed invention ... was made, owned or subject to an obligation of assignment to either an institution of higher education ... or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by one or more such institutions of higher education." A variety of options are available for Congress with respect to trade secrets. If the current situation is deemed appropriate, then no action need be taken. Alternatively, Congress may wish to consider the adoption of a federal trade secret law. Several commentators believe that this step would promote the uniformity of trade secret law throughout the United States. As attorney David S. Almeling asserts: Trade secrets stand alone as the only major type of intellectual property governed primarily by state law. Trademarks, copyrights, and patents are each governed primarily by federal statutes. Trade secrets, by contrast, are governed by fifty state statutes and common laws. The result is that trade secret law differs from state to state. It is time to eliminate these differences—and the significant problems they cause—by enacting a Federal Trade Secrets Act ("FTSA"). According to Alemeling, general federal trade secret legislation would establish greater uniformity in substantive and procedural law than is possible in a state-based regime. Other commentators have further suggested that the current state-based trade secrets system places the United States in violation of its obligations under two international agreements: the North American Free Trade Agreement (NAFTA) and the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement). Both NAFTA and the TRIPS Agreement require member states to provide certain levels of trade secret protection. Because the portions of NAFTA and the TRIPS Agreement concerning trade secrets were modeled after the Uniform Trade Secrets Act (UTSA), those states that have adopted the UTSA without restrictive modifications likely comply with these international standards. But some states have not adopted the UTSA, and some states that have done so have arguably included more restrictive standards. Some commentators have asserted that these states place the United States in violation of NAFTA and the TRIPS Agreement. However, others have observed that any shortcomings of U.S. law on this point have yet to be challenged under either international agreement. Still other observers assert that no compelling case has been made to federalize trade secret law. Some believe that this step might create additional burdens and costs upon the federal judiciary. Others cite federalism concerns, believing that the states possess a strong interest in regulating local economies in view of their own, local norms. In addition, variation between the laws of the different states does not necessarily compel federalization of the field. For example, meaningful distinctions between the states exist in other areas of law, including such fundamental disciplines as contract law. Yet these disciplines remain subject to state law. A second possibility for Congress is to amend the Economic Espionage Act so as to create a private, federal cause of action for trade secret misappropriation. H.R. 2466 , the Private Right of Action Against Trade Secrets Act of 2013, would do just that. Under that proposed legislation, any person who suffers an injury from trade secret misappropriation "may maintain a civil action against the violator to obtain appropriate compensatory damages and injunctive relief or other equitable relief." H.R. 2466 does not appear wholly to federalize trade secret law—under this proposal, trade secret law would remain primarily a matter of state law. This legislation had not been enacted as of the publication of this report. S. 1770 , the Future of American Innovation and Research Act of 2013, provides another possibility for future reform efforts. This bill would establish a private cause of action against a person who misappropriates a trade secret while located outside the United States, provided that the misappropriation causes or is reasonably anticipated to cause an injury within the United States or to a U.S. person. This legislation had not been enacted as of the publication of this report. In addition, Congress may wish to remain apprised of the potential effect of continuing patent reform efforts upon trade secrets. As this report has discussed, trade secrets and patents act in complementary ways to protect innovation in the United States. Further, to some degree the two forms of intellectual property act as imperfect substitutes for each other. As a result, legislative reforms that are perceived to make patents more effective may reduce industrial reliance upon trade secrets. Conversely, amendments to the Patent Act that are believed to reduce the effectiveness of patents may increase the willingness of firms to retain information as trade secrets. Trade secrets form a significant component of the intellectual property system of the United States. The importance of trade secrets will likely increase as U.S. industry continues to participate within a knowledge-based, global economy with increasingly sophisticated competitors. Because trade secrets are currently a matter of state law, congressional influence over the system has thus far been indirect: Through the enactment of a criminal statute, the Economic Espionage Act, and through amendment to the patent law. Whether further intervention is required in the U.S. trade secret system remains a matter of congressional judgment. | Many businesses have developed proprietary information that provides a competitive advantage because it is not known to others. As the United States continues its shift to a knowledge- and service-based economy, the strength and competitiveness of domestic firms increasingly depends upon their know-how and intangible assets. Trade secrets are the form of intellectual property that protects this sort of confidential information. Trade secret law protects secret, valuable business information from misappropriation by others. Subject matter ranging from marketing data to manufacturing know-how may be protected under the trade secret laws. Trade secret status is not limited to a fixed number of years, but endures so long as the information is valuable and maintained as a secret. A trade secret is misappropriated when it has been obtained through the abuse of a confidential relationship or improper means of acquisition. A number of competing innovation policy concerns help shape the particular doctrines that comprise trade secret law. The availability of legal protection for trade secrets potentially promotes innovation, encourages firms to invest in employee development, and confirms standards of commercial ethics and morality. On the other hand, trade secret protection involves the suppression of information, which may hinder competition and the proper functioning of the marketplace. An overly robust trade secret law also could restrain employee mobility and promote investment in costly, but socially inefficient security measures. Trade secrets are primarily a matter of state law. In 1996, Congress enacted the Economic Espionage Act (EEA), a statute that criminalizes both "economic espionage" and the "theft of trade secrets." The EEA provides for substantial fines and imprisonment penalties, as well as criminal forfeiture of property and court orders preserving the confidentiality of trade secrets. Some commentators believe that few prosecutions have occurred under the EEA since its enactment and have deemed the legislation ineffective. Patents and trade secrets provide different intellectual property options for many new inventions. Inventors typically must choose (1) to maintain an invention as a trade secret, (2) to obtain a patent on the invention, or (3) to allow the invention to enter the public domain. As a result, federal legislation or other developments that are perceived to alter the effectiveness of the patent system may make the trade secret more or less attractive to industry. As of the date of publication of this report, two bills have been introduced in the 113th Congress that focus upon trade secrets. H.R. 2466, the Private Right of Action Against Theft of Trade Secrets Act of 2013, would introduce a private cause of action within the EEA. S. 1770, the Future of American Innovation and Research Act of 2013, would establish a private cause of action against a person who misappropriates a trade secret while located outside the United States, provided that the misappropriation causes or is reasonably anticipated to cause an injury within the United States or to a U.S. person. As of the date of publication of this report, neither bill had been enacted. |
Recent high oil and gas prices and concerns about global climate change have heightened interest in ethanol and other biofuels as alternatives to petroleum products. The Western Hemisphere produces more than 80% of the world's biofuels, led by Brazil (producing sugar-based ethanol) and the United States (producing corn-based ethanol). Some have argued that increasing biofuels production in Latin America could bolster energy security, reduce greenhouse gas emissions, and promote rural development in the region. Others are concerned about the huge investment outlays and government subsidies needed to build up nascent biofuels industries. Skeptics also worry about the potential negative effects that increased biofuels production may have on the environment, labor conditions, and food prices in the region. The United States and Brazil, the world's largest ethanol producers, have recently agreed to work together to promote the use and production of ethanol and other biofuels throughout the Western hemisphere. Increasing U.S.-Brazil energy cooperation was a top agenda issue when President Bush visited Brazil and when President Lula visited Camp David earlier this year. On March 9, 2007, the two countries signed an agreement to (1) advance research and development bilaterally, (2) help build domestic biofuels industries in third countries, and (3) work multilaterally to advance the global development of biofuels. Many Bush Administration officials and Members of Congress note that the new biofuels partnership with Brazil may help improve the U.S. image in Latin America and diminish the influence of President Chávez in the region. In the past few months, the U.S.-Brazil biofuels agreement has already had a significant political effect in Latin America. "Ethanol diplomacy" appears to be helping Brazil reassert regional leadership relative to oil-rich Venezuela under Hugo Chávez. Increasing biofuels cooperation with Brazil and other countries in Latin America may prompt challenges to existing U.S. trade, energy, and agriculture policies. For example, U.S. tariffs on foreign ethanol imports may prove to be an obstacle to U.S.-Brazil energy cooperation. In the 109 th Congress, legislation was introduced that would have eliminated current tariffs on foreign ethanol. While some Members support ending the ethanol tariffs, other Members of Congress support further extensions of the ethanol import tariffs. Some have also proposed using tariff duties collected on foreign ethanol imports to fund advanced ethanol research and production within the United States. This report examines the opportunities and barriers related to increasing U.S. cooperation with other countries in the hemisphere on biofuels development, focusing on the U.S.-Brazil agreement. It provides background information on Western hemisphere energy challenges, the ethanol industries in Brazil and the United States, and the biofuels potential in the region. It then raises a number of policy issues that Congress may choose to consider related to bolstering the development of ethanol and other biofuels in Latin America. The term biofuels generally refers to motor fuels produced from agricultural commodities or other biological materials such as agricultural and municipal wastes. The most widely used biofuel is ethanol (both in the United States and worldwide), an alcohol usually produced from the fermentation and distillation of sugar- or starch-based crops such as sugarcane or corn. Ethanol can also be produced from cellulose-based materials (such as perennial grasses and trees), although the technology to produce cellulosic ethanol is in its infancy, and no commercial-scale cellulosic ethanol plants have been constructed. Other biofuels include biodiesel and other renewable diesel fuel substitutes produced from vegetable oils or animal fats (such as soybean or palm oil), and butanol produced from various biological feedstocks. Biofuels have several potential benefits relative to petroleum-based fuels. First, the use of biofuels can reduce emissions of some pollutants relative to gasoline or diesel fuel. Second, most biofuels lead to lower emissions of greenhouse gases than petroleum fuels—some can lead to substantial greenhouse gas reductions. Third, biofuels can be produced domestically to displace some petroleum that would otherwise be imported. Finally, some biofuels can reduce overall fossil energy consumption, given that much of the energy needed to grow the feedstock plant material is supplied by the sun. There are also many potential drawbacks to biofuels. First, in nearly all cases, biofuels are more expensive to produce than petroleum fuels. Second, infrastructure limitations can lead to even higher costs for biofuels than for conventional fuels. Third, biofuels have their own potential environmental drawbacks, including increased emissions of some pollutants and the potential for increased greenhouse gas emissions (in some cases, depending on the particular biofuel) when the entire production process is taken into account. While both the United States and Brazil—as well as many other countries—are studying and investing in many different biofuels, this report focuses on ethanol supply and use for several reasons: (1) ethanol production and consumption far exceeds that of other biofuels; (2) ethanol can be (and is) used as a direct blending component with gasoline, and gasoline engines are dominant in passenger automobiles and light trucks; and (3) current mandates in both Brazil and the United States favor ethanol use, either directly or indirectly. While oil and gas producers such as Venezuela, Mexico, Argentina, Bolivia, Colombia, Ecuador, and Trinidad, and Tobago are net energy exporters, most Latin American and Caribbean nations are net energy importers. Countries that rely on oil as their primary energy source are particularly vulnerable to increases in global oil prices. In many Caribbean island nations, oil accounts for more than 90% of total energy consumed. In Central America, oil dependency ranges from an estimated 51% in Costa Rica to 73%-78% in El Salvador, Honduras, and Panama, and to 84-85% in Guatemala and Nicaragua. Many Latin American countries experienced dramatic increases in their energy bills after oil price hikes began in 2005, straining government budgets in Central America and the Caribbean. To fill a clear need and attempt to extend his influence in the region, Venezuelan President Hugo Chávez has offered oil on preferential terms in a program known as PetroCaribe launched in 2005. His government has also reached preferential energy agreements with South American countries such as Argentina, Bolivia, and Ecuador. In December 2005, Mexico, perhaps in an attempt to act as a countervailing force to Venezuela in the region, initiated the Meso-American Energy Integration Program (PIEM) with Central America, the Dominican Republic, and Colombia. As part of the plan, Mexico will supply the bulk of the crude oil to be processed by a new oil refinery in either Guatemala or Panama, which will be used primarily to satisfy Central America's energy needs. Given declining oil production levels in both Venezuela and Mexico and the unstable political environment in Bolivia, a major natural gas producer in the region, some analysts have pointed to biofuels as a potential solution to Latin America's petroleum dependency. Producing biofuels would, some argue, allow oil-importing countries in the region to reduce energy costs and the need for imported oil. The Western Hemisphere produces more than 80% of the world's biofuels, led by Brazil (producing ethanol from sugar) and the United States (producing ethanol from corn). Biofuels proponents argue that the climate, surplus of arable land, and excess production of sugarcane and other potential biofuels crops make parts of Latin America ideally suited for an expanded biofuels industry. The potential is greatest in tropical countries that have high crop yields and low costs for land and labor, characteristics that are present in several countries in Central America and the Caribbean. An April 2007 study by the Inter-American Development Bank (IDB), A Blueprint for Green Energy in the Americas , reports that some Latin American and Caribbean countries have shown great interest and promise in the development of biofuels. Beyond Brazil, which has been the leader in ethanol development and production, the study also highlights several other countries with potential for biofuels development. The study also suggests ways the IDB could support the development of biofuels production in the region, including support for a biofuels development fund, the development of regulatory frameworks, and research and development. Regional highlights from the IDB study include the following: Central America: The bulk of ethanol production in Central America involves reprocessing hydrous ethanol from Brazil or the European Union (EU) for export to the United States. The IDB study asserts that while the sugarcane harvesting season in Central America is shorter than in Brazil, Costa Rica, El Salvador, and Guatemala have efficient sugar industries and could produce significant sugar-based ethanol. Costa Rica and Guatemala, which house 44% of Central America's ethanol processing factories, have the most well-developed policies in place for biofuels development. Under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), signatory countries continue to share duty-free access for some ethanol exports to the United States under conditions established by the Caribbean Basin Initiative (CBI) , but exports from Costa Rica and El Salvador enjoy specific allocations. In the future, CAFTA-DR could spur indigenous ethanol production in Central America. Caribbean: Within the Caribbean, Jamaica has exported the largest amount of ethanol to the United States under CBI, most of it reprocessed hydrous ethanol from Brazil. Trinidad and Tobago has an ethanol dehydration plant, but the largest ethanol plants in the Caribbean are located in Jamaica and the Dominican Republic. Beyond Jamaica and the Dominican Republic, Grenada has been identified as having future production potential for sugar-based ethanol. The United Nations is working with Brazil to provide technology transfer and technical assistance to examine the potential of a biodiesel industry in Haiti from jatropha, a drought-resistant shrub that can grow almost anywhere. South America: Most biofuels production in South America currently goes to satisfy domestic consumption, with Colombia and Argentina possessing the largest government programs in support of biofuels development. Biofuels exports from non-CBI countries are constrained by tariff barriers in the United States and the EU. Should Colombia and/or Peru conclude free trade agreements with the United States, their biofuels export potentials could expand. Argentina, Colombia, and Peru have potential to further develop ethanol from sugarcane; Colombia and Ecuador to produce more biodiesel from palm oil; and Chile has potential for second-generation ethanol production from woodchips. Brazil and the United States are by far the world's largest ethanol producers. In 2006, the United States was the largest producer of ethanol, with almost 4.9 billion gallons, followed closely by Brazil, with 4.5 billion gallons; together, the two countries produced 69% of ethanol in the world. Prior to discussing the U.S.-Brazil Memorandum of Understanding on biofuels, this section provides background information on ethanol production and usage in the two countries. U.S. ethanol is generally produced and consumed in the Midwest, close to where the corn feedstock is produced. In Brazil, São Paulo state is the key area for sugarcane and ethanol production, where integrated sugar plantations and mills produce refined sugar and fuel ethanol. Regardless of the feedstock, the main steps to ethanol production from sugar- or starch-based crops are as follows: the feedstock (e.g., corn or sugar) is processed to separate fermentable sugars; yeast is added to ferment the sugars; the resulting alcohol is distilled, resulting in "wet" or hydrous ethanol; and for use in gasoline, the distilled alcohol is dehydrated to remove any remaining water, resulting in "dry" or anhydrous ethanol. To produce ethanol from cellulosic materials, considerably more physical and chemical/enzymatic processing is necessary to separate fermentable sugars that can then be converted to ethanol. This additional processing adds significant costs, making cellulosic ethanol currently uncompetitive with corn- or sugar-based ethanol. The United States is currently the largest producer and consumer of fuel ethanol in the world. In 2006, the United States consumed roughly 5.4 billion gallons of fuel ethanol. Most of that ethanol (4.9 billion gallons) was produced in the Midwest from corn. A smaller amount was produced domestically from other feedstocks (e.g., sorghum) or imported directly or indirectly from Brazil. Over 99% of U.S. ethanol is blended into gasoline. Ethanol is blended into gasoline at up to the 10% level (E10), although much is blended at lower levels (5% to 7%). Roughly one-third of U.S. gasoline contains some ethanol. A small amount of ethanol is blended in purer form as E85 (a blend of 85% ethanol and 15% gasoline), which can be used in flexible fuel vehicles (FFVs) specifically designed for its use. Various federal and state incentives promote the production and use of ethanol in the United States. Since the 1970s, ethanol blended into gasoline (to make "gasohol") has been eligible for tax incentives of various forms. Currently, each gallon of pure ethanol blended into gasoline earns the blender a tax credit of 51 cents per gallon. Additional tax incentives exist for small producers. Further, as part of the Energy Policy Act of 2005 ( P.L. 109-58 ), Congress established a Renewable Fuel Standard (RFS). Each year, the RFS requires a certain amount of renewable fuel be blended into gasoline. For 2007, the mandate is 4.7 billion gallons. The vast majority of this mandate will be met using ethanol. The mandate increases annually and will reach 7.5 billion gallons in 2012. U.S. ethanol production capacity has grown rapidly in recent years, and is expected to grow even faster in the next few years. This rapid growth has generated upward pressure on corn demand and corn prices (as well as production of co-products such as animal feed), while lowering wholesale ethanol prices. Until 2004, Brazil was the largest producer of ethanol in the world. Since then, the United States has moved ahead of Brazil in annual production. Brazilian ethanol is produced almost exclusively from sugar cane. Brazilian ethanol plants tend to be integrated with sugar plantations and sugar mills. Depending on market forces, these plants have the capacity to shift some production from sugar to ethanol, or vice-versa. Brazilian government support for ethanol began in 1975 when a presidential decree established the Brazilian National Alcohol Program ("Proalcool"). Originally established mainly as a way to support the Brazilian sugar industry from a collapse in sugar prices, Proalcool set a production target of 3 billion liters (some 0.8 billion gallons) in 1980. The second phase of the program, established in 1979 in response to the OPEC oil embargo, made Proalcool explicitly into an energy policy and further expanded the production goal to 10.7 billion liters (2.8 billion gallons) by 1985. In 2006, Brazil produced roughly 16.5 billion liters (4.4 billion gallons). To promote the goals of the Program, the Brazilian government has employed various policies through the years. These include requiring Petrobras, the state-owned oil company, to purchase a set amount of ethanol; tying the pump price of a liter of ethanol to a percentage of the price of gasoline (originally 59%, later increased to 80%); and requiring Brazilian automakers to produce dedicated ethanol vehicles that could run only on 100% ethanol. Currently, the Brazilian ethanol industry is thriving, and many of the requirements and policies from Proalcool have been eliminated. However, one key policy remains: all gasoline sold in Brazil must contain at least 20%-25% ethanol. Because of this mandate, as well as a large number of flexible fuel vehicles (FFVs) that can run on any blend of ethanol and gasoline, ethanol represents 40% or more of Brazilian gasoline demand. The United States consumed 5.4 billion gallons of ethanol in 2006, or roughly 4% of U.S. gasoline demand by volume. Nearly all of this fuel was consumed as gasohol at the 10% level or lower. A much smaller amount was consumed as E85 in FFVs. In contrast, Brazil's roughly 4 billion gallons of ethanol consumption in 2006 represented roughly half of Brazilian passenger vehicle fuel supply, by volume. Because ethanol has a lower energy content than gasoline, in terms of energy, ethanol represents roughly 40% of Brazil's passenger vehicle fuel supply. The Brazilian transportation sector is considerably smaller than the U.S. transportation sector, and diesel fuel plays a much larger role in motor vehicle fuel demand (including heavy trucks). While diesel fuel represents roughly a quarter of total U.S. highway fuel consumption, in Brazil, diesel fuel consumption represents nearly two-thirds of all motor fuel. Therefore, while ethanol in Brazil displaces nearly half of all passenger vehicle fuel consumption, it represents a smaller percentage of total highway fuel consumption—perhaps 20% by volume and 14% in terms of energy. Because of such high domestic demand, most Brazilian ethanol is produced for domestic consumption. However, U.S. imports of Brazilian ethanol have increased in recent years, especially in times of tight domestic supply. For example, in the spring of 2006, high U.S. ethanol demand, fueled by the phase-out of MTBE (a competing gasoline blending component) led to a rapid rise in ethanol blending by gasoline suppliers that could not be met with domestically produced ethanol. As U.S. ethanol production capacity is growing rapidly—from roughly 5.5 billion gallons at the end of 2006, to roughly 6.2 billion gallons in July 2007, and an expected 11 to 12 billion gallons by the end of 2008 —whether it will remain profitable to import ethanol directly from Brazil is an open question. Until recently, most Brazilian ethanol was imported into the United States through Caribbean Basin Initiative (CBI) countries in order to avoid import duties. (See section below on " Import Tariffs and Duties .") However, when U.S. ethanol prices are high relative to Brazilian production costs, it may be advantageous to import Brazilian ethanol directly, regardless of the tariff, as happened in the spring of 2006. Figure 5 shows U.S. ethanol imports over the past eight years. Import data through the end of May 2007 suggest that 2007 imports will fall below 2006 levels but will remain high relative to previous years—perhaps 450 million gallons total. On March 9, 2007, the United States and Brazil signed a Memorandum of Understanding (MOU) to promote greater cooperation on ethanol and biofuels in the Western hemisphere. The agreement involves (1) technology-sharing between the United States and Brazil, (2) conducting feasibility studies and providing technical assistance to build domestic biofuels industries in third countries, and (3) working multilaterally to advance the global development of biofuels. The first countries targeted for U.S.-Brazilian assistance are the Dominican Republic, El Salvador, Haiti, and St. Kitts and Nevis. Since March 2007, the United States and Brazil have moved forward on all three facets of the agreement. Specific actions have included the following: Bilateral: Several high-level visits have taken place aimed at boosting bilateral cooperation on biofuels. A team of Brazilian scientists visited the U.S. Department of Energy and Department of Agriculture Laboratories in mid-September. A group of U.S. scientists are scheduled to visit Brazil in November. Officials from both countries are exploring bilateral professorial and graduate student exchanges. Third-country efforts: The U.S. and Brazilian governments are working with the Organization of American States (OAS), IDB, and the U.N. Foundation (UNF) to conduct feasibility studies in Haiti, the Dominican Republic, and El Salvador. The feasibility study on St. Kitts and Nevis has been completed. Officials from these four countries visited the United States in August to attend a biofuels conference. Global efforts. The United States and Brazil are working with other members of the International Biofuels Forum (IBF) to make biofuels standards and codes more uniform by the end of 2007. IBF members include Brazil, the United States, the European Union, China, India, and South Africa. Some argue that the U.S.-Brazil agreement could provide the impetus needed to develop a viable biofuels industry in Latin America, a region with a comparative advantage in biofuels production. Other observers are less sure. They are concerned about the huge investment outlays that governments would have to make to ramp up biofuels production. The IDB estimates that at least $200 billion in new investments would have to be made for biofuels to provide even 5% of the region's transport energy by 2020. Skeptics question whether countries that lack the type of enabling environment that Brazil possesses—infrastructure, research and extension services, technology, educated workforce, and credit market—should lend their support to biofuels before those items are in place. On the domestic front, some analysts worry that increasing biofuels cooperation with Brazil and other countries in Latin America may prompt challenges to existing U.S. trade, energy, and agriculture policies. Because of lower production costs and/or government incentives, ethanol prices in Brazil are generally 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 2.5% ad valorem tariff, plus 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 when U.S. domestic prices are low. However, under certain conditions ethanol imports from Caribbean Basin Initiative (CBI) countries are granted tariff/duty-free status, even if the ethanol was actually produced in a non-CBI country. In this particular case, the CBI countries participate only in the final step of the production process—dehydration, after which the ethanol is shipped to the United States. Up to 7% of the U.S. ethanol market may be supplied duty-free by ethanol dehydrated in CBI countries. As shown in Figure 2 , until recently, most U.S. ethanol imports came through the CBI. Whereas previously most imported ethanol imported was produced in Europe and dehydrated in CBI, now most CBI ethanol is produced in Brazil. As part of the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR), Costa Rica and El Salvador are granted specific allocations within the 7% quota. Because CBI ethanol is actually produced in countries subject to the duties, some stakeholders view this treatment of ethanol from the CBI as a "loophole" to avoid these duties. Proponents of the CBI provisions argue that the dehydration of ethanol promotes economic development in CBI countries, even if those countries are not using local feedstocks. In addition to the concerns over imports of duty-free ethanol from CBI countries, there is also growing concern that a large portion of ethanol otherwise subject to the duties is being imported duty-free through a "manufacturing drawback." If a manufacturer imports an intermediate product then exports the finished product or a similar product, that manufacturer may be eligible for a refund (drawback) of up to 99% of the duties paid. There are special provisions for the production of petroleum derivatives. In the case of fuel ethanol, the imported ethanol is used as a blending component in gasoline. Jet fuel (containing no ethanol, but considered a "like commodity" to the finished gasoline) is exported to qualify for the drawback in lieu of finished gasoline containing the originally imported ethanol. Some critics estimate that as much as 75% or more of the duties were eligible for the drawback in 2006. Therefore, critics question the effectiveness of the ethanol duties and the CBI exemption. Proponents of the domestic ethanol industry argue that foreign ethanol producers receive benefits and incentives from their home countries, and that U.S. duties on imported ethanol should be strengthened. Further, they argue, limiting imports and promoting the domestic industry furthers U.S. national security and lowers our dependence on energy imports. Opponents of the duties argue that elimination of the duties would allow us to further diversify our energy supply and move toward more environmentally sound transportation fuels. Further, they argue that importing ethanol from Brazil is preferable to importing petroleum from less stable parts of the world. 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 U.S. Congress is currently considering new energy legislation, as well as a new Farm Bill. Both pieces of legislation could affect U.S. and foreign biofuels production. The Senate-passed energy bill ( H.R. 6 ) would expand and extend the existing Renewable Fuel Standard (RFS). The RFS currently mandates the use of 7.5 billion gallons of renewable fuel in gasoline by 2012. The Senate bill would increase the mandate to 13.2 billion gallons in 2012 and 36 billion gallons in 2022. Further, by 2022, the bill would mandate the use of 21 billion gallons of "advanced biofuels," defined as "fuel derived from renewable biomass other than corn starch." Such a mandate would mean a significant increase in the role of non-corn-based ethanol. If enacted, the new RFS could mean a significant increase in demand for Brazilian sugar-based ethanol, especially if costs remain high for cellulosic ethanol and other non-corn biofuels. The previous farm bill, the Farm Security and Rural Investment Act of 2002 ( P.L. 107-171 ), established an energy title (Title IX). Among other provisions, Title IX contained sections to promote the research and development of new biofuels, as well as to expand the production of existing biofuels. Those programs expired at the end of FY2006. The Administration's 2007 proposed farm bill energy title (IX) provides $1.6 billion in new funding for basic and applied research, as well as to share the risk associated with developing and commercializing a new technology through loan and loan guarantee programs. The primary focus of USDA's proposed new funding is the development of cellulosic ethanol production. On July 27, 2007, the House approved its version of the Farm Bill, H.R. 2419 . Among other provisions, the bill proposes a total of $3.2 billion in new funding for Title IX energy provisions over five years, including $1.4 billion for production incentive payments on new biofuels production. A key departure from current farm bill-related energy provisions is that most new funding is directed away from corn- starch-based ethanol production and towards cellulosic-based biofuels production or to new as-yet-undeveloped technologies with some agricultural linkage. Because most ethanol is produced from food crops (either corn or sugar), there is concern that increasing biofuels production could lead to higher food prices. In the case of corn, most corn in the United States is used for animal feed. Higher feed costs ultimately lead to higher prices for poultry, hogs, and cattle. The price of corn is also related to the price of other competing foodstuffs, such as grains and soybeans. In 2006, the expansion of corn-based ethanol production led to a sharp rise in corn prices, which some predicted would lead to higher U.S. and world food prices. In fact, the futures contract for March 2007 corn on the Chicago Board of Trade rose from $2.50 per bushel in September 2006 to a record high of over $4.37 per bushel in February 2007. Some analysts predict that if high oil prices continue, increases in global biofuels production may push corn prices up by 20% by 2010 and 41% by 2020. On the other hand, commodity prices are dependent on many other factors besides the demand for biofuels crops. Corn prices have fallen slightly in the past few months since growers began predicting record crop yields for 2007, while wheat prices have soared because of weather-related production problems in many countries. Since most U.S. households do not spend a large percentage of their budgets on food, they may be able to absorb any increases in food prices that result from increasing biofuels production, at least in the short run. However, that is not likely to be the case for low-income households in the United States or for households in Latin America, the poorest of which often spend more than half of their household incomes on food. In January 2007, Mexico faced widespread strikes and social unrest as rising corn prices, fueled by the demand for corn-based ethanol, led to a 30% rise in the cost of corn tortillas, a basic dietary staple. Through Latin America, inflation rates have increased as a result of higher food prices, which have been attributed to increased demand for production of ethanol and other biofuels. Critics of biofuels argue that unless new technology is developed to produce biofuels from cellulosic materials, increasing biofuels production will lead to higher global food prices, which will in turn result in hunger and malnutrition in many developing countries. Ethanol proponents dispute those predictions. They maintain that the availability of arable land, especially in Latin America, will allow plenty of space for biofuels production without encroaching upon other crops. In Brazil, for example, less than 9% of the country's total planted area is dedicated to sugar. They further argue that the food-versus-fuel debate may be more applicable in the case of corn than in the case of sugar, as recent expansion in ethanol production from sugarcane has not significantly affected global sugar prices. While there are significant potential benefits from biofuels in terms of reduced petroleum consumption and reduced air pollution, there are also potential environmental drawbacks. These include the potential for increased greenhouse gas emissions, higher levels of surface water contamination, and increased pressure on land and water resources. One of the key environmental concerns over biofuels is their effect on overall greenhouse gas emissions. Depending on the production process, biofuels can either lead to a net increase or decrease in greenhouse gas emissions throughout the fuel cycle relative to petroleum fuels. 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 used in corn production, as well from fuels used in the operation of farm equipment and vehicles to transport feedstocks and finished products. However, because 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. Recent studies on energy consumption and greenhouse gas emissions have concluded that corn-based ethanol results in 13% to 22% lower greenhouse gas emissions relative to gasoline. Ethanol from other feedstocks can lead to even lower greenhouse gas emissions. For example, sugar requires far less fertilizer to produce than corn, and less processing is necessary to prepare the feedstock for fermentation. Net greenhouse gas emissions from sugarcane-based ethanol could be as much as 56% lower than gasoline, and cellulosic ethanol could reduce emissions by 90% relative to gasoline. Ethanol production processes themselves can also lead to air quality concerns. For example, without proper emissions controls, ethanol plants produce emissions of volatile organic compounds (hydrocarbons) that can lead to negative health effects and can contribute to ozone (smog) formation. Further, burning of sugarcane fields before manual clearing can increase fuel cycle pollutant and greenhouse gas emissions. Mechanized harvesting without burning can improve the emissions profile of sugarcane ethanol, but greater mechanization would likely come at the cost of fewer jobs for cane cutters. Because of the favorable emissions profile of ethanol from non-corn feedstocks, there is growing interest in moving U.S. biofuels consumption away from corn ethanol to either imported sugarcane ethanol or domestically produced cellulosic ethanol. Another key environmental concern surrounding ethanol is its effects on water quality. In the United States, corn requires a significant amount of chemical inputs. Runoff from fertilizers and pesticides finds its way into streams and other surface waters, potentially leading to algae blooms and other problems. In Brazil, a key problem has been the discharge of nutrient-rich waste from ethanol production—"vinasse"—directly into streams or indirectly through soil contamination. Although legislation has been introduced to address this problem, lax enforcement of environmental standards in Brazil mean that pollution from ethanol production will likely continue to be a problem. In addition to concerns over water quality, water consumption may also become an environmental concern, especially in the United States. Currently, Brazilian sugar and U.S. corn production do not require large amounts of water inputs. However, as feedstock production, especially U.S. corn, expands into drier areas, more water may be needed, putting additional pressure on already stretched water resources. Concerns have also been raised about the effects of agricultural production for biofuels on land resources. For example, in the United States, corn has generally been rotated with soybeans to promote soil quality. However, as corn production for ethanol expands, much of the land that had been in rotation is shifting away from soybean production. This could lead lower concentrations of soil nutrients, increasing the need for fertilizers and other chemical inputs. And while cellulosic biofuels in general appear more sustainable, some concerns have also been raised about their sustainability, especially if environmentally sensitive areas (e.g., Conservation Reserve Program land) are used for bioenergy production. In Brazil, concerns focus on protection of habitats in the cerrado (Brazilian savanna) and the Amazon rain forest. Expansion of sugarcane planting has led to rapid depletion of wooded areas of the cerrado. Further, as ethanol expands into existing pastureland, cattle-breeding has been displaced into the cerrado and the Amazon. Increased demand for soybeans (both for food and as a feedstock for biodiesel) has added pressure to expand soybean production into the Amazon. Some analysts see expanding the region's biofuels industry as a way to create jobs and promote rural development in Latin America. In most countries in the region, biofuels production is a labor-intensive process that creates jobs in agriculture, manufacturing, and transport. UNICA, the São Paulo Sugarcane Association, estimates that roughly 1 million direct jobs and 3 million indirect jobs have been created in Brazil as a result of the country's biofuels industry. Another study asserts that some 2,333 jobs are created in Brazil for every 1 million tons of sugarcane harvested. Most of those jobs are as sugarcane cutters. Ethanol proponents estimate that some 14,000 jobs could be created in Central America through increased production of E10 (10% ethanol) fuel. Similar forecasts have been made for other countries and subregions in Latin America and the Caribbean. Analysts agree that biofuels production generates jobs, but some question the number and quality of those jobs. Skeptics argue that because biofuels production often displaces other existing agricultural activities, net job gains may be minimal. They also assert that unless governments make a concerted effort to ensure that small-scale producers have a role to play in biofuels production, large agribusinesses will continue to dominate the biofuels industry in Latin America. Finally, most analysts acknowledge that as biofuels production becomes increasingly mechanized, a development that brings efficiency and environmental benefits, less agricultural jobs are going to be generated. As was stated above, there is likely to be a tradeoff between increased employment and more environmentally benign practices. Skeptics of using biofuels to promote rural development also question the quality of most jobs created by the biofuels industry, particularly in countries producing ethanol from sugarcane, where jobs are often low-paying, hazardous work as seasonal cane cutters. The Brazilian government has acknowledged that there have been instances of forced labor on some sugarcane properties in Brazil, particularly in the northeast region of the country. The U.S.-Brazil MOU on biofuels, the agreement is also intended to have a political effect in the region. Many Bush Administration officials and Members of Congress note that the new biofuels partnership with Brazil may help improve the U.S. image in Latin America and diminish the influence of President Chávez in the region. The United States has increasingly regarded Brazil as a significant power, especially in its role as a stabilizing force and skillful interlocutor in Latin America. U.S. officials tend to describe Brazil as an amicable partner governed by a moderate leftist government and have responded positively to Brazil's efforts to reassert its regional leadership, which has recently been challenged by the rise of oil-rich Hugo Chávez in Venezuela. In recent months, Brazil has increasingly used so-called "biofuels diplomacy" as a diplomatic and economic tool to raise its profile in Latin America and throughout the world. President Chávez, recognizing that increasing biofuels production and usage in Latin America could diminish his regional influence, quickly attacked the Brazil-U.S. biofuels agreement, stating that it would raise food prices and hurt the poor. In early April 2007, despite Chávez's criticisms of ethanol, one of his allies, President Correa of Ecuador, signed a biofuels production agreement with Brazil. Some Members of the Morales government in Bolivia are also supportive of biofuels production. In mid-April 2007, Chávez was forced to backtrack on his initial opposition to all biofuels production in the region while attending South America's first regional energy summit. Competition between Brazil and Venezuela for leadership in the region has accelerated in the past few months. In August 2007, as President Lula took a six-day tour of Mexico, Central America and the Caribbean to promote biofuels production agreements, President Chávez visited Argentina, Bolivia, Ecuador and Uruguay, where he signed a series of oil and gas agreements. In the past two years, there has been significant congressional interest in issues related to energy security. Some of that interest has focused on how to ensure that countries in the Western Hemisphere, which currently supply about half of U.S. imports of crude oil and petroleum products, remain reliable sources of energy for the United States. Another area of interest has been to promote cooperation among Latin American countries, which are divided between net energy exporting and importing nations, to ensure that enough clean, affordable, and reliable energy sources are exploited to support regional growth and development. Members have cited Brazil as an example of a country that has successfully reduced its reliance on foreign oil by using alternative energies. In addition to the importance of following Brazil's example in the field of biofuels development, some Members have cited the importance of U.S. engagement in regional efforts to develop biofuels and other renewable energies. On September 19, 2007, the House Western Hemisphere Subcommittee held a hearing on "U.S.-Brazil Relations" during which Chairmen Eliot Engel and many of the witnesses cited biofuels cooperation as a primary example of the expanding strategic relationship between the United States and Brazil. They discussed how the U.S.-Brazil MOU on biofuels may encourage both countries to work together to advance their national, regional, and international interests. Despite this potential for increasing U.S.-Brazil collaboration on biofuels, one witness warned that this unique opportunity may be lost if the countries are unable to resolve the underlying agricultural disputes that divide them, such as current U.S. subsidies and tariffs that protect corn-based ethanol producers. In the 109 th Congress, Members were somewhat divided over whether to keep the current 2.5% ad valorem tariff and added duty of $0.54 per gallon on foreign ethanol imports in place. Legislation was introduced that would have eliminated the two duties on foreign ethanol: H.R. 5170 (Shadegg) and S. 2760 (Feinstein), the Ethanol Tax Relief Act of 2006. However, in December 2006, Congress voted to extend the duties on foreign ethanol through December 31, 2008 ( P.L. 109-432 ). In the 110 th Congress, S. 1106 (Thune) would extend those tariffs through 2011, and H.R. 196 (Pomeroy) would make the tariffs permanent. Several legislative initiatives in the 110 th Congress would increase hemispheric cooperation on energy issues, including biofuels development and distribution. S. 193 (Lugar), the Energy Diplomacy and Security Act of 2007, calls for the establishment of a regional-based ministerial forum known as the Hemisphere Energy Cooperation Forum that would, among its many activities, be involved in developing an Energy Sustainability Initiative to promote the development, distribution, and commercialization of renewable fuels in the region. The bill also calls for the establishment of a Hemisphere Energy Industry Group to increase public-private partnerships, foster private investment, and enable countries to devise energy agendas on various topics, including the development and deployment of biofuels. The Senate Foreign Relations Committee reported favorably on the bill on April 12, 2007, without amendment ( S.Rept. 110-54 ). Another initiative, S. 1007 (Lugar), the United States-Brazil Energy Cooperation Pact of 2007, calls for the same cooperation groups as S. 193 , and directs the Secretary of State to work with Brazil and other Western Hemisphere countries to develop partnerships to accelerate the development of biofuels production, research, and infrastructure. The bill was introduced on March 28, 2007, and referred to the Senate Foreign Relations Committee. H.Res. 651 (Engel), introduced on September 19, 2007, recognizes the warm friendship and expanding relationship that exists between the United States and Brazil, commends Brazil for reducing its dependency on oil by using alternative energies, and recognizes the importance of the March 9, 2007, United States-Brazil Memorandum of Understanding (MOU) on biofuels cooperation. Rising demand for ethanol and other biofuels has sharpened attention on whether the United States and Brazil, the leaders in biofuels production, should increase cooperation, share technology, and work to expand the global biofuels market. Of the three pillars of the U.S.-Brazil MOU on biofuels, progress on the first (technology-sharing) and third (working multilaterally to advance biofuels) pillars are likely to occur most quickly. In the short to medium term, collaborative research and development activities may yield the largest potential benefit for both countries, particularly if they are able to hasten the development of cellulosic ethanol technology. Producing ethanol from dedicated energy crops and waste products may allay many of the environmental and food-versus-fuel concerns that are drawbacks of producing ethanol from food crops like sugar or corn. Both countries also stand to benefit from working together on the global front to establish consistent ethanol standards and codes, a crucial step in the process for ethanol to become a globally traded energy commodity. While some analysts believe the U.S.-Brazil agreement may be enough to spur viable biofuels markets in "third countries" (pillar two), those efforts may not be feasible. First, governments may lack the resources or political will to make the huge investment outlays necessary to develop their biofuels industries. Second, many countries lack the arable land necessary to develop biofuels without encroaching on traditional agricultural lands. A third concern with increasing sugar-based biofuels production is that the sugar industries of many countries in the Caribbean (including the Dominican Republic) are struggling because of high labor costs and efficiency problems. Fourth, as previously mentioned, there are serious labor and environmental concerns about rapidly increasing biofuels production. In the next few months, results from U.S.-Brazil feasibility studies for Haiti, the Dominican Republic, and El Salvador are expected to be completed. The St. Kitts study has already determined that although producing biofuels for transport would not be feasible there, bio-electricity could be generated for domestic use. The results of the other feasibility studies and the willingness of the governments of each of those countries to embrace biofuels development are likely to affect the selection of a second round of countries to receive U.S.-Brazil technical assistance. While U.S. officials are eager to expand third-country initiatives into South America, Brazilian officials have reportedly been reluctant to give the United States a foothold into its sphere of influence. While some Members of Congress have been supportive of energy cooperation efforts like the U.S.-Brazil MOU, others might not support any initiatives that they feel will adversely affect U.S. corn-based ethanol producers. Indeed, the U.S.-Brazil MOU does not address two key issues that many Brazilians feel are significant obstacles to expanding bilateral and regional biofuels cooperation, namely the current subsidies and tariffs that protect U.S. corn-based ethanol producers. Since many Members strongly favor extending the current subsidy programs for corn producers and tariffs on foreign ethanol, these issues may be obstacles to maintaining expanded U.S.-Brazil biofuels cooperation. In addition, Members who feel that Brazil's positions on agricultural trade during the failed Free Trade Area of the Americas (FTAA) and in the World Trade Organization (WTO) negotiations have adversely affected U.S. interests may also be opposed to the MOU on biofuels. On the other hand, some may see energy cooperation as an issue on which a positive U.S.-Brazil agenda can be based, presenting a unique opportunity to overcome past trade disputes. | In the past several years, high oil and gas prices, instability in many oil-producing countries, and concerns about global climate change have heightened interest in ethanol and other biofuels as alternatives to petroleum products. Reducing oil dependency is a goal shared by the United States and many countries in Latin America and the Caribbean, a region composed primarily of energy-importing countries. In the region, Brazil stands out as an example of a country that has become a net exporter of energy, partially by increasing its production and use of sugar-based ethanol. On March 9, 2007, the United States and Brazil, which together produce almost 70% of the world's ethanol, signed a Memorandum of Understanding (MOU) to promote greater cooperation on ethanol and other biofuels in the Western Hemisphere. The countries agreed to (1) advance research and development bilaterally, (2) help build domestic biofuels industries in third countries, and (3) work multilaterally to advance the global development of biofuels. Many analysts maintain that the United States would benefit from having more energy producers in the region, while Brazil stands to further its goal of developing ethanol into a globally traded commodity. In addition to these economic benefits, some analysts think that an ethanol partnership with Brazil could help improve the U.S. image in Latin America and lessen the influence of oil-rich Venezuela under Hugo Chávez. However, obstacles to increased U.S.-Brazil cooperation on biofuels exist, including current U.S. tariffs on most Brazilian ethanol imports. While some Members of Congress support greater hemispheric cooperation on biofuels development, others are wary of any cooperative efforts that might negatively affect U.S. ethanol producers. The Energy Diplomacy and Security Act of 2007, S. 193 (Lugar), approved by the Senate Foreign Relations Committee on March 28, 2007, would increase hemispheric cooperation on energy. S. 1007 (Lugar), the United States-Brazil Energy Cooperation Pact of 2007, calls for the same hemispheric cooperation groups as S. 193, and directs the Secretary of State to work with Brazil and other Western Hemisphere countries to develop biofuels partnerships. H.Res. 651 (Engel) recognizes and supports the importance of the U.S.-Brazil MOU on biofuels. In the 109th Congress, legislation was introduced that would have eliminated current tariffs on foreign ethanol, but in December 2006, Congress voted to extend the ethanol tariffs through December 31, 2008 (P.L. 109-432). In the 110th Congress, S. 1106 (Thune) would extend those tariffs through 2011, and H.R. 196 (Pomeroy) would make the tariffs permanent. This report discusses the opportunities and barriers related to increasing U.S. cooperation with other countries in the hemisphere on biofuels development, focusing on the U.S.-Brazil agreement. This report may be updated. For more information, see CRS Report RL33290, Fuel Ethanol: Background and Public Policy Issues, by [author name scrubbed], and CRS Report RL33693, Latin America: Energy Supply, Political Developments, and U.S. Policy Approaches, by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. |
On February 24, 2011, the Department of Defense (DOD) announced the Boeing Company as the winner of a competition to build 179 new KC-46A aerial refueling tankers for the Air Force, a contract valued at roughly $35 billion. The KC-Xs, to be procured at a maximum rate of 15 aircraft per year, are to replace roughly one-third of the Air Force's aging fleet of KC-135 aerial refueling tankers. The Air Force and the U.S. Transportation Command state that replacing the KC-135s is their highest recapitalization priority. The Administration's proposed FY2014 defense budget requested $1,558.6 million in Air Force research and development funding to continue KC-46A development and acquisition. The KC-46A acquisition program is a subject of intense interest because of the dollar value of the contract, the number of jobs it may create, the importance of tanker aircraft to U.S. military operations, and because previous attempts by DOD to move ahead with a KC-X acquisition program over the last several years have led to controversy and ultimately failed. The history of those earlier attempts forms an important part of the context for DOD's KC-X competition, particularly in defining the required capabilities for the KC-46A and designing and conducting a fair and transparent competition. The issues for Congress in FY2014 are whether to approve, reject, or modify the Air Force's request for FY2014 research and development funding for the KC-46A program, and to evaluate the fairness and transparency of the contract process. Congress' decision on these issues could affect DOD capabilities and funding requirements, and the aircraft manufacturing industrial base. In January 2013, the Air Force announced the list of candidate bases to host the first tranche of KC-46As. Three bases will be selected from the list; one to host training, and one base each from the active Air Force and Air National Guard to host operational KC-46s. The training unit and active-duty operating base will begin receiving the KC-46A tankers in fiscal 2016 followed by the Guard base in fiscal 2018. Ultimately, the Air Force will establish 10 main operating bases for the 179 tankers that it plans to buy. According to a Defense Department news release, Altus Air Force Base, Oklahoma, and McConnell Air Force Base, Kansas, are candidate bases for the KC-46A training unit. Altus and McConnell are also candidates to be the first active-duty led KC-46A main operating base, as are Fairchild Air Force Base, Washington, and Grand Forks Air Force Base, North Dakota. Forbes Air Guard Station, Kansas; Joint-Base McGuire-Dix-Lakehurst, New Jersey; Pease Air Guard Station, New Hampshire; Pittsburgh International Airport Air Guard Station, Pennsylvania; and Rickenbacker Air Guard Station, Ohio, are candidates to be the first Air National Guard led KC-46A main operating base. In late 2012, a number of articles and analysts posited that automatic reductions provided for in the Budget Control Act of 2011 ( P.L. 112-25 ), also called "sequestration," might cause the Air Force to default on the KC-46A development contract, because the cuts would reduce funds available to the program below the fixed price negotiated between Boeing and the Department of Defense. If enough money was cut and the tanker contract is scuttled, the Air Force would have to renegotiate the contract without any certainty it could keep its fixed-price status, said [Maj. Gen. John] Thompson, who took over the tanker acquisition program five weeks ago. "Depending on how sequestration is implemented, I might have to break my fixed price contract that I got such a good deal on," Thompson said. "I don't want to break my contract and I'm fearful that sequestration may force me to do that." The sequestration effect on the KC-46A program would have been in addition to the reduction in program funds resulting from the use of a continuing resolution for the FY2013 DOD budget. "DoD planned to spend $1.8 billion on the tanker program in fiscal 2013. However, Congress has failed to pass a new budget, leaving programs funded under a continuing resolution that leaves financial support at 2012 levels. For the KC-46 program, that means making do with just $900 million, or half of what the program office had planned for this year." The explanatory statement accompanying the conference report on H.R. 933 put funding at $1,738.5 million, a reduction of $77.1 million from the Administration request. At that level, the Air Force "would not need to modify its fixed-price development contract with KC-46-maker Boeing ... Lt. Gen. Charles Davis, the Air Force military deputy for acquisition, said." In September 2012, the government of Singapore submitted a request for information to begin evaluating the KC-46A as a possible replacement for Singapore's KC-135 tankers. On May 2, 2013, the Air Force announced that FlightSafety Services had won the competition to provide training devices for the KC-46A. "The company won over Boeing, which is developing the KC-46, Lockheed Martin, CAE and L-3 Link Simulation and Training." The deal calls for delivery of the first aircrew training device by February 2016. The $787 million contract contains options for production, training, operations and sustainment, according to an Air Force press statement. Air Force Major General Christopher Bogdan, the KC-46A program manager, was reassigned to the F-35 program in July 2012. His successor is Major General John F. Thompson. Aerial refueling aircraft—commonly called tankers—provide in-flight refueling services to bombers, fighters, airlifters, surveillance aircraft, and other types of aircraft flown by the U.S. military. Tankers enable other aircraft to deploy quickly to distant theaters of operation, and to remain in the air longer while operating in those theaters. Aerial refueling capability is a critical component of the U.S. military's ability to project power overseas and to operate military aircraft in theater with maximum effectiveness. The Air Force operates the U.S. long-range tanker fleet, the subject of this report. The Navy and Marine Corps also operate shorter-range tankers in support of tactical missions. The Air Force's current fleet of large tankers consists mostly of 414 re-engined KC-135R Stratotankers. The first KC-135 entered the Air Force inventory in 1956, and the final one was delivered in 1964. The average age of the current KC-135 fleet is nearly 51 years. The aircraft have received various upgrades and modifications over the years, including new engines. DOD states that if new tankers are procured at a rate of 15 per year, the last KC-135R would be more than 80 years old at retirement. (For a discussion of the potential longevity of the KC-135 fleet, see Appendix B ) On September 15, 2009, it was reported that: It will cost the Air Force up to $6 billion per year late in the next decade to maintain its aging fleet of KC-135 tankers, according to a senior service official… The cost of maintaining the Stratotankers will continue to rise as the next-generation KC-X tanker program continues to slip, Air Mobility Command chief Gen. Arthur Lichte said during a briefing today. The Air Force's fleet of large tankers also includes about 59 KC-10 Extender aerial refueling aircraft, the first of which entered service in 1981. The KC-10 is a much larger aircraft than the KC-135 or the KC-46A. DOD envisages replacing the KC-135 fleet in three stages. The 179 new KC-46As would replace roughly one-third of the KC-135 fleet. Tankers to be procured in the second and third stages would be designated KC-Ys (envisioned as a KC-46A continuation or follow-on) and KC-Zs (a probable replacement for the KC-10 fleet). A March 2013 GAO report states that the procurement cost of 179 KC-Xs could be about $34 billion, or an average of about $190 million per aircraft. The KC-46 is being acquired using a fixed-price incentive development contract with firm-fixed and not-to-exceed pricing or production. This contract structure effectively limits the total cost borne by taxpayers, with most of the cost growth risk placed on the contractor. The KC-46 program utilizes a fixed-price incentive development contract. The target value is $4.4 billion, with government liability limited for costs over $4.9 billion. Boeing sources confirmed that arrangement on Wednesday, saying if the costs fall in the $3.9 billion to $4.9 billion "delta," the Air Force would pay 60 percent and Boeing 40 percent. That is the contract structure and cost arrangement accepted by the Air Force, the Boeing sources said, noting the service weighed this against cost projections for the same scenario offered by Airbus's EADS. The tanker's estimated development costs are currently around $900 million higher than the February 2011 contract award value, but the USAF is liable for only about $500 million of this total. The remaining $400 million is Boeing's responsibility. [T]he contract has a mechanism to vary production rates. For example, in years three, four and five, the USAF has the option of buying between nine and 18 jets and would still get good prices, (program executive officer Maj. Gen Christopher) Bogdan says. In testimony before the House Armed Services Committee Subcommittee on Seapower and Projection Forces, the then-Air Force acquisition executive stated: VAN BUREN: Well, the contract that we currently have runs through 2016 for EMD. We'll have a preliminary design review in 2012, critical design review in '13, build the aircraft, first flight of the 767-2C in 2014. And... AKIN: So the first flight's 2014. OK. And then? VAN BUREN: Roughly three years from contract award. And then we'll have the full-up KC-46 first flight at the end of 2014. DOD states that "with the average age of the [KC-135] inventory over 45 years old, a new Tanker has become an operational necessity as well as a financially prudent decision to meet refueling requirements." The Air Force testified in May 2013 that: Replacing one-third of the 50 year-old KC-135 aerial refueling tanker fleet with the KC-46A is our top Air Force acquisition priority. The KC-46A program will ensure that our Nation retains a tanker fleet able to provide crucial air refueling capacity worldwide for decades to come. In FY14, we programmed $1.6 billion dollars for the manufacture of four developmental aircraft. The initial flights of the KC46A test aircraft are scheduled to begin in FY14. The program is currently executing as planned, and we are on track to receive 18 operational aircraft by late FY17. Until the KC-46A reaches full operational capability, we are resourcing critical modernization of the KC-10 and KC-135 tanker fleets. Boeing's initial plan for the KC-46A called for 767s to be assembled at the Boeing plant in Everett, WA, and be converted into tankers at Boeing's plant in Wichita, KS. Boeing claimed that "nationwide, the NewGen Tanker program will support approximately 50,000 total U.S. jobs with Boeing and more than 800 suppliers in more than 40 states." Subsequently, Boeing decided to close the Wichita facility and instead complete the tankers in Everett, WA. With regard to the change, Major General Christopher Bogdan, then the KC-46A program manager, said: Without a doubt, closing Wichita is a change to the plan, and any change on a program like this is going to introduce some uncertainty and some risk... And so, quite frankly, we are going to hold them accountable to make sure that the risks don't manifest themselves. To do that I've got to make sure they have plans in place and we are involved in the oversight of that move … under the same cost structure, under the same schedule with the same requirements. The most recent failed attempt to acquire KC-X was a competition between Boeing and a team of Northrop Grumman and EADS that resulted in DOD awarding a contract to Northrop/EADS in February 2008. Boeing protested that award, and in June 2008, the Government Accountability Office (GAO) sustained Boeing's protest, agreeing with Boeing that the competition was conducted in a flawed manner. GAO's ruling prompted DOD to cancel the 2008 KC-X competition and temporarily take control of the KC-X acquisition away from the Air Force. The Bush Administration decided to defer the next attempt at a KC-X acquisition program to the Obama Administration. According to DOD, key features of the KC-X competition strategy—which are taken from the briefing slides and transcript, respectively) of the September 24, 2009, DOD news briefing at which the proposed strategy was announced—included the following: The proposed KC-X competition strategy, known more formally as the Source Selection Strategy, was devised jointly by the Office of the Secretary of Defense (OSD) and the Air Force and was approved by the Secretary of Defense. The Air Force will be the Source Selection Authority (SSA) for the competition, as announced by the Secretary of Defense on September 16, 2009. DOD intends to select a sole winner for the KC-X competition; DOD does not intend to split the KC-X program between the two bidders. The competition will be evaluated on a best-value (rather than lowest-cost) basis that will take both price and non-price factors into account. The evaluation will include mandatory and non-mandatory/trade space capabilities, acquisition price, warfighting effectiveness, and day-to-day efficiency. The competition will differ in many details from the 2007-2008 competition and does not constitute a re-run of the 2007-2008 competition. DOD states that, among other things, the selection criteria to be used in the new competition are more precise and less subjective than those used in the 2007-2008 competition. The contracts to be awarded are to be fixed-price type contracts. The winning bidder will receive a fixed-price incentive fee contract with a ceiling for the Engineering and Manufacturing Development (EMD) phase of the program, which includes the first four aircraft. A firm fixed-price (FFP) contract will be used for the next 64 aircraft (production lots 1 through 5). A not-to-exceed contract will be used for the final 111 aircraft (lots 6 through 13). An FFP contract will be used for five years of initial contractor support. Following the release of the final RFP, bidders will have about 75 days to prepare and submit their bid. The government will evaluate the bids for about 120 days, and prepare a contract award over a subsequent period of about 30 days. DOD anticipates awarding the contract in the summer of 2010 (since revised to January 2011). The first KC-X is projected to be delivered in 2015, and Initial Operating Capability (IOC) for the KC-X is scheduled for 2017. Delivery of all 179 KC-Xs will occur over a period of more than 15 years. As KC-Xs are integrated into the fleet, the Air Force intends to begin evaluating its future tanker needs and begin work on the KC-Y program. On December 1, 2009, Wes Bush, the president and chief executive officer of Northrop Grumman, sent a letter to Under Secretary Carter stating that unless the draft RFP were substantially revised, Northrop Grumman would decline to bid in the KC-X competition. A press report that day stated: Northrop Grumman Corp., the third- largest U.S. defense company, said it won't bid for the $35 billion Air Force refueling tanker program unless the draft request for proposals is changed, citing "financial burdens." The Pentagon has declined to amend the request and didn't plan to "substantially" address Northrop's concerns, Chief Executive Officer Wes Bush wrote in a Dec. 1 letter to Pentagon acquisition chief Ashton Carter. "As a result, I must regrettably inform you that, absent a responsive set of changes in the final RFP, Northrop Grumman has determined that it cannot submit a bid," he wrote. Northrop and partner European Aeronautic Defence & Space Co. were vying against Boeing Co. to build the refueling tankers. The competition was restarted in September after Boeing successfully protested the award to Northrop and EADS last year. The Pentagon's request shows a "clear preference" for a smaller tanker than the modified Airbus A330 that Northrop plans to offer, and continuing to compete for the tankers would impose "contractual and financial burdens on the company that we simply cannot accept," Bush wrote in the letter. "The Department regrets that Northrop Grumman and Airbus have taken themselves out of the tanker competition and hope they will return when the final request for proposals is issued," Pentagon spokesman Bryan Whitman said in an e-mail. "The Department wants competition but cannot compel the two airplane makers to compete."… Both competitors "have suggested changes to the request for proposals that would favor their offering," Whitman wrote in the e-mail. "But the Department cannot and will not change the warfighter requirements for the tanker to give advantage to either competitor." The final KC-X RFP was issued on February 24, 2010. Overall, the final requirements for the KC-X aircraft appeared to have changed little from those in the draft RFP. One requirement was eliminated (bringing the total to 372), and none added. The financial structure of the proposed contract, however, changed substantially. After evaluating the final RFP, on March 8, 2010, the Northrop/EADS team withdrew from the competition. DOD then extended the bid deadline by 60 days, to July 9, 2010. Subsequently, on April 20, 2010, EADS announced that its North American division would enter the competition on its own. The Administration's proposed FY2013 defense budget requested $1,815.6 million in Air Force research and development funding to continue KC-46A development and acquisition. The House Armed Services Committee, in its report accompanying H.R. 4310 , recommended funding the Next Generation Aerial Refueling Aircraft program at $1,815.6 million, the requested level. The Senate Armed Services Committee, in its report accompanying S. 3254 , recommended funding the Next Generation Aerial Refueling Aircraft program at $1,728.5 million, $87.1 million below the requested level, with the following explanation: Next generation aerial refueling aircraft The budget request included $1,815.6 million to continue development of the KC–46A, the next-generation aerial refueling aircraft. The program office received fiscal year 2010 and fiscal year 2011 Tanker Replacement Transfer Fund (TRTF) funds in fiscal year 2011 that provided $135.0 million more research, development, test, and evaluation (RDT&E) funding than the Air Force believed it needed during that period. The Department of the Air Force applied $47.9 million of the $135.0 million to small business innovation research activities, leaving $87.1 million of the $135.0 million in excess fiscal year 2011 funding available to cover fiscal year 2012 activities. Since Congress already provided full funding of the fiscal year 2012 requirement, the Department could apply $87.1 million in fiscal year 2012 funds against fiscal year 2013 funding requirements. Therefore, the committee recommends a reduction of $87.1 million in the budget request for the KC–46A EMD program. The House Appropriations Committee, in its report accompanying H.R. 5856 , recommended funding the Next Generation Aerial Refueling Aircraft program at $1,815.6 million, the requested level. It directed submission of reports on program cost growth, stating: KC – 46A The Committee directs the Secretary of the Air Force to continue to submit quarterly reports on any KC–46A contract modifications with a cost greater than or equal to $5,000,000, as directed by the explanatory statement accompanying the Consolidated Appropriations Act, 2012. The Senate Appropriations Committee, in its report accompanying H.R. 5856 , recommended funding the Next Generation Aerial Refueling Aircraft program at $1,738.5 million, $77.1 million below the requested level, for "Air Force identified forward financing." FY2013 appropriations levels were ultimately established by H.R. 933 , the Consolidated and Further Continuing Appropriations Act, 2013. The explanatory statement accompanying the conference report on H.R. 933 put funding at $1,738.5 million. Appendix A. Prior Legislative Activity The Administration's proposed FY2012 defense budget requested $877.0 million in Air Force research and development funding to begin the KC-46A acquisition. As passed by the House, H.R. 1540 recommended $849.9 million in funding for the Next Generation Aerial Refueling Aircraft program, a reduction of $27.2 million from the Administration's request, The bill also included a requirement to report on changes in the KC-46A acquisition program: SEC. 241. ANNUAL COMPTROLLER GENERAL REPORT ON THE KC-46A AIRCRAFT ACQUISITION PROGRAM. (a) Annual GAO Review- During the period beginning on the date of the enactment of this Act and ending on March 1, 2017, the Comptroller General of the United States shall conduct an annual review of the KC-46A aircraft acquisition program. (b) Annual Reports- (1) IN GENERAL- Not later than March 1 of each year beginning in 2012 and ending in 2017, the Comptroller General shall submit to the congressional defense committees a report on the review of the KC-46A aircraft acquisition program conducted under subsection (a). (2) MATTERS TO BE INCLUDED- Each report on the review of the KC-46A aircraft acquisition program shall include the following: (A) The extent to which the program is meeting engineering, manufacturing, development, and procurement cost, schedule, performance, and risk mitigation goals. (B) With respect to meeting the desired initial operational capability and full operational capability dates for the KC-46A aircraft, the progress and results of— (i) developmental and operational testing of the aircraft; and (ii) plans for correcting deficiencies in aircraft performance, operational effectiveness, reliability, suitability, and safety. (C) An assessment of KC-46A aircraft procurement plans, production results, and efforts to improve manufacturing efficiency and supplier performance. (D) An assessment of the acquisition strategy of the KC-46A aircraft, including whether such strategy is in compliance with acquisition management best-practices and the acquisition policy and regulations of the Department of Defense. (E) A risk assessment of the integrated master schedule and the test and evaluation master plan of the KC-46A aircraft as it relates to— (i) the probability of success; (ii) the funding required for such aircraft compared with the funding budgeted; and (iii) development and production concurrency. (3) ADDITIONAL INFORMATION- In submitting to the congressional defense committees the first report under paragraph (1) and a report following any changes made by the Secretary of the Air Force to the baseline documentation of the KC-46A aircraft acquisition program, the Comptroller General shall include, with respect to such program, an assessment of the sufficiency and objectivity of— (A) the integrated baseline review document; (B) the initial capabilities document; (C) the capabilities development document; and (D) the systems requirement document. H.Rept. 112-78 , accompanying H.R. 1540 , explained the funding reduction: KC-46A aerial refueling aircraft program The budget request contained $877.1 million in PE 65221F for the next generation aerial refueling aircraft, KC-46A. The committee supports the attributes and benefits regarding the KC-46A competition and acknowledges that the source-selection process was conducted fairly amongst all competitors. According to Department of Defense acquisition officials, the competition resulted in at least a twenty percent savings for the unit cost of the aircraft and a savings of $3.0 to $4.0 billion as compared to the source-selection competition held for the tanker in 2008. The committee plans to closely monitor the KC-46A engineering, manufacturing and development program to ensure that the taxpayer dollars are wisely invested and that the platform will result in a capability that enhances the warfighter's global reach capabilities. The committee also understands that the Under Secretary of Defense for Acquisition, Technology and Logistics (USD, AT&L) will conduct quarterly reviews of the Air Force's KC-46A program. Elsewhere in this title, the committee includes a provision that would require the Comptroller General of the United States to conduct an annual review of the KC-46A program and to provide the results to the congressional defense committees beginning on March 1, 2012. Furthermore, the committee directs USD, AT&L to provide to the congressional defense committees the results of each quarterly review of the KC-46A program within 30 days after the date of completion of each review. At each quarterly review briefing, USD, AT&L is directed to provide notice of a major engineering, design, capability or configuration change to the KC-46A, and cost for that change when it becomes known, that is different from the baseline aircraft offered in the final proposal related to Air Force contract #FA8625-11-C600. The committee recommends $849.9 million, a decrease of $27.2 million, in PE 65221F for the next generation aerial refueling aircraft because that funding is in excess to the $818.0 million obligation authority limited by USD, AT&L for the program for fiscal years 2010 and 2011. The report accompanying S. 1253 as passed by the Senate Armed Services Committee ( S.Rept. 112-26 , accompanying S. 1253 ) recommended $749.1 million for the Next Generation Aerial Refueling Aircraft, a reduction of $127.1 million from the Administration's request, to "Align funding to signed KC–46A contract." The report went on to explain: Next generation aerial refueling aircraft The budget request included $877.1 million to continue development of the KC–46A, the next-generation aerial refueling aircraft. The Air Force developed the budget estimates before signing the contract for the KC–46A and before knowing the funding required, and the timing of that requirement. Based on a comparison of the program's fiscal year 2012 budget submission and the contemplated funding allotments for fiscal year 2011 specified in the recently signed engineering and manufacturing development (EMD) contract, the Air Force already has funds that are well in excess of what is needed to execute the current KC–46A contract. The program will need roughly $753.5 million to cover planned fiscal year 2011 activities, but the program has $830.5 million available in fiscal year 2011 from regular appropriations and the Tanker Replacement Transfer Fund. This means that $77.0 million is available within the program to pay for fiscal year 2012 KC–46A EMD activities. In addition, the fiscal year 2012 budget request of $877.1 million for KC–46A EMD exceeds fiscal year 2012 requirements for the EMD by $50.1 million. In total, this means that the budget request for fiscal year 2012 exceeds the amount of funds to keep the KC–46A program fully funded and on schedule by a total of $127.1 million. Therefore, the committee recommends a reduction of $127.1 million in the budget request for the KC–46A EMD program. The conference report accompanying H.R. 1540 as passed recommended $742.1 million for the Next Generation Aerial Refueling Aircraft, a reduction of $135.0 million from the Administration's request—$127.1 million was cut to "Align funding to signed KC–46A contract," and $7.9 million was considered "excess to requirement." The conference report also included the House reporting requirement: SEC. 244. ANNUAL COMPTROLLER GENERAL REPORT ON THE KC–46A AIRCRAFT ACQUISITION PROGRAM. (a) ANNUAL GAO REVIEW.—During the period beginning on the date of the enactment of this Act and ending on March 1, 2017, the Comptroller General of the United States shall conduct an annual review of the KC–46A aircraft acquisition program. (b) ANNUAL REPORTS.— (1) IN GENERAL.—Not later than March 1 of each year beginning in 2012 and ending in 2017, the Comptroller General shall submit to the congressional defense committees a report on the review of the KC–46A aircraft acquisition program conducted under subsection (a). (2) MATTERS TO BE INCLUDED.—Each report on the review of the KC–46A aircraft acquisition program shall include the following: (A) The extent to which the program is meeting engineering, manufacturing, development, and procurement cost, schedule, performance, and risk mitigation goals. (B) With respect to meeting the desired initial operational capability and full operational capability dates for the KC–46A aircraft, the progress and results of— (i) developmental and operational testing of the aircraft; and (ii) plans for correcting deficiencies in aircraft performance, operational effectiveness, reliability, suitability, and safety. (C) An assessment of KC–46A aircraft procurement plans, production results, and efforts to improve manufacturing efficiency and supplier performance. (D) An assessment of the acquisition strategy of the KC–46A aircraft, including whether such strategy is in compliance with acquisition management best-practices and the acquisition policy and regulations of the Department of Defense. (E) A risk assessment of the integrated master schedule and the test and evaluation master plan of the KC–46A aircraft as it relates to— (i) the probability of success; (ii) the funding required for such aircraft compared with the funding budgeted; and (iii) development and production concurrency. (3) ADDITIONAL INFORMATION.—In submitting to the congressional defense committees the first report under paragraph (1) and a report following any changes made by the Secretary of the Air Force to the baseline documentation of the KC–46A aircraft acquisition program, the Comptroller General shall include, with respect to such program, an assessment of the sufficiency and objectivity of— (A) the integrated baseline review document; (B) the initial capabilities document; (C) the capabilities development document; and (D) the systems requirement document. The House Appropriations Committee, in its report ( H.Rept. 112-110 , accompanying H.R. 2219 ) recommended funding the Next Generation Aerial Refueling Aircraft at the Administration's request, $877.1 million. The report also stated: KC–46A CHANGE REPORTING The award for the Air Force's KC–46A aerial refueling tanker was announced on February 24, 2011. The Committee's recommendation fully funds the request for this vital program. Air Force leadership testified before the Committee that efforts would be made to ensure that the new tanker will be delivered within cost and on schedule. In order to further this approach, the Committee directs the Secretary of the Air Force to report any authorized contract modifications with a cost greater than or equal to $5,000,000 to the congressional defense committees not later than 30 days following the authorization of such change. Senate The Senate Appropriations Committee report ( S.Rept. 112-77 , accompanying H.R. 2219 ) recommended $742.1 million for the Next Generation Aerial Refueling Aircraft, a reduction of $135.0 million from the Administration's request, with the accompanying language: KC-46A - The budget request includes $877,084,000 for the development of a next generation aerial refueling tanker. Replacing the aging tanker fleet is essential to the Air Force's modernization efforts, and the Committee remains very supportive of this program. However, after the budget was submitted, the Air Force conducted an Integrated Baseline Review [IBR] of the program, which changed the annual spending plan to complete the development effort of the program. As a result, the Air Force identified $135,000,000 that will not be required in fiscal year 2012. Therefore, the Committee recommends reducing the request by this amount to align the budget with the new IBR. Final Action The Joint Explanatory Statement of the Committee of Conference on the FY2012 defense appropriations bill funded the Next Generation Aerial Refueling Aircraft at the Administration's request, $877.1 million. It included one provision regarding the KC-46 program, referring to the House report provision on change reporting: KC-46A The conferees direct the Secretary of the Air Force to submit the reports regarding the KC-46A required in H.Rept. 112-110 on a quarterly basis, with the first report to be submitted not later than March 30, 2012. FY2011 Funding Request The Administration's proposed FY2011 defense budget requested $863.9 million in Air Force research and development funding to begin the KC-X acquisition. FY2011 Defense Authorization Bill ( H.R. 5136 / S. 3454 ) House ( H.R. 5136 ) The House Armed Services Committee, in its report on H.R. 5136 , recommends approving the Administration's request for $863.9 million in research and development funding for the KC-X program. In markup, the committee approved an amendment "which would require the Defense Department to take into account subsidies ruled illegal by the World Trade Organization." The text is included as Section 824 of the bill, and states: SECTION 824—INTERIM REPORT ON REVIEW OF IMPACT OF COVERED SUBSIDIES ON ACQUISITION OF KC-45 AIRCRAFT (a) Interim Report- The Secretary of Defense shall submit to the congressional defense committees an interim report on any review of a covered subsidy initiated pursuant to subsection (a) of section 886 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 ( P.L. 110-417 ; 122 Stat. 4561) not later than 60 days after the date of the initiation of the review. (b) Report Contents- The report required by subsection (a) shall contain detailed findings relating to the impact of the covered subsidy that led to the initiation of the review on the source selection process for the KC-45 Aerial Refueling Aircraft Program or any successor to such program and whether the covered subsidy would provide an unfair competitive advantage to any bidder in the source selection process. During its subsequent consideration of the bill, the full House voted to accept an amendment offered by Representative Inslee that would require the Defense Department to consider any "unfair competitive advantage that an offeror may possess" in evaluating bids on major weapons systems. The term "unfair competitive advantage" means a situation in which the cost of development, production, or manufacturing is not fully borne by the offeror for the contract, the amendment to a defense spending bill said. In effect, the Inslee amendment generalized the bill's reporting language to apply to any bidder. Senate ( S. 3454 ) The report accompanying S. 3454 ( S.Rept. 111-201 of June 4, 2010) makes no change to the Administration's requested funding level for KC-X. Final Version ( H.R. 6523 ) The Joint Explanatory Statement Of The Committees On Armed Services Of The U.S. Senate and House Of Representatives On H.R. 6523 , Ike Skelton National Defense Authorization Act For Fiscal Year 2011, makes no mention of the KC-X program. Defense Level Playing Field Act ( H.R. 6540 ) On December 21, 2010, the House of Representatives passed H.R. 6540 , which would have required the Secretary of Defense to take into account "any unfair competitive advantage that an offeror may possess" when evaluating KC-X bids, and to submit a report to Congress on such advantages. H.R. 6540 passed by a vote of 325-23. The operative section of the Act stated: SEC. 2. CONSIDERATION OF UNFAIR COMPETITIVE ADVANTAGE IN EVALUATION OF OFFERS FOR KC-X AERIAL REFUELING AIRCRAFT PROGRAM. (a) Requirement To Consider Unfair Competitive Advantage- In awarding a contract for the KC-X aerial refueling aircraft program (or any successor to that program), the Secretary of Defense shall, in evaluating any offers submitted to the Department of Defense in response to a solicitation for offers for such program, consider any unfair competitive advantage that an offeror may possess. (b) Report- Not later than 60 days after submission of offers in response to any such solicitation, the Secretary of Defense shall submit to the congressional defense committees a report on any unfair competitive advantage that any offeror may possess. (c) Requirement To Take Findings Into Account in Award of Contract- In awarding a contract for the KC-X aerial refueling aircraft program (or any successor to that program), the Secretary of Defense shall take into account the findings of the report submitted under subsection (b). (d) Unfair Competitive Advantage- In this section, the term `unfair competitive advantage', with respect to an offer for a contract, means a situation in which the cost of development, production, or manufacturing is not fully borne by the offeror for such contract. H.R. 6540 was not passed by the Senate prior to the adjournment sine die of the 111 th Congress. FY2011 Defense Appropriations Bill ( S. 3800 ) Senate The Senate Appropriations Committee, in its report ( S.Rept. 111-295 of September 16, 2010) on S. 3800 , recommends $538.9 million for the Next Generation Aerial Refueling Aircraft, a reduction of $325 million from the Administration request. House The House Appropriations Committee did not report a separate defense bill for FY2011. FY2010 Funding Request The Administration's proposed FY2010 defense budget requested $439.6 million in Air Force research and development funding to begin a new program for acquiring new 179 KC-X aerial refueling tankers. The requested funding is found in the Air Force's research development, test and evaluation (RDT&E) account in program element 0605221F, KC-X, Next Generation Aerial Refueling Aircraft. FY2010 Defense Authorization Bill ( H.R. 2647 / S. 1390 ) Conference The conference report ( H.Rept. 111-288 of October 7, 2009) on H.R. 2647 authorizes the Administration's request for $439.6 million in Air Force research and development funding for the KC-X program. (Page 1017) Section 1081 of H.R. 2647 amends Section 1081(a) of the FY2008 defense authorization act ( H.R. 4986 / P.L. 110-181 of January 28, 2008) to require the Secretary of the Air Force to conduct a pilot program to assess the feasibility and advisability of using commercial fee-for-service air refueling tanker aircraft for Air Force operations, unless the Secretary of Defense submits a notification that pursuing such a program is not in the national interest. Section 1082 provides authority to the Secretary of the Air Force to use multiyear contracts to conduct the pilot program described in Section 1081 of the FY2008 defense authorization act. Section 1052 requires Secretary of Defense to submit to the congressional defense committees a report on the force structure findings of the 2009 Quadrennial Defense Review (QDR). The House report on H.R. 2647 ( H.Rept. 111-166 of June 18, 2009—see discussion above) includes report language stating that this report is to include, among other things, "a description of the factors that informed decisions regarding aerial refueling aircraft force structure.... " Section 1081 states: SEC. 1081. MODIFICATION OF PILOT PROGRAM ON COMMERCIAL FEEFOR-SERVICE AIR REFUELING SUPPORT FOR THE AIR FORCE. Section 1081(a) of the National Defense Authorization Act for Fiscal Year 2008 (Public Law 110–181; 122 Stat. 335; 10 U.S.C. 2461 note) is amended by inserting before the period at the end of the first sentence the following: ", unless the Secretary of Defense submits notification to the congressional defense committees that pursuing such a program is not in the national interest". Section 1082 states: SEC. 1082. MULTIYEAR CONTRACTS UNDER PILOT PROGRAM ON COMMERCIAL FEE-FOR-SERVICE AIR REFUELING SUPPORT FOR THE AIR FORCE. (a) MULTIYEAR CONTRACTS AUTHORIZED.—The Secretary of the Air Force may enter into one or more multiyear contracts, beginning with the fiscal year 2011 program year, for purposes of conducting the pilot program on utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations required by section 1081 of the National Defense Authorization Act for Fiscal Year 2008 (Public Law 110–181; 122 Stat. 335). (b) COMPLIANCE WITH LAW APPLICABLE TO MULTIYEAR CONTRACTS.— Any contract entered into under subsection (a) shall be entered into in accordance with the provisions of section 2306c of title 10, United States Code, except that— (1) the term of the contract may not be more than 8 years; and (2) notwithstanding section 2306c(b) of such title, the authority under secti+on 2306c(a) of such title shall apply to the fee-for-service air refueling pilot program. (c) COMPLIANCE WITH LAW APPLICABLE TO SERVICE CONTRACTS.—A contract entered into under subsection (a) shall be entered into in accordance with the provisions of section 2401 of title 10, United States Code, except that— (1) the Secretary shall not be required to certify to the congressional defense committees that the contract is the most cost-effective means of obtaining commercial fee-for-service air refueling tanker aircraft for Air Force operations; and (2) the Secretary shall not be required to certify to the congressional defense committees that there is no alternative for meeting urgent operational requirements other than making the contract. (d) LIMITATION ON AMOUNT.—The amount of a contract under subsection (a) may not exceed $999,999,999. (e) PROVISION OF GOVERNMENT INSURANCE.—A commercial air operator contracting with the Department of Defense under the pilot program referred to in subsection (a) shall be eligible to receive Government-provided insurance pursuant to chapter 443 of title 49, United States Code, if commercial insurance is unavailable on reasonable terms and conditions. House The House Armed Services Committee, in its report ( H.Rept. 111-166 of June 18, 2009) on H.R. 2647 , recommends approving the Administration's request for $439.6 million in research and development funding for the KC-X program. (Page 190, line 88) The committee's report states: KC–X The committee notes that the KC–X program is planned to replace the Department of the Air Force's KC–135 aerial refueling tanker fleet, which now has an average aircraft age of 47 years. The committee also notes that the KC–X program has been subject to delays resulting from contractor protests to the Government Accountability Office, and believes that further delay in the acquisition of the KC–X aerial refueling tanker could jeopardize Department of Defense requirements for global mobility. Accordingly, the committee strongly urges the Department to include the necessary funds in its Future Years Defense Program to rapidly conduct source selection and to award a KC–X aerial refueling tanker contract as expeditiously as possible. (Pages 100-101) The report also states: KC–X tanker replacement program The committee believes that the Department of Defense should implement measures to ensure competition throughout the lifecycle of the KC–X tanker replacement program to ensure that the program delivers the best capability to the warfighter and the best value to the U.S. Government. Accordingly, the committee urges the Secretary of Defense to utilize as many of the competitive measures specified in subsection (b) of section 202 of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111–23) as is practicable when developing the acquisition strategy and source selection plan. The committee notes that the intent of section 202 is to require the Secretary of Defense to plan for persistent competition to control program costs and improve the reliability of the KC–X tanker acquired by the Department throughout the program's lifecycle, including development, procurement, and sustainment. (Page 203) Section 1032 of H.R. 2647 requires Secretary of Defense to submit to the congressional defense committees a report on the force structure findings of the 2009 Quadrennial Defense Review (QDR). Regarding Section 1032, the committee's report states: The committee expects that the analyses submitted will include details on all elements of the force structure discussed in the QDR report, and particularly the following:... (3) A description of the factors that informed decisions regarding aerial refueling aircraft force structure, including: the modeling, simulations, and analyses used to determine the number and type of aerial refueling aircraft necessary to meet the national defense strategy; the force sizing constructs used including peak demand; the number and type of aerial refueling aircraft necessary to meet the national security objective; the changes made, and supporting rationale for the changes made, to the aerial refueling aircraft force structure from that proposed in MCS–05; and the operational risks associated with the planned aerial refueling aircraft fleet, based on requirements of combatant commanders, and measures planned to address those risks;... (Page 388) Section 1044 of H.R. 2647 would repeal Section 1081 of the FY2008 defense authorization act ( H.R. 4986 / P.L. 110-181 of January 28, 2008), which directed the Secretary of the Air Force to conduct a pilot program of at least five years' duration to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. Regarding Section 1044, the committee's report states: The committee is aware that the Air Force has conducted initial analysis to develop the program structure for the pilot program, based on two diverse options, and has received feedback from potential providers in the aviation industry. However, based on its review of data gathered to date, the committee is concerned that the pilot program will be a costly alternative with little operational benefit and is not in the best interest of the Air Force. (Page 391) The committee's report also states: Fee for Service Refueling The budget request contained $10.0 million for a fee-for-service refueling pilot program. The committee recommends eliminating the funds for the pilot program. A provision is included elsewhere in this title [Section 1044] that would repeal the requirement to conduct a fee-for-service pilot program. (Page 284; see also page 282 for the recommended line-item reduction) Senate Division D of S. 1390 as reported by the Senate Armed Services Committee ( S.Rept. 111-35 of July 2, 2009) presents the detailed line-item funding tables that in previous years have been included in the Senate Armed Services Committee's report on the defense authorization bill. Division D recommends approving the Administration's request for $439.6 million in research and development funding for the KC-X program. (Page 687 of the printed bill, line 88) The committee's report states: KC–X tanker replacement program The committee regards the need to modernize the current fleet of KC–135 aerial refueling tanker aircraft as a vital national security priority and supports the KC-X tanker recapitalization program, as well as efforts by the Air Force both to maintain the existing fleet and augment capability with aerial fee-for-service, if it proves cost-effective under the pending pilot program. Given the troubled history of the program, the committee expects that the Department of Defense will pursue a process of procuring replacement tankers that will ensure that the joint warfighter receives the best capability at the best price. The committee believes that this can only be achieved by an acquisition strategy that does not pre-determine the outcome of the competition and a competition that is fair and open. In addition, the committee believes that, in accordance with the principles of the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111–23) and as a means of improving contractor performance, the Department of Defense must ensure that the acquisition strategy of the KC–X program includes measures that ensure competition, or the option of competition, throughout the life cycle of the program, where appropriate and cost-effective. (Page 99) Section 1058 of S. 1390 would amend Section 1081 of the FY2008 defense authorization act ( H.R. 4986 / P.L. 110-181 of January 28, 2008), which directed the Secretary of the Air Force to conduct a pilot program of at least five years' duration to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. The committee's report states: The committee recommends a provision [Section 1058] that would provide an exemption to the 5–year limitation on multiyear contracts and make other minor changes to enable the Air Force to implement a fee-for-service air refueling support pilot program. Section 1081 of the National Defense Authorization Act for Fiscal Year 2008 (Public Law 110–181) directed the Secretary of the Air Force to conduct a pilot program to assess the feasibility and advisability of utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations. The Air Force has been working with the private sector to implement this pilot program. The Air Force has informed the committee that results from their formal request for information process indicate that a multiyear contract that exceeds the current 5-year limit would be necessary to promote adequate competition and reduce program costs. The Air Force needs to have authority to make commitments for the 8-year pilot program in order to issue a request for proposal. The Air Force also needs to be able to offer carriers insurance coverage similar to that provided to civil reserve air fleet (CRAF) program partners. This provision would provide the Air Force with those authorities. (Page 179) The text of Section 1058 is as follows: SEC. 1058. MULTIYEAR CONTRACTS UNDER PILOT PROGRAM ON COMMERCIAL FEE-FOR-SERVICE AIR REFUELING SUPPORT FOR THE AIR FORCE. (a) Multiyear Contracts Authorized- The Secretary of the Air Force may enter into one or more multiyear contracts, beginning with the fiscal year 2011 program year, for purposes of conducting the pilot program on utilizing commercial fee-for-service air refueling tanker aircraft for Air Force operations required by section 1081 of the National Defense Authorization Act for Fiscal Year 2008 ( P.L. 110-181 ; 122 Stat. 335). (b) Compliance With Law Applicable to Multiyear Contracts- Any contract entered into under subsection (a) shall be entered into in accordance with the provisions of section 2306c of title 10, United States Code, except that— (1) the term of the contract may not be more than 8 years; (2) notwithstanding subsection 2306c(b) of title 10, United States Code, the authority under subsection 2306c(a) of title 10, United States Code, shall apply to the fee-for-service air refueling pilot program; (3) the contract may contain a clause setting forth a cancellation ceiling in excess of $100,000,000; and (4) the contract may provide for an unfunded contingent liability in excess of $20,000,000. (c) Compliance With Law Applicable to Service Contracts- A contract entered into under subsection (a) shall be entered into in accordance with the provisions of section 2401 of title 10, United States Code, except that— (1) the Secretary shall not be required to certify to the congressional defense committees that the contract is the most cost-effective means of obtaining commercial fee-for-service air refueling tanker aircraft for Air Force operations; and (2) the Secretary shall not be required to certify to the congressional defense committees that there is no alternative for meeting urgent operational requirements other than making the contract. (d) Limitation on Amount- The amount of a contract under subsection (a) may not exceed $999,999,999. (e) Provision of Government Insurance- A commercial air operator contracting with the Department of Defense under the pilot program referred to in subsection (a) shall be eligible to receive government provided insurance pursuant to chapter 443 of title 49, United States Code, if commercial insurance is unavailable on reasonable terms and conditions. FY2010 DOD Appropriations Bill ( H.R. 3326 ) Final Version In lieu of a conference report, the House Appropriations Committee on December 15, 2009, released an explanatory statement on a final version of H.R. 3326 . This version was passed by the House on December 16, 2009, and by the Senate on December 19, 2009, and signed into law on December 19, 2009, as P.L. 111-118 . The explanatory statement states that it "is an explanation of the effects of Division A [of H.R. 3326 ], which makes appropriations for the Department of Defense for fiscal year 2010. As provided in Section 8124 of the consolidated bill, this explanatory statement shall have the same effect with respect to the allocation of funds and the implementation of this as if it were a joint explanatory statement of a committee of the conference." The explanatory statement provided $15.0 million in Air Force research and development "for program management" of a "next generation air refueling aircraft," reduced from an Administration request for 439.6 million; $30.0 million of the reduction was attributed to savings due to a delay in awarding the tanker contract. Another $394.6 million was transferred to Title VIII, the General Provisions section of the bill. Of that transferred money, $291.7 million was made available for a Tanker Replacement Transfer Fund. Section 8119 of H.R. 3326 explains the Tanker Replacement Transfer Fund thusly: In addition to funds made available elsewhere in this Act, there is hereby appropriated $291,715,000, to remain available until transferred: Provided , That these funds are appropriated to the `Tanker Replacement Transfer Fund' (referred to as `the Fund' elsewhere in this section): Provided further , That the Secretary of the Air Force may transfer amounts in the Fund to `Operation and Maintenance, Air Force', `Aircraft Procurement, Air Force', and `Research, Development, Test and Evaluation, Air Force', only for the purposes of proceeding with a tanker acquisition program: Provided further , That funds transferred shall be merged with and be available for the same purposes and for the same time period as the appropriations or fund to which transferred: Provided further , That this transfer authority is in addition to any other transfer authority available to the Department of Defense: Provided further , That the Secretary of the Air Force shall, not fewer than 15 days prior to making transfers using funds provided in this section, notify the congressional defense committees in writing of the details of any such transfer: Provided further , That the Secretary shall submit a report no later than 30 days after the end of each fiscal quarter to the congressional defense committees summarizing the details of the transfer of funds from this appropriation. The explanatory statement also includes this provision: AERIAL REFUELING TANKER PROGRAM The recommendation includes $15,000,000 in Research, Development, Test and Evaluation, Air Force for program management and a general provision providing $291,715,000 in a Tanker Replacement Transfer Fund. Not later than 10 days after the release of the final request for proposal soliciting bids for an aerial tanker replacement aircraft, the Secretary of the Air Force is directed to submit a report to the congressional defense committees that includes a description of changes from the draft proposal to the final request for proposal and the rationale for each change. The Secretary of the Air Force is encouraged to pursue tanker recapitalization at a rate of36 aircraft per year instead of 12 or 15 aircraft in the current plan. This quantity will recapitalize the fleet in one-third the time and allow for a rapid retirement of the aging KC-135 aircraft. Furthermore, a more accelerated procurement strategy will avoid the large sustainment and modernization costs associated with keeping the legacy KC-135 fleet in the inventory longer. House The House Appropriations Committee, in its report ( H.Rept. 111-230 of July 24, 2009) on H.R. 3326 , recommends $439.6 million in research and development funding for the KC-X program, as requested by the Administration, but transfers this funding from the Air Force's research and development account to a "Tanker Replacement Transfer Fund" established by Section 8112 of the bill as reported. (See also page 273, line 88.) The text of Section 8112 is as follows: Sec. 8112. (a) In addition to funds made available elsewhere in this Act, there is hereby appropriated $439,615,000 to remain available until transferred: Provided, That these funds are appropriated to the `Tanker Replacement Transfer Fund' (referred to as `the Fund' elsewhere in this section): Provided further, That the Secretary of the Air Force may transfer amounts in the Fund to `Operation and Maintenance, Air Force', `Aircraft Procurement, Air Force', and `Research, Development, Test and Evaluation, Air Force', only for the purposes of proceeding with a tanker acquisition program: Provided further, That funds transferred shall be merged with and be available for the same purposes and for the same time period as the appropriations or fund to which transferred: Provided further, That this transfer authority is in addition to any other transfer authority available to the Department of Defense: Provided further, That the Secretary of the Air Force shall, not fewer than 15 days prior to making transfers using funds provided in this section, notify the congressional defense committees in writing of the details of any such transfer: Provided further, That the Secretary shall submit a report no later than 30 days after the end of each fiscal quarter to the congressional defense committees summarizing the details of the transfer of funds from this appropriation. (b) The Secretary of Defense is directed to award one or more contracts for the aerial refueling tanker replacement program according to either of the following alternatives: (1) A contract to a single offeror based on a best value or lowest cost source selection derived from full and open competition, subject to the condition that non-development aircraft produced under such contract must be finally assembled in the United States. Such competition and source selection shall include evaluation of the life-cycle costs of each aircraft over a 40-year period (including costs of fuel consumption, military construction and other factors normally associated with operation and support of tanker aircraft) and shall include an independent 40-year life-cycle cost estimate conducted by a federally funded research and development center. (2) Contracts awarded to each of the two offerors that responded to Request for Proposal No. FA8625-07-R-6470 (as released on January 29, 2007) subject to the condition that all non-development aircraft produced under any such contracts must be finally assembled in the United States. (c) The Secretary of Defense shall certify in writing to the congressional defense committees by October 1, 2009, which of the procurement alternatives in subsection (b) represents the most cost-effective and expeditious tanker replacement strategy that best responds to United States national security requirements. The certification shall be accompanied by a report to the congressional defense committees detailing the rationale for such certification. The committee's report states: AERIAL REFUELING TANKER REPLACEMENT PROGRAM The Committee firmly believes that the Department must act promptly to recapitalize the aging Air Force aerial refueling fleet. The Department's current program has been beset with countless setbacks, from allegations of corruption to a protest of the previous source selection decision. In the meantime, our nation's aerial refueling tankers continue to age, with the average age of a KC–135 being almost 50 years old today. The aerial refueling replacement program (KC–X, KC–Y and KC–Z) plans to procure between 12 and 15 aircraft per year to eventually replace the current fleet of 513 aircraft. This method of recapitalization will take decades to complete, with the current fleet of Eisenhower-era tankers being 80 years old by the time the last legacy aircraft is retired. During this period, the Air Force will invest billions of taxpayer dollars in maintenance of an ever aging and increasingly unreliable fleet. Based on studies conducted by the Department of Defense, total fleet costs are anticipated to increase from $2.1 billion per year to $3 billion per year by 2040 due to increasing depot maintenance and forecasted modernization programs in avionics and aircraft systems. Additionally, the Department anticipates depot maintenance costs increasing from $320,000,000 to $1,100,000,000 in 2040 due to aging aircraft related maintenance. Never in the history of our Nation has the military purposely planned to maintain aircraft past 50 years, much less 80 years of operation so even these estimates may understate the actual cost. In addition to the cost of maintaining the aging tanker fleet, the cost per flying hour of a new tanker is almost half the cost of the existing fleet. The lower cost per flying hour alone will save the taxpayer $1,795,500,000 per year for a fleet of 513 aircraft (current total aircraft inventory) or $3,500,000 per plane per year replaced. To address these concerns, the Committee recommendation includes a general provision providing $439,615,000 and the option for choosing one vendor or dual sourcing for the aerial refueling Tanker replacement program. Along with this authority, the Committee believes that it is in the best interest of the taxpayer to pursue recapitalization at a rate of 36 aircraft per year vice 12 or 15 aircraft. This quantity will allow for recapitalization in one-third the time and thus allow for a rapid retirement of the current KC–135 aircraft. This plan will result in avoiding a large sustainment and modernization cost of the legacy KC–135 fleet by allowing them to retire earlier than is currently programmed. Additionally, having more than one aircraft provider will allow for competition to help control the procurement cost, promote cost reduction measures, and allow for a faster aircraft replacement rate. Further, the Committee directs the Secretary of Defense to, prior to the release of a draft or final request for proposal soliciting bids for an aerial tanker replacement aircraft, submit a report to the congressional defense committees that includes a description of key mission requirement and performance parameters that will be used as the basis for determining the key selection criteria in the source selection process; a full and complete characterization and definition of ''best value''; a description of the process that the Department of Defense intends to use to ensure open, balanced and trans parent communications with potential offerors; and a full description of the corrections made to the source selection process that addresses the issues raised by the Government Accountability Office in its ''Statement Regarding the Bid Protest Decision Resolving the Aerial Refueling Tanker Protest by the Boeing Company, B311344 et. al, June 18, 2008''. (Pages 276-277) The report also states: A major imperative of the Committee's funding recommendations is to improve the efficiency with which Department of Defense resources are expended. The Committee believes that one of the best ways to support United States forces is to improve the stability of acquisition programs and increase quantities to field new equipment more rapidly. In many cases, the procurement rates for new equipment are well below what could reasonably be described as economic order quantities. The practice of stretching out procurement schedules not only delays fielding modernized weapons but is costly as well. For example, in the case of the aerial refueling tanker, annual maintenance costs are expected to climb by $900,000,000, and Depot maintenance costs are expected to increase by $780,000,000. In contrast, the lower cost per flying hour for a new fleet of tankers will save taxpayers $3,500,000 per aircraft per year. The Committee also notes that the aerial refueling tankers are a crucial piece of our nation's ability to deploy and operate anywhere in the world. (Page 4) The report also states: FEE-FOR-SERVICE REFUELING The Committee provides no funding for the fee-for-service refueling pilot program due to concerns with the lack of a validated requirement for the program. The Air Force should instead focus on the KC–135 tanker replacement program which is a Joint Requirements Oversight Council validated requirement. The Committee recommends $439,615,000 in title VIII of this Act only for the recapitalization of the aging KC–135 fleet with a competitive procurement of a commercial derivative tanker aircraft. (Page 91) Senate The Senate Appropriations Committee, in its report ( S.Rept. 111-74 of September 10, 2009) on H.R. 3326 , recommends $409.6 million in research and development funding for the KC-X program—a $30 million reduction from the Administration's request, with the reduction being for "Contract award delay." The recommended funding is located in the Air Force's research and development account, as requested. (Page 197, line 88) Appendix B. Potential Longevity of KC-135 Fleet 2004 DSB Report and 2006 RAND Analysis A 2004 Defense Science Board (DSB) task force report examined, among other things, the potential longevity of the KC-135 fleet. The 2006 RAND Analysis of Alternatives (AOA) on aerial refueling also examined the technical condition of the KC-135 fleet. The DSB report stated that airframe service life, corrosion, and maintenance costs factors would potentially determine the KC-135s operational life expectancy. Each of these factors is discussed briefly below. Airframe Service Life KC-135s, along with their associated B-52 bombers, were originally purchased to give the United States a strategic nuclear strike capability. As a result, both fleets of airplanes spent a significant amount of time during the Cold War on ground alert. Consequently, in 2004, the average KC-135 airframe had flown only about 17,000 hours of an estimated service life of 36,000 hours (KC-135E) or 39,000 hours (KC-135R). On this basis, the DSB report concluded that KC-135 airframes were viable until 2040 at "current usage rates." The 2006 RAND AOA similarly concluded that the KC-135 fleet "can operate into the 2040s," but not without risks. Corrosion The 2004 DSB report concluded that corrosion did not pose an "imminent catastrophic threat to the KC-135 fleet" and that the Air Force's maintenance practices were postured "to deal with corrosion and other aging problems," but also stated: However, because the KC-135s are true first generation turbojet aircraft designed only 50 years from the time man first began to fly, concerns regarding the ability to continue operating these aircraft indefinitely are intuitively well founded. Maintenance Costs A 2004 GAO report stated that KC-135 flying hour costs increased in real (i.e., inflation-adjusted) terms by 29% between 1996 and 2002. The DSB report agreed that KC-135 maintenance costs had increased significantly, but found that they had leveled off due to Air Force changes in KC-135 depot processes. The DSB report forecasted modest growth in maintenance costs in the future. Risks Of Flying Older Aircraft Some observers express about potential problems that may arise in flying 50- to 80-year-old tankers that could possibly ground the entire KC-135 fleet. The DSB report examined the issue and concluded that "although grounding is possible, the task force assesses the probability as no more likely than that of any other aircraft in the inventory of the Services." The 2006 RAND analysis expressed a belief that it is possible that KC-135s will be able to operate into the 2040s, but the report expressed a lack of confidence that KC-135s could continue to be operated that long without risks of major maintenance cost increases, poor fleet availability, or possible fleet-wide grounding. The RAND analysis concluded that "the nation does not currently have sufficient knowledge about the state of the KC-135 fleet to project its technical condition over the next several decades with high confidence." The analysis recommended more thorough scientific and technical study of the KC-135 to provide a more reliable basis for future assessments of the condition of the KC-135 fleet. | On February 24, 2011, the Department of Defense (DOD) announced the Boeing Company as the winner of a competition to build 179 new KC-46A aerial refueling tankers for the Air Force, a contract valued at roughly $35 billion. Prior to the announcement, the program had been known as KC-X. The KC-46A acquisition program is a subject of intense interest because of the dollar value of the contract, the number of jobs it would create, the importance of tanker aircraft to U.S. military operations, and because DOD's previous attempts to acquire a new tanker since 2001 had ultimately failed. DOD's KC-46A acquisition strategy poses potential oversight issues for Congress, including the following: What are the effects of budget cuts on executability of the KC-46A program? What if any effect will the announced closure of Boeing's Wichita, KS, plant have on the KC-46 program? What alternatives does the Air Force have to extend KC-135 service life if the KC-46 is delayed? FY2013 defense authorization bill: H.R. 4310, as passed by the House, recommended approving the Administration's request for $1,815.6 million in research and development funding for the Next Generation Aerial Refueling Aircraft program. S. 3254, as passed by the Senate, recommended $1,728.5 million, $87.1 million less than the Administration's requested funding level for KC-X. The FY2013 conference report set funding at $1,738.5 million, $77.1 million less than the Administration's request, citing excess prior-year funds. FY2013 DOD appropriations bill: The House Appropriations Committee, in its report (H.Rept. 112-493 of May 25, 2012), recommended approving the Administration's request for $1,815.6 million in research and development funding for the Next Generation Aerial Refueling Aircraft program. The Senate Appropriations Committee, in its report (S.Rept. 112-196 of August 2, 2012), recommended $1,738.5 million for the Next Generation Aerial Refueling Aircraft, a reduction of $77.1 million from the Administration request. The explanatory statement accompanying the conference report on H.R. 933 put funding at $1,738.5 million. |
Leaders in both chambers of Congress have indicated that immigration reform is a legislative priority in the 113 th Congress. The main elements of "comprehensive immigration reform" (CIR) legislation typically include increased border security and immigration enforcement, improved employment eligibility verification, revision of legal immigration, and options to address the millions of unauthorized aliens residing in the country. In January 2013, a bipartisan group of Senators proposed a framework for CIR that would address these issues and include new temporary worker visas. Several of these elements also were among the features that President Barack Obama emphasized later the same month when he called for the 113 th Congress to "quickly" take up CIR legislation, though President Obama has not endorsed new temporary worker visas. Similar to President Obama's recent statements on CIR, former President George W. Bush stated that comprehensive immigration reform was to be a top priority of his second term. President Bush's principles of immigration reform included increased border security and enforcement of immigration laws within the interior of the United States, as well as a major overhaul of temporary worker visas, expansion of permanent legal immigration, and revisions to the process of determining whether foreign workers were needed. Then—as well as now—the thorniest of these issues centered on unauthorized alien residents of the United States. Substantial efforts to enact CIR legislation failed in the 109 th and 110 th Congresses, prompting some to characterize the issue as a "third rail" that is too highly charged to touch. The 2006-2007 CIR bills were sweeping in scope and ranged from just under 500 pages to over 800 pages. The three major bills CIR bills that received floor action were Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 ( H.R. 4437 as passed by the House in the 109 th Congress), Comprehensive Immigration Reform Act of 2006 ( S. 2611 as passed by the Senate in the 109 th Congress), and Comprehensive Immigration Reform and for other purposes ( S. 1639 as considered by the Senate in 110 th Congress) This report opens with brief legislative histories of CIR in the 109 th and 110 th Congresses. A comparative overview of key CIR provisions in the three bills that received floor action in the 109 th and 110 th Congresses follows. In addition to a narrative discussion of how the bills addressed the main provisions of CIR, the report provides a table that presents a comparative summary of the key features of the bills. The report concludes with observations contrasting the 2006-2007 period with the context of today's CIR debate. The report also provides an appendix that summarizes the three major CIR bills. The Immigration and Nationality Act (INA), which was first codified in 1952, contained the provisions detailing the requirements for admission (permanent and temporary) of foreign nationals, grounds for exclusion and removal of foreign nationals, document and entry-exit controls for U.S. citizens and foreign nationals, and eligibility rules for naturalization of foreign nationals. Congress has significantly amended the INA several times since 1952, most notably by the Immigration Amendments of 1965, the Refugee Act of 1980, the Immigration Reform and Control Act of 1986, the Immigration Act of 1990, and the Illegal Immigration Reform and Immigrant Responsibility Act of 1996. During the 109 th Congress, both chambers passed major overhauls of immigration law but did not reach agreement on a comprehensive reform package. On November 14, 2005, the Chairman of the House Homeland Security Committee, Representative Peter King, and a bipartisan group of co-sponsors introduced H.R. 4312 , the Border Security and Terrorism Prevention Act of 2005, which was jointly referred to the Armed Services, Homeland Security, and Judiciary Committees. The Homeland Security Committee reported H.R. 4312 on December 6, 2005. That same day, the chairman of the House Judiciary Committee, Representative James Sensenbrenner, introduced the Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 ( H.R. 4437 ). On December 13, 2005, the House Judiciary Committee reported H.R. 4437 along a party-line vote. H.R. 4437 included a number of provisions identical to those in H.R. 4312 , as reported by the House Homeland Security Committee. The House Rules Committee met on December 14, 2005, to consider the rule for floor debate on H.R. 4437 and reportedly heard six hours of testimony. In a move that many observers considered a key vote, the Rules Committee rejected a motion to allow an amendment that would have created a guest worker visa program. The amendment, co-sponsored by Arizona Republicans Jim Kolbe and Jeff Flake and California Democrat Howard L. Berman, would have allowed unauthorized aliens to register for new temporary visas. The Rules Committee did agree to 15 amendments that could be offered on the floor and approved the rule for H.R. 4437 early on the morning of December 15, 2005. On December 16, 2005, the House debated and passed H.R. 4437 , as amended. The legislation had provisions on border security; the role of state and local law enforcement in immigration enforcement; employment eligibility verification; and other enforcement-related issues including immigration fraud, worksite enforcement, alien smuggling, and migrant detention. H.R. 4437 also contained provisions on unlawful presence, voluntary departure, and alien removal. The Chairman of the Senate Committee on the Judiciary, Senator Arlen Specter, circulated a draft CIR bill on March 6, 2006 (Chairman's mark) that would have substantially increased legal immigration as well as strengthened border security and immigration enforcement. S. 2454 , the Securing America's Borders Act, which Senate Majority Leader William Frist introduced on March 16, 2006, had border security and employment verification provisions that were similar to H.R. 4437 and had provisions revising and increasing legal immigration that were similar to the Chairman's mark. After three weeks of debate, the Senate Judiciary Committee favorably reported a modified version of the Chairman's mark, which also included provisions for a broad legalization program similar to those originally proposed by Senators Edward Kennedy and John McCain. The Senate failed to invoke cloture on S. 2454 and the Judiciary Chairman's mark during floor debate from March 28, 2006 to April 7, 2006. Senators Chuck Hagel and Mel Martinez proposed alternative language to keep immigration on the Senate's agenda. Chairman Specter, along with Senators Hagel, Martinez, Kennedy, McCain, Lindsey Graham, and Sam Brownback, introduced this compromise as S. 2611 on April 7, 2006, just prior to the April recess. Because this legislation reflected many of the policy features that Senators McCain and Kennedy had articulated over the past few years, S. 2611 became known as the McCain-Kennedy bill. It combined provisions on enforcement and on unlawful presence, voluntary departure, and removal with reform of legal immigration. These proposed revisions to legal immigration included expanded guest worker visas and increased legal permanent admissions. S. 2611 also would have enabled certain groups of unauthorized aliens in the United States to become legal permanent residents (LPRs) if they paid penalty fees and met a set of other requirements. After several days of debate and a series of amendments, the Senate passed S. 2611 , as amended, by a vote of 62-36 on May 25, 2006. Over the summer of 2006, a variety of legislative maneuvers were considered to have both chambers pass an immigration bill with the same number so that a conference committee could be formed on CIR and to overcome other procedural barriers the legislation faced. President George W. Bush reaffirmed his support for CIR. "Congress is now considering legislation on immigration reform; that legislation must be comprehensive," President Bush said. "All elements of the problem must be addressed together, or none of them will be solved at all." Congressional leaders, however, were unsuccessful at forming a conference committee, and House-passed H.R. 4437 and Senate-passed S. 2611 expired with the end of the 109 th Congress. As the 110 th Congress opened, there were widespread reports that Senators Kennedy and McCain were meeting with Representatives Luis Gutierrez and Jeff Flake to discuss a bipartisan approach to CIR and were instructing their staffs to draw up a discussion draft based on S. 2611 . On May 9, 2012, Senate Majority Leader Harry Reid introduced S. 1348 , the Comprehensive Immigration Reform Act of 2007. As introduced, S. 1348 was virtually identical to S. 2611 , which the Senate had passed in the 109 th Congress. Republican support for S. 1348 , however, was lacking in the 110 th Congress. According to Roll C all, "(A)ll 23 Republicans who voted for last year's immigration bill sent a letter to Majority Leader Reid on Wednesday warning they would not vote for that measure again and calling on the Majority Leader to allow more time to work out a bipartisan deal." Senators Kennedy and Specter introduced a bipartisan compromise proposal for comprehensive immigration reform on May 21, 2007, as S.Amdt. 1150 , as the floor debate on S. 1348 began. Similar to S. 1348 (and its predecessor S. 2611 ), the bipartisan compromise included provisions aimed at strengthening employment eligibility verification and interior immigration enforcement, as well as increasing border security. This substitute language differed from S. 1348 in several key areas of legal immigration. It would have substantially revised legal immigration and temporary worker programs with provisions that differed from S. 1348 . Unauthorized aliens in the United States would have been able to become LPRs if they met certain requirements and paid penalty fees in a re-worked legalization process. The Senate failed to invoke cloture on this version of CIR on June 7, 2007, after supporters and opponents of the bill could not agree on a number of amendments to be considered. Senate Majority Leader Reid and Senate Minority Leader Mitch McConnell publicly affirmed their commitment to debate comprehensive immigration reform in June 2007. The Senate resumed debate on a modified version of the bipartisan compromise ( S. 1639 ) beginning June 18, 2007. The bill was brought to the floor under an unusual parliamentary procedure known as a "clay pigeon," which strictly limited the number of amendments to the bill that could be considered. But after one of the clay pigeon amendments passed, the fragile coalition willing to bring the bill to the floor eroded. The Senate failed to invoke cloture on S. 1639 , by a vote of 46 to 53, with both Democrats and Republicans opposing the cloture motion. The Senate Majority Leader pulled the bill from the Senate floor, and the drive for CIR legislation in the 110 th Congress ended. This comparative analysis broadly sketches the key features of the three sweeping pieces of CIR legislation: H.R. 4437 as passed by the House in the 109 th Congress; S. 2611 as passed by the Senate in the 109 th Congress; and S. 1639 as considered by the Senate in 110 th Congress. The discussion is organized according to the main components of CIR: border security; interior immigration enforcement; worksite enforcement and employment eligibility verification; legal immigration (permanent and temporary); and unauthorized aliens, illegal presence, and legalization. The Appendix provides a more detailed discussion of the provisions in the three major bills. It is important to note that a statement indicating that "all the bills had provisions on ..." does not mean that these provisions were identical or even similar in the different bills. Such a statement simply means the legislation had provisions addressing that particular element. The border security component can be found in the INA's provisions to control the entry and exit of foreign nationals. Operationally, this means controlling the official ports of entry through which legitimate travelers enter the country, and patrolling the nation's land and maritime borders to interdict illegal entries. U.S. Customs and Border Protection (CBP) is the lead agency on border security, with the U.S. Border Patrol, within CBP, as the lead agency charged with preventing unauthorized aliens from entering the United States between ports of entry. The INA gives the CBP and the border patrol the statutory authority to search, interrogate, and arrest unauthorized aliens. All three bills would have increased the resources, personnel, infrastructure, and technology for border security. Foreign nationals (i.e., aliens) not already legally residing in the United States who wish to come to the United States generally must obtain a visa to be admitted. To receive a visa and to enter the country, a foreign national must not be deemed inadmissible according to the specified grounds in the law. These inadmissibility grounds are health-related (e.g., contagious diseases); criminal history; security and terrorist concerns; public charge (e.g., indigence); seeking to work without proper labor certification; illegal entrants and immigration law violations; ineligible for citizenship; and aliens illegally present or previously removed. The major bills would not have made sweeping changes to the inadmissibility grounds, but they would have revised specific grounds pertaining to national security and illegal entry. The three bills would also have added gang membership as a ground for inadmissibility. The INA requires the inspection of all aliens who seek entry into the United States. As a result, all persons seeking admission to the United States must demonstrate that they are a foreign national with a valid visa and/or passport or that they are a U.S. citizen. Because many foreign nationals are permitted to enter the United States without visas, notably through the Visa Waiver Program, border inspections were extremely important in 2005-2007 for those having their initial screening at the port of entry. Under the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) entry-exit system, certain foreign nationals are required to provide fingerprints, photographs, or other biometric identifiers upon arrival in the United States. All of the major bills would have expedited the implementation of US-VISIT and expanded DHS's authority to require aliens (including LPRs) to participate in the system. Expedited removal enables immigration officers to summarily remove an alien who lacks proper documentation or has committed fraud or willfully misrepresented facts to gain admission into the United States without any further hearings or review, unless the alien indicates either an intention to apply for asylum or a fear of persecution. Under expedited removal, both administrative and judicial review are limited generally to cases in which the alien claims to be a U.S. citizen or to have been admitted previously as a legal permanent resident, a refugee, or an asylee. All three bills would have broadened the categories of aliens subject to expedited removal. All three bills also included new criminal penalties for certain immigration-related violations, including new felony offenses for unlawful flight from a border checkpoint. The bills would have strengthened existing penalties for illegal entry and re-entry and for certain passport and visa offenses. All three bills would have expanded DHS detention facilities, and S. 2611 would have directed DHS to acquire or construct 20 additional detention facilities. And all three bills would have made more classes of aliens subject to detention pending removal. All the major bills in the 109 th and 110 th Congresses had provisions aimed at increasing immigration control and enforcement. The INA prohibits the smuggling of aliens across the U.S. border and the transport and harboring of aliens within the United States. Thus, the statute covers a broad spectrum of activities that may subject U.S. citizens as well as foreign nationals to criminal liability if they provide assistance to an alien who is unlawfully present within the United States. All three bills would also have broadened the range of acts considered to be alien smuggling and increased penalties, but the Senate bills would have added humanitarian exceptions. In addition, all three bills would have expanded the definition of "aggravated felony," a category of criminal offense defined by immigration law that results in enhanced immigration penalties and expedited enforcement provisions. Some violations of the INA are not defined as crimes, such as being an unauthorized alien in the United States, but H.R. 4437 would have defined unlawful presence as a criminal offense. Immigration-related document fraud includes the counterfeiting, sale, and use of identity documents (e.g., birth certificates or Social Security cards), as well as employment authorizations, passports, or visas. The INA has civil enforcement provisions for individuals and entities proven to have engaged in immigration document fraud. All three bills would have increased the criminal penalties for immigration and document fraud. The INA requires that certain categories of aliens must be detained (i.e., the aliens must be detained during removal proceedings, and if ordered removed, until their removal is effectuated). Other foreign nationals who are not subject to mandatory detention nonetheless may be detained, paroled, or released on bond. All three bills would have expanded the categories of aliens subject to mandatory detention. The INA also specifies the circumstances and actions that result in aliens being removed from the United States (i.e., deported). These grounds are comparable to the inadmissibility grounds. They include foreign nationals who are inadmissible at time of entry or violate their immigration status; commit certain criminal offenses (e.g., crimes of moral turpitude, aggravated felonies, alien smuggling, high-speed flight from an immigration checkpoint); fail to register (if required under law) or commit document fraud; are security risks (such as aliens who violate any law relating to espionage, engage in criminal activity that endangers public safety, or partake in terrorist activities or genocide); become a public charge within five years of entry; or vote unlawfully. In removal proceedings, an immigration judge determines whether an alien is removable. All three bills would have revised the grounds for removal, much like the revisions to the grounds for inadmissibility. While the federal government exercises preeminent authority in the field of immigration, there has been longstanding debate regarding the scope and propriety of state and local efforts to deter the presence of unlawfully present aliens within their jurisdictions. One question centers on the ability of states and localities to adopt legislation aimed at deterring unauthorized aliens who are in their jurisdictions. Another question focuses on the role of state and local police in directly enforcing federal immigration law and whether such enforcement interferes with or disrupts federal immigration policies and objectives. In addressing these questions, the House-passed bill in the 109 th Congress would have "reaffirmed" the authority of states to assist in the enforcement of the immigration laws; however, the Senate-passed bill in the 109 th Congress would have "reaffirmed" the authority of states to assist in the enforcement of the criminal provisions of immigration law. There were no comparable provisions in the final Senate CIR bill in the 110 th Congress. Since the Immigration Reform and Control Act of 1986 (IRCA, P.L. 99-603 ), it has been unlawful for an employer to knowingly hire, recruit or refer for a fee, or continue to employ an alien who is not authorized to be employed. All employers are currently required to participate in a paper-based employment eligibility verification system in which they examine documents presented by every new hire to verify the person's identity and work eligibility. Employers must retain these employment eligibility verification (I-9) forms. Employers may opt to participate in an electronic employment eligibility verification program, known as E-Verify, which checks the new hire's employment authorization through Social Security Administration and, if necessary, Department of Homeland Security (DHS) databases. All three bills would have established mandatory electronic employment eligibility verification systems. Employers violating prohibition on unlawful employment may be subject to civil and/or criminal penalties. If DHS's Immigration and Customs Enforcement (ICE) believes that an employer has committed a civil violation, the agency may issue the employer a "Notice of Intent to Fine," which may result in a "Final Order" for civil money penalties, a settlement, or a dismissal. Employers convicted of having engaged in a pattern or practice of knowingly hiring or continuing to employ unauthorized aliens may face criminal fines and/or imprisonment. All three bills would have increased the penalties for worksite enforcement. Legal immigration is one of the areas in which there were significant differences across the three bills. The major bills in the Senate would have revised the legal immigration system, but the approaches differed substantially from the 109 th Congress to the 110 th Congress. The House-passed legislation did not address legal immigration, with the exception of eliminating the diversity visa category. Immigrants are persons admitted as legal permanent residents (LPRs) of the United States. Under current law, permanent admissions are subject to a complex set of numerical limits and preference categories that give priority for admission on the basis of family relationships, skills needed in the United States, and geographic diversity of sending countries. These include a flexible worldwide cap of 675,000, plus refugees and asylees. The INA specifies that each year, countries are held to a numerical limit of 7% of the worldwide level of U.S. immigrant admissions, known as per-country limits. The pool of people who are eligible to immigrate to the United States as LPRs each year typically exceeds the worldwide level set by U.S. immigration law, and, as a consequence, millions of prospective LPRs are waiting in the queue with approved petitions. The immediate relatives of U.S. citizens (i.e., their spouses and unmarried minor children, and the parents of adult U.S. citizens) are admitted outside of the numerical limits and are the flexible component of the worldwide cap. To qualify as a family-based LPR, the foreign national must be a spouse or minor child of a U.S. citizen; a parent, adult child, or sibling of an adult U.S. citizen; or a spouse or unmarried child of a legal permanent resident. At least 226,000 and no more than 480,000 family preference LPRs are admitted each year, excluding immediate relatives of U.S. citizens. To qualify as an employment-based LPR, the foreign national must be an employee for whom a U.S. employer has received approval from the Department of Labor to hire; a person of extraordinary or exceptional ability in specified areas; an investor who will start a business that creates at least 10 new jobs; or someone who meets the narrow definition of the "special immigrant" category. The INA allocates 140,000 admissions annually for employment-based immigrants. The INA also provides LPR visas to aliens who are selected in the diversity lottery from countries sending low numbers of immigrants. The Senate-passed bill in the 109 th Congress would have increased LPR admissions, both for family-based and employment-based categories. The Senate bill in the 110 th Congress would have revised the immediate relative definition and eliminated certain categories of family-based admissions. It would also have replaced the current categorical employment-based system with a point-based merit system. All three bills would have eliminated the diversity visa lottery. "STEM visa" is shorthand for an expedited immigration avenue that enables foreign nationals with graduate degrees in science, technology, engineering, or mathematics (STEM) fields to adjust their immigration status to LPR without waiting in the queue of numerically limited LPR visas. The Senate bills in the 109 th and 110 th Congresses would have permitted foreign students on a proposed STEM student visa to adjust to LPR status. Also, the bills would have allowed an unlimited number of foreign nationals who had earned an advanced degree in a STEM field and had been working in a related field in the United States during the preceding three years to become LPRs. The House bill had no comparable provisions. Nonimmigrants —such as tourists, foreign students, diplomats, temporary workers, cultural exchange participants, or intracompany business personnel—are admitted for a specific purpose and a temporary period of time. Nonimmigrants are required to leave the country when their visas expire, though certain classes of nonimmigrants may adjust to LPR status if they otherwise qualify. There are 24 major nonimmigrant visa categories, and over 70 specific types of nonimmigrant visas are issued currently. The major nonimmigrant category for temporary workers is the H visa. Professional workers typically use the H-1 visa, which includes professional specialty workers (H-1B) and nurses (H-1C). There are two visa categories for temporary seasonal workers (i.e., guest workers): agricultural guest workers (H-2A) and other seasonal/intermittent workers (H-2B). Unskilled workers are eligible for H-2A and the H-2B visas. Efforts to amend the House-passed bill to include selected reforms of temporary worker visas for guest workers failed. Both Senate bills would have made major revisions to temporary worker visas, which would have included the establishment of large-scale temporary worker programs. The Senate bill from the 110 th Congress in particular would have established new temporary worker visas (Y visas). All the major bills in the 109 th and 110 th Congress had provisions dealing with unauthorized aliens residing in the United States, but the two chambers differed markedly in their approaches. The three main components of the unauthorized resident alien population are (1) aliens who overstay their nonimmigrant visas, (2) aliens who enter the country surreptitiously without inspection, and (3) aliens who are admitted on the basis of fraudulent documents. The first case is a civil offense, but the second and third cases are criminal offenses. In all three instances, the aliens are in violation of the INA and subject to removal. Unauthorized presence—absent other factors—is not a crime under the INA. However, an alien who is unlawfully present in the United States for longer than 180 days but less than a year is inadmissible for three years after the alien's departure. An alien who is unlawfully present for at least a year is inadmissible for 10 years after the alien's departure. The bars may be waived for a spouse or a son or daughter of a citizen or permanent resident if refusal of admission would result in extreme hardship to the citizen or permanent resident. The INA makes indefinitely inadmissible an alien who (1) has been ordered removed or has been unlawfully present for an aggregate period of longer than a year, and (2) enters or attempts to reenter without being formally admitted. The House-passed bill in the 109 th Congress would have criminalized unauthorized presence. In contrast, the Senate bills in the 109 th and 110 th Congresses would have created avenues for unauthorized aliens who met a set of criteria and paid prescribed penalties to acquire "earned legalization." The Senate bill from the 110 th Congress would have created a transitional legalization pathway through a proposed Z visa and would have conditioned the legalization provisions on the successful implementation of key border security measures (i.e., trigger mechanisms). Unauthorized aliens who were brought to the United States as children are a specific subpopulation that some argue warrant special legislative action, usually referred to as DREAM Act legislation. Various versions of the DREAM Act would enable eligible individuals who entered the country before age 16 and satisfy other requirements to obtain LPR status. Both Senate bills included DREAM Act provisions. Unauthorized aliens who have worked in agriculture comprise another subpopulation that has been the subject of proposed legislation, usually known by the shorthand of AgJOBS. This legislation, circulating in various forms since the late 1990s, combines provisions to reform the temporary agricultural worker program (H-2A visa) with a program to legalize the status of farm workers. Both Senate bills had AgJOBS provisions. Since the CIR debates of the 109 th and 110 th Congresses, much has happened in the United States. Most notably, the nation experienced a severe economic recession from December 2007 through June 2009 as part of a worldwide economic crisis. Arguably, any efforts to address CIR legislation against the backdrop of an economic recession would have sharpened the social and business cleavages and narrowed the range of options. Although the unemployment rate has declined since the recession ended, it remains at a historically high level. While support for certain elements of CIR may continue to be dampened by persistently high unemployment, proponents of CIR argue that revisions to immigration policy are essential ingredients for economic growth. Given the weakened "pull" of employment opportunities in the United States, it is not surprising that the latest research indicates that illegal entries to the United States have fallen. Estimates derived from the March Supplement of the U.S. Census Bureau's Current Population Survey (CPS) indicate that the unauthorized resident alien population (commonly referred to as illegal aliens) has leveled off at 11.1 million in 2011. Declining birth rates and economic improvements in Mexico have also diminished the "push" factors. These push-pull trends, along with increased border security and a record number of alien removals are other important factors that have depressed the levels of unauthorized migration in recent years. CRS analysis has identified six laws passed since January 1, 2006, that included provisions related to immigration enforcement and border security, despite the absence of CIR legislation. The CRS analysis further noted that investments in immigration enforcement personnel, data systems, and enforcement programs have resulted in more, and higher-consequence, immigration enforcement outcomes. These factors lead some observers to suggest the immigration control measures at the border and within the interior may have become more efficacious in recent years than during the 2005-2007 period. Current fiscal concerns and the tightening of the federal budget point to another contrast with the 2005-2007 period. In the years immediately after the 9/11 terrorist attacks, Congress substantially increased appropriations for border security and immigration control. There was a broad base of support to increase spending for these purposes, as evidenced by the preceding analysis of the three major bills. Members of the 113 th Congress, however, face difficult choices as they prioritize border security and immigration control resources within the fiscal constraints of what may be termed a zero-sum game. Since the last major CIR debates, the U.S. Supreme Court ( Arizona , 132 S. Ct. at 2498) has ruled on the role state and local law enforcement plays in immigration policy. In June 2012, the Court ruled that some aspects of the Arizona state law (S.B. 1070) intended to deter unlawfully present aliens from remaining in the state were preempted by federal law. In Arizona v. United States , however, the Supreme Court held that states are generally preempted from arresting or detaining aliens on the basis of suspected removability under federal immigration law. Such action may be taken only when there is specific federal statutory authorization, or pursuant to "request, approval, or instruction from the Federal Government." CRS legal analysis has summarized that the Supreme Court had made clear that opportunities for states to take independent action in the field of immigration enforcement are more constrained than some had previously believed. Finally, over 3 million LPRs have naturalized as U.S. citizens since 2007. During FY2002 through FY2011, the DHS Office of Immigration Statistics reported that 6.6 million LPRs became citizens. According to the U.S. Bureau of the Census, there were almost 15 million naturalized citizens of the United States in the 2010 decennial census. These demographic trends document the growing importance of immigration as a major policy domain as well as the increasing number of stakeholders in the CIR debate. The challenge of immigration reform today is balancing the hopes of employers to increase the supply of legally present foreign workers, the longings of families to live together, the dreams of unauthorized aliens to gain a legal status, and the demand that all migrants comply with the rule of law. Whether Congress will act to alter immigration policies—either in the form of CIR or in the form of incremental revisions aimed at strategic changes—is at the crux of the debate. Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 ( H.R. 4437 in 109 th Congress) The Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 ( H.R. 4437 ) contained provisions on border security, the role of state and local law enforcement, employment eligibility verification and worksite enforcement, alien smuggling, migrant detention, and other enforcement-related issues. In addition to these provisions, H.R. 4437 had significant provisions on unlawful presence, voluntary departure and removal, expedited removal, and denying U.S. entry to nationals from countries that refused to accept the return of their deported nationals. Border Security H.R. 4437 , as passed by the House, would have required the Secretary of DHS to submit a National Strategy for Border Security outlining a comprehensive strategy for securing the border, including a surveillance plan and a timeline for implementation. It would have added personnel, surveillance, and infrastructure resources at and between ports of entry (POE) and would have directed DHS to work with the Department of Defense (DOD) to formulate a plan for increasing the availability and use of military equipment to assist with the surveillance of the border. It would have required DHS to make the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) Program interoperable with Federal Bureau of Investigation (FBI) criminal datasets by shifting to a 10-fingerprint system for aliens who were required to register with the program as they enter the country, and would have required DHS to submit a timeline for deploying US-VISIT at all land POEs and for implementing the system's biometric exit component. H.R. 4437 would have broadened the role of state and local governments in immigration enforcement, including governments near the border (also see "State and Local Law Enforcement"). In particular, the bill would have directed DHS to design and carry out a border security exercise involving officials from federal, state, local, tribal, and international governments as well as representatives from the private sector within one year of the bill's enactment. And it would have allowed homeland security grant funding to be used to reimburse state and local governments for costs associated with detecting and responding to the unlawful entry of aliens. H.R. 4437 also would have required mandatory detention in most circumstances of all aliens apprehended at the border or ports of entry—including aliens from Mexico—pending their removal from the country. State and Local Law Enforcement H.R. 4437 would have "reaffirmed" the existing inherent authority of states (including their law enforcement personnel), as sovereign entities to investigate, identify, apprehend, arrest, detain, or transfer into federal custody aliens in the United States for the purpose of assisting in the enforcement of the immigration laws. Among its other provisions, H.R. 4437 would have required the Secretary of DHS to create a training manual to aid state and local law enforcement officers in carrying out immigration-related enforcement duties. It would have authorized the secretary to make grants to state and local police agencies for the procurement of equipment, technology, facilities, and other products that are directly related to the enforcement of immigration law. H.R. 4437 would have allowed a state to reimburse itself with certain DHS grants for activities related to the enforcement of federal laws aimed at preventing the unlawful entry of persons or things into the United States that are carried out under agreement with the federal government. The bill would have further required designated sheriffs within 25 miles of the southern international border of the United States to be reimbursed or provided with an advance for costs associated with the transfer of aliens detained or in the custody of the sheriff. Employment Eligibility Verification Title VII of H.R. 4437 , as passed by the House, would have directed DHS to establish an employment eligibility verification system, which would be mandatory for all employers. Employers would have been required to query the system to verify the identity and employment eligibility of an individual after hiring or before commencing recruitment or referral. These verification requirements would have taken effect two years after enactment. The current I-9 system would remain in place with some modifications. H.R. 4437 would also have required employers to verify the identity and employment eligibility of previously hired workers within six years after enactment. Worksite Enforcement H.R. 4437 would have increased existing monetary penalties for criminal violations by employers. At the same time, it would have provided for the reduction of civil monetary penalties for employers with 250 or fewer employees. Alien Smuggling H.R. 4437 , as passed by the House, would have rewritten the alien smuggling provisions in the INA. It would have broadened the types of acts that are considered alien smuggling. For example, it would have made it a smuggling offense to transport a person outside the United States knowing or in reckless disregard of the fact that the person was in unlawful transit from one country to another, or on the high seas, and was seeking to illegally enter the United States. In addition, H.R. 4437 would have established mandatory minimum sentences for those convicted of alien smuggling, and would have enhanced penalties for persons carrying firearms during smuggling offenses. It furthermore would have amended the law to allow for the seizure and forfeiture of any property used to commit or facilitate alien smuggling. Visa Revocation Under current law, there is no judicial review of a visa revocation, except in the context of a removal proceeding if the visa revocation provides the sole ground for removal. The House-passed bill would have barred judicial review of visa revocation in any context. No court would have had jurisdiction to hear any claim arising from, or any challenge to, visa revocation. Legal Immigration and Legalization House-passed H.R. 4437 did not contain provisions that would have reformed legal immigration, nor did it have provisions that would have legalized the status of unauthorized aliens in the United States. An amendment approved during the floor debate would have eliminated the diversity visa category. Comprehensive Immigration Reform Act of 2006 ( S. 2611 in 109 th Congress) The Comprehensive Immigration Reform Act of 2006 ( S. 2611 ) combined provisions on enforcement and on unlawful presence, voluntary departure, and removal with reform of legal immigration. These revisions to legal immigration would have included expanded guest worker visas and increased legal permanent admissions. S. 2611 would also have enabled certain groups of unauthorized aliens in the United States to become LPRs if they paid penalty fees and met a set of other requirements. Border Security As passed by the Senate, S. 2611 contained a number of border security-related provisions comparable to those in House-passed H.R. 4437 . Like H.R. 4437 , S. 2611 would have required the Secretary of DHS to submit a National Strategy for Border Security outlining a comprehensive strategy for securing the border, including a surveillance plan and a timeline for implementation. It would have added personnel, surveillance, and infrastructure resources at and between POE, and would have directed DHS to work with DOD to formulate a plan for increasing the availability and use of military surveillance equipment at the border. It would have required DHS to enhance US-VISIT data collection to allow interoperability with FBI datasets and required DHS to submit a timeline for deployment of the program, including exit screening, at all land ports. Like H.R. 4437 , S. 2611 would have required mandatory detention in most cases of aliens apprehended at the border or a POE, but would not have included Mexican aliens in this requirement. S. 2611 would also have added 20,000 new detention beds. In comparison with H.R. 4437 , S. 2611 would have added a larger number of border enforcement personnel, including by authorizing border state governors to deploy National Guard troops to the border. S. 2611 differed from H.R. 4437 by broadening DHS authority to operate on public lands. And it would have placed greater emphasis on technology, requiring DHS to develop and implement a plan to ensure clear two-way communications for DHS agents working along the border, including three separate provisions that would have directed DHS to acquire and deploy various kinds of surveillance assets in order to establish a "virtual fence" along the southwest border. S. 2611 would have established new criminal penalties for attempting to evade inspection at POE or for disregarding orders given by CBP officers, Border Patrol agents, or ICE investigators, as well as new penalties for constructing border tunnels. S. 2611 also sought to expand U.S.-Mexican and multilateral cooperation on border security, including by requiring DHS to consult with Mexico on border infrastructure construction; by requiring new reports on information-sharing on North American security procedures; by working with Mexico, Canada, and Central America to reduce unauthorized migration from Guatemala and Belize; and by working with Mexico to combat alien smuggling and gang activity, discourage illegal Mexican outflows, and encourage return migration. Alien Smuggling In terms of alien smuggling, S. 2611 was similar to H.R. 4437 but not identical in language or in scope. Although both bills would have broadened the types of acts that are considered alien smuggling, Senate-passed S. 2611 would also have provided new exemptions from criminal liability for persons or organizations providing assistance to unauthorized aliens on humanitarian grounds (such exemptions are not contained in current law). H.R. 4437 , in contrast, contained no such exemptions and would also have removed the current exemption contained in P.L. 109-97 for religious organizations that encourage certain unauthorized aliens to work for the organizations as volunteer ministers or missionaries. Similar to H.R. 4437 , Senate-passed S. 2611 would have established mandatory minimum sentences for those convicted of alien smuggling, enhanced penalties for persons carrying firearms during smuggling offenses, and amended the law to allow for the seizure and forfeiture of any property used to commit or facilitate alien smuggling. State and Local Law Enforcement S. 2611 would have "reaffirmed" a state's inherent authority to investigate, identify, apprehend, arrest, detain, or transfer into federal custody aliens in the United States. However, it would have limited such practices at the state and local level to the enforcement of the criminal provisions of the INA. Employment Eligibility Verification S. 2611 would have directed DHS to implement an employment eligibility verification system, which would be mandatory for all employers. Employers would have been required to participate in the system with respect to all employees hired on or after the date that is 18 months after at least $400 million is appropriated and made available for implementation. Under S. 2611 , employers would have been required to query the system to verify the identity and employment eligibility of an individual after hiring or recruiting or referring for a fee. In addition, DHS could have required any employer or class of employers to participate in the system with respect to individuals employed as of the date of enactment or hired after the date of enactment, if DHS designated such employer or class as a critical employer based on homeland security or national security needs or if DHS has reasonable cause to believe that the employer had materially violated the prohibitions on unauthorized employment. Under S. 2611 , individuals who were terminated from employment based on a determination by the verification system that they were not eligible to work could have obtained administrative and judicial review. If they were, in fact, determined to be eligible to work and prevail, they would have been entitled to compensation for lost wages. Worksite Enforcement Under S. 2611 , the current I-9 system would have remained in place with some modifications. In addition, S. 2611 would have increased monetary penalties for employer violations and would have established a new penalty for employees who falsely represented on the I-9 form that they were authorized to work. Family-Based Immigration In its handling of family-based legal immigration, S. 2611 would have no longer deducted immediate relatives of U.S. citizens from the overall family-sponsored numerical limit of 480,000. This change would have likely added at least 226,000 more family-based admissions annually (based on the current floor of 226,000 family-sponsored visas). The numerical limits on immediate relatives of LPRs would have increased from 114,200 (plus visas not used by first preference) to 240,000 annually. Employment-Based Immigration In terms of employment-based immigration, S. 2611 would have increased the annual number of employment-based LPRs from 140,000 to 450,000 from FY2007 through FY2016, and set the limit at 290,000 thereafter. S. 2611 would also have no longer counted the derivative family members of employment-based LPRs as part of the numerical ceiling. S. 2611 would have reallocated employment-based visas as follows: up to 15% to "priority workers"; up to 15% to professionals holding advanced degrees and certain persons of exceptional ability; up to 35% to skilled shortage workers with two years training or experience and certain professionals; up to 5% to employment creation investors; and up to 30% (135,000) to unskilled shortage workers. Employment-based visas for certain special immigrants would have no longer been numerically limited. S. 2611 would also have no longer counted the derivative family members of employment-based LPRs as part of the numerical ceiling. If each employment-based LPR would be accompanied by 1.2 family members (as is currently the ratio), then an estimated 540,000 additional LPRs might have been admitted. However, the Senate passed an amendment on the floor that placed an overall limit of 650,000 on employment-based LPRs and their accompanying family annually for FY2007-FY2016. Numerical Limits S. 2611 included a provision that would have exempted from direct numerical limits those LPRs who were being admitted for employment in occupations in which the Secretary of Labor deemed there were insufficient U.S. workers "able, willing, and qualified" to work. Such occupations are commonly referred to as Schedule A because of the subsection of the code where the secretary's authority derives. Currently, nurses and physical therapists are listed on Schedule A, as are certain aliens deemed of exceptional ability in the sciences or arts (excluding those in the performing arts). Title V of S. 2611 would have raised the current per-country limit on LPR visas from an allocation of 7% of the total preference allocation to 10% of the total preference allocation (which would be 480,000 for family-based and 450,000/290,000 for employment-based LPRs under this bill). Coupled with the proposed increases in the worldwide ceilings, these provisions would have eased the visa wait times that oversubscribed countries (i.e., China, India, Mexico, and the Philippines) currently have by substantially increasing their share of the overall ceiling. The bill would have also eliminated the exceptions to the per-country ceilings for certain family-based and employment-based LPRs. In addition, special exemptions from numerical limits would also have been made for aliens who have worked in the United States for three years and who have earned an advanced degree in STEM fields. Certain widows and orphans who met specified risk factors would also have been exempted from numerical limits. The bills would have further increased overall levels of immigration by reclaiming family and employment-based LPR visas when the annual ceilings were not met, during the period FY2001-FY2005. Unused visas from one preference category in one fiscal year would have rolled over to the other preference category the following year. Temporary Workers S. 2611 would have significantly expanded the number of guest worker and other temporary foreign worker visas available each year and would have coupled these increases with eased opportunities for these temporary workers to ultimately adjust to LPR status. Whether the LPR adjustments of guest workers and other temporary foreign workers were channeled through the numerically limited, employment-based preferences or were exempt from numerical limits (as were the proposed F-4 STEM foreign student fourth preference adjustments) would have affected the projections and the future flows. Legalization Pathways Senate-passed S. 2611 would have established legalization mechanisms separate from guest worker programs. Under Title VI, Subtitle A of S. 2611 , the Secretary of DHS would have adjusted the status of an alien and the alien's spouse and minor children to LPR status if the alien meets specified requirements. The alien would have had to establish that he or she was physically present in the United States on or before April 5, 2001; had not departed during the April 5, 2001-April 5, 2006, period except for brief departures; and was not legally present as a nonimmigrant on April 5, 2006. Among the other requirements, the alien would have had to establish employment for at least three years during the April 5, 2001-April 5, 2006, period and for at least six years after enactment, and would have had to establish payment of income taxes during that required employment period. Such adjustments of status would not have been subject to numerical limits. Also under Title VI, Subtitle A of S. 2611 , aliens who were unable to meet the presence and employment requirements for adjustment to LPR status but who had been present and employed in the United States since January 7, 2004, and met other requirements, could have been able to apply to DHS for Deferred Mandatory Departure (DMD) status. Eligible aliens would have been granted DMD status for up to three years. An alien in DMD status could have applied for immigrant or nonimmigrant status while in the United States, but would have had to depart the country in order to be admitted under such status. The alien could have exited the United States and immediately re-entered at certain land points of entry. Aliens granted DMD status who were subsequently admitted to the country as H-2C aliens could have applied to adjust to LPR status. Title VI, Subtitles B and C of S. 2611 contained additional provisions that would have enabled certain unauthorized aliens in the United States to apply for LPR status. Subtitle B would have established a "blue card" program for certain agricultural workers in the United States. Under the program, aliens who had performed requisite agricultural employment and met other requirements would have been able to obtain blue card status. Not more than 1.5 million blue cards could have been issued during the five years beginning on the date of enactment. After meeting additional requirements, blue card holders would have been able to adjust to LPR status outside the INA's numerical limits. Subtitle C, known as the DREAM Act, would have enabled aliens who first entered the United States before age 16, had a high school diploma or the equivalent or had been admitted to an institution of higher education, and met other requirements to apply for LPR status. Individuals who qualified would have been granted LPR status on a conditional basis. No numerical limitations would have applied. The conditional LPR status would have been valid for six years, after which the alien could have applied to have the condition removed subject to specified requirements. Comprehensive Immigration Reform and for Other Purposes ( S. 1639 in 110 th Congress) S. 1639 included provisions aimed at strengthening employment eligibility verification and interior immigration enforcement, as well as increasing border security. It would have substantially revised legal immigration with a point system and expanded temporary worker programs. Unauthorized aliens in the United States would have been able to legalize their immigration status if they met certain requirements, paid penalty fees, and qualified for the new pathways that would have been established by the bill. Border Security Regarding border security, S. 1639 included provisions generally similar to those found in S. 2611 with respect to border security strategic planning; increased border enforcement personnel, infrastructure, and surveillance technology; access to public lands; secure two-way communications; changes to make the US-VISIT system interoperable with FBI databases and to develop a plan for the deployment of US-VISIT technology and exit screening at POEs; and the addition of 20,000 new detention beds. S. 1639 differed from the 2006 bills in that it included new subtitles on provisions related to unaccompanied alien children and on asylum and detention safeguards, including provisions related to detention standards, alternatives to detention, and a legal orientation program for detainees. The bill would have imposed broad new requirements to detain aliens pending removal under certain circumstances, and increased the minimum bond to be imposed on non-Mexicans being released on bond. S. 1639 also included new penalties for unlawful flight from immigration or customs controls and expanded DHS' authority to seize smuggling vehicles. Interior Enforcement Many of the enforcement-related provisions contained in S. 1639 resembled those found in S. 2611 and, to a lesser extent, H.R. 4437 . S. 1639 would have provided for an increase in immigration enforcement resources (including detention space) and personnel over a period of several years. S. 1639 would also have expanded the grounds for inadmissibility and/or removal to cover participation in a criminal street gang, felony drunk driving convictions, and convictions for several other crimes relating to domestic violence, sex offenses, and document fraud. S. 1639 also contained several provisions that aimed to encourage aliens to comply with the terms of voluntary departure agreements. The bill would have amended existing criminal prohibitions against unlawful entry or reentry, including by heightening criminal penalties for certain types of offenses. However, unlike H.R. 4437 , S. 1639 would not have criminalized illegal presence. S. 1639 would also have rewritten and expanded the scope of federal laws criminalizing immigration-related fraud (including passport fraud and marriage fraud). The bill would have attempted to facilitate increased cooperation between federal immigration enforcement authorities and state and local police, including by requiring DHS to enter cooperative "287(g)" agreements with entities within every U.S. state, and by instructing federal authorities to take into custody unlawfully present aliens held by state or local authorities when requested. Employment Eligibility Verification Title III of S. 1639 would have amended INA §274A to establish a new employment eligibility verification system (EEVS; modeled on the current largely voluntary electronic system). Under S. 1639 , it would have been unlawful for an employer or other entity to hire, or recruit or refer for a fee, an individual for employment in the United States without verifying identity and employment eligibility, as specified. Over time, participation in the new electronic EEVS would have become mandatory. As of the date of enactment, the Secretary of DHS would have been authorized to require any employer or industry that was a federal contractor, part of the critical infrastructure, or directly related to U.S. national or homeland security to participate in the new EEVS. This requirement could have been applied to both newly hired and current employees. No later than 18 months after the date of enactment, all employers would have been required to participate in the new EEVS with respect to newly hired employees and certain current employees. No later than three years after enactment, all employers would have been required to participate with respect to new employees and all employees not previously verified through the EEVS. Individuals who received final notices that the system could not confirm their employment eligibility (known under the bill, as under E-Verify, as final non-confirmation notices) could have sought administrative and judicial review, but they would not be eligible to be compensated for lost wages resulting from system errors. Worksite Enforcement Under S. 1639 , the current I-9 system would have remained in place with some modifications. Changes would also have been made to existing monetary penalties for employer violations. Among its other employment eligibility verification and worksite enforcement-related provisions, S. 1639 would have provided for the disclosure of certain taxpayer identity information by the Social Security Administration (SSA) to DHS; required SSA to issue more secure Social Security cards; and established a voluntary program through which participating employers could submit employees' fingerprints to verify identity and employment eligibility. Family-Based Immigration In terms of family-based immigration, S. 1639 would have narrowed the types of family relationships that would make an alien eligible for a visa. Foremost, it would have eliminated the existing family-sponsored preference categories for the adult children and siblings of U.S. citizens (i.e., first, third, and fourth preferences). It would have also eliminated the existing category for the adult children of LPRs. The elimination of these categories would have been effective for cases filed after January 1, 2007. When visas became available for cases pending in the family-sponsored preference categories as of May 1, 2005, the worldwide level for family preferences would have been reduced to 127,000. The worldwide ceiling would have been set at 440,000 annually until these pending cases cleared. Immediate relatives exempt from numerical limits would have been redefined to include only spouses and minor children of U.S. citizens. The parents of adult U.S. citizens would have no longer been treated as immediate relatives; instead, parents of citizens would have been capped at 40,000 annually. The spouses and minor children of LPRs would have remained capped at a level comparable to current levels—87,000 annually. Employment-Based Immigration In terms of employment-based immigration, the first three preference categories would have been eliminated and replaced with a point system. This proposed point system would have established a tier for "merit-based" immigrants. The point system for merit-based immigrants would have been based on a total of 100 points divided between four factors: employment, education, English and civics, and family relationships. The special immigrant and investor/job creation employment-based preference categories would have remained. Temporary Workers In terms of temporary workers, S. 1639 would have repealed the H-2B visa, revised the H-2A and H-1B visas, and established new temporary worker visas (Y visas). The proposed Y-1 visa would have covered aliens coming temporarily to the United States to perform certain types of temporary labor or services. The Y-1 visa would have sunset after five years. The proposed Y-2 or Y-2B visa would have covered aliens coming temporarily to the United States to perform seasonal nonagricultural labor or services. Y-2B nonimmigrants would have been granted a period of admission of 10 months. Following this period, they would have needed to be physically present outside the United States for two months before they could have been readmitted to the country in Y status. There would have been no limit on the number of times a Y-2B nonimmigrant could be readmitted. The Y-2 visa would have been capped at 100,000 for the first fiscal year. In subsequent years, the cap would have increased or decreased based on demand for the visas, subject to a maximum cap of 200,000. An exemption from the Y-2 cap would have been provided for an alien who had been present in the United States as an H-2B or Y-2B nonimmigrant during any one of three fiscal years immediately preceding the fiscal year of the approved start date of a petition for an H-2B or Y-2B nonimmigrant worker. The proposed Y-3 visa would have covered the spouses and minor children of Y-1 or Y-2B nonimmigrants and would have been capped at 20% of the annual numerical limit on the Y-1 visa, or 40,000. Legalization Pathways S. 1639 would have provided avenues for unauthorized aliens to gain legal status through a set of Z and Z-A visas. The proposed Z-1 visa would have covered aliens who had been continuously physically present in the United States since January 1, 2007, and were employed. To be eligible, the aliens could not have been lawfully present in the United States on January 1, 2007, under any nonimmigrant classification or any other immigration status made available under a treaty or other multinational agreement ratified by the Senate. There would have been no limitation on the number of aliens who could have been granted Z-1 status. Subject to specified requirements, applicants for Z-1 status would have received probationary benefits in the form of employment authorization pending final adjudication of their applications. The period of admission for a Z-1 nonimmigrant would have been four years. A Z-1 nonimmigrant could have sought an unlimited number of four-year extensions of the period of admission, subject to specified requirements. Aliens in Z-1 status could also have applied to adjust to LPR status, subject to specified requirements. The proposed Z-2 and Z-3 visas would have covered specified family members of Z-1 aliens, where the family members had been continuously physically present in the United States since January 1, 2007. There would have been no limitation on the number of aliens who could be granted Z-2 or Z-3 status. Subject to specified requirements, applicants for Z-2 or Z-3 status would have received probationary benefits in the form of employment authorization pending final adjudication of their applications. Aliens in Z-2 or Z-3 status could also have applied to adjust to LPR status, subject to specified requirements. The proposed Z-A visa would have covered aliens who were coming to the United States to perform agricultural service or activity and who met specified requirements. Among the requirements would have been performance of at least 863 hours, or 150 work days, of agricultural employment in the United States during the 24-month period ending on December 31, 2006. No more than 1.5 million Z-A visas could have been issued. Spouses or minor children of Z-A nonimmigrants would have been eligible for Z-A dependent visas, which would have been subject to a numerical limit. An alien in Z-A status could have sought an unlimited number of four-year extensions of the period of admission, subject to specified requirements. Aliens in Z-A status could also have applied to adjust to LPR status, subject to specified requirements. S. 1639 would also have enabled certain eligible aliens who were unauthorized to adjust to LPR status by means of a point system after they had worked in the United States on the proposed Z visa. These Z-to-LPR adjustments would have been scored on the merit-based point system, plus four additional factors: recent agricultural work experience, U.S. employment experience, home ownership, and medical insurance. These Z-to-LPR adjustments would not have counted under the worldwide ceilings. Likewise, aliens issued Z-A visas or Z-A dependent visas who were granted adjustment to LPR status would not have counted toward the worldwide numerical limitations on permanent admissions or toward the numerical limitations on individual states. S. 1639 would have established three different worldwide ceiling levels for the merit-based point system. For the first five fiscal years post-enactment, the worldwide ceiling would have been set at the level made available during FY2005—a total of 246,878. Of this number, 10,000 would have been set aside for exceptional Y visa holders to become LPRs, and 90,000 would have been allocated for reduction of the employment-based backlog existing on the date of enactment. In the sixth year after enactment, the worldwide level for the merit-based point system LPRs would have dropped to 140,000, provided that priority dates on cases pending reached May 1, 2005. Of this number, 10,000 would have again been set aside for exceptional Y visa holders, and up to 90,000 would have been set aside for reduction of the employment-based backlog existing on the date of enactment. When the visa processing of the pending family-based and employment-based petitions would have reached those with May 1, 2005, priority dates, it would have triggered the provisions in S. 1639 enabling the Z-to-LPR adjustments to go into effect. At that time, the merit-based point system worldwide level would have become 380,000. The Z-to-LPR adjustments, however, would have occurred outside of this worldwide level. The proposal nonetheless would have continued to set aside 10,000 for exceptional Y visa holders to become LPRs. S. 1639 additionally would have created a new F-4 visa category for foreign students pursuing STEM fields to obtain practical training. Foreign students with the proposed F-4 visa could have been employed in the United States for periods of up to 24 months after completing their degree. The proposed F-4 visas would not have been numerically limited. A version of the DREAM Act was also included in S. 1639 . The S. 1639 version of the DREAM Act, however, was substantially different than the provisions that passed in S. 2611 . S. 1639 's DREAM Act provisions were tied to other provisions in the bill to enable certain unauthorized aliens in the United States to obtain legal status under a new "Z" nonimmigrant visa category. S. 1639 , like most other DREAM Act bills, would have coupled adjustment of status provisions for unauthorized students with language addressing the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) provision that places restrictions on state provision of educational benefits to unauthorized aliens. Unlike most other DREAM Act bills, however, S. 1639 would not completely repeal the IIRIRA provision. Instead, §616(a) of S. 1639 would have made the provision inapplicable with respect to aliens with probationary Z or Z status. Effective Date Triggers Largely to address concern that enacted CIR legislation would have successfully legalized millions of foreign nationals and increased future flow, but would not have effectively enforced the enhanced border security and employment verification requirements, S. 1639 had trigger mechanisms linking the elements. More specifically, S. 1639 included provisions that would have required that certain temporary worker and legalization provisions of the bill not go into effect until certain triggers were certified by DHS and the U.S. Government Accountability Office (GAO) to be established, funded, and operational. The triggers would have included "operational control" of 100% of the Southwest border; deployment of 20,000 U.S. Border Patrol agents; installation along the Southwest border of at least 300 miles of vehicle barriers, 370 miles of border fencing, and 105 ground-based radar and camera towers; deployment of at least four unmanned aerial vehicle (UAV) systems; detention until removal of 100% of aliens apprehended on the Southwest border, with certain humanitarian and other exceptions; detention space to accommodate at least 31,500 aliens per day; implementation of strict identity document standards for employment verification purposes; and implementation of an electronic employment eligibility verification system. These trigger provisions were located in the first title of the bill and were linked to the temporary workers provisions in Title IV and legalization provisions in Title VI. | Leaders in both chambers of Congress have listed immigration reform as a legislative priority in the 113th Congress. Most policymakers agree that the main issues in "comprehensive immigration reform" (CIR) include increased border security and immigration enforcement, improved employment eligibility verification, revision of legal immigration, and options to address the millions of unauthorized aliens residing in the country. These elements were among the features that President Barack Obama emphasized when he called for the 113th Congress to take up CIR legislation. Similar to President Obama's recent statements on CIR, former President George W. Bush stated that comprehensive immigration reform was a top priority of his second term. President Bush's principles of immigration reform included increased border security and enforcement of immigration laws within the interior of the United States, as well as a major overhaul of temporary worker visas, expansion of permanent legal immigration, and revisions to the process of determining whether foreign workers were needed. Then—as well as now—the thorniest of these issues centered on unauthorized alien residents of the United States. During the 109th Congress, both chambers passed major overhauls of immigration law but did not reach agreement on a comprehensive reform package. In the 110th Congress, Senate action on comprehensive immigration reform legislation stalled at the end of June 2007 after several weeks of intensive floor debate. The House did not act on comprehensive legislation in the 110th Congress. The three major CIR bills in the 109th and 110th Congresses were the Border Protection, Antiterrorism, and Illegal Immigration Control Act of 2005 (H.R. 4437 as passed by the House in 109th Congress), the Comprehensive Immigration Reform Act of 2006 (S. 2611 as passed by the Senate in 109th Congress), and the Comprehensive Immigration Reform (S. 1639 as considered by the Senate in 110th Congress). All three of the major CIR bills had provisions that would have increased resources for border security, expanded employment eligibility verification, increased the worksite enforcement penalties, broadened inadmissibility grounds pertaining to national security and illegal entry and added a ground for gang membership, expedited the implementation of the automated entry-exit system known as US-VISIT (United States Visitor and Immigrant Status Indicator Technology), broadened the categories of aliens subject to expedited removal, increased the criminal penalties for immigration and document fraud, and expanded the categories of aliens subject to mandatory detention. Despite these similarities, there were substantial differences between the chambers regarding the treatment of unauthorized aliens as well as allocations of visas across family and employment categories for future flows of legal immigrants. The House-passed bill in the 109th Congress would have criminalized unauthorized presence. In contrast, the Senate bills in the 109th and 110th Congresses would have created avenues for unauthorized aliens who met a set of criteria and paid prescribed penalties to acquire "earned legalization." The Senate bills also had provisions that would have made substantial revisions to legal permanent admissions, notably revising and expanding the employment-based permanent and temporary visa categories. The failure of these substantial efforts to enact CIR in the 109th and 110th Congresses has prompted some to characterize CIR as a "third rail" issue that is too highly charged to touch. |
Historically, Germany's experience with terrorism has been predominantly with domesticgroups. Since the 1970s, Germany has demonstrated both the willingness and capability to combatdomestic sources of terrorism. After the attacks of September 11, 2001, however, it became apparentto many within and outside Germany that its traditional approaches were ill-suited to dealing withthe new threat of transnational, radical Islamic terrorism. Terrorists' use of German territory to hatchthe 9/11 plot served as a wake up call for many. Three of the hijackers lived and plotted in Hamburgand other parts of Germany for several years, (1) taking advantage of liberal asylum policies and the low levels ofsurveillance by authorities. The German response to the 9/11 terrorist attacks against the United States was immediateand unprecedented in scope for that country. Setting aside its post-World War II prohibition againstdeploying forces outside of Europe and overcoming pacifist leanings of some in the governingcoalition, Germany quickly offered military and other assistance to the United States. In his initialreaction to the attacks of 9/11, Chancellor Gerhard Schroeder declared Germany's "unlimitedsolidarity" with the United States. On September 12, 2001, the German government, along with otherU.S. allies, invoked NATO's Article V, paving the way for military assistance to the United States.The Chancellor gained approval from the German Parliament to deploy troops to Afghanistan witha call for a vote of confidence in his own government. Since then, German efforts in the fight against terrorism have expanded across a widespectrum. Germany has instituted significant policy, legislative, and organizational reforms. Bilateralcooperation with the United States has been extensive, despite differences stemming from thedistinct approaches and constraints in each country and frictions resulting from sharp disagreementover Iraq policy. The following sections examine the German domestic and international response to terrorismafter 9/11 and potential issues and problems regarding the German approach. They assess theaccomplishments of U.S.-German cooperation, as well as problems and future prospects. Germany's counterterrorism strategy shares a number of elements with that of the UnitedStates, although there are clear differences in emphasis: Key elements include: (2) Identifying terrorists and their supporters, bringing them to justice, andbreaking up their infrastructure at home and abroad. Assisting countries facing the danger of becoming failedstates. Addressing the social, economic, and cultural roots ofterrorism. Halting the proliferation of weapons of massdestruction. Seeking multilateral legitimization for any military action through the UnitedNations. Significantly, Germany now sees radical Islamic terrorism as its primary security threat anditself as a potential target of attack. (3) Although German citizens have not been directly targeted byradical Islamic terrorism to date, they frequently have been its victims. Since September 11, 2001,more German citizens have died as victims of Islamic terrorist attacks than in the entire history of domestic violence by the Red Army Faction (RAF), a German terrorist group that operated for overthirty years. (4) Germany has responded to the fact that it was a center for the planning of the attacks of 9/11. Key figures in the attacks were part of a Hamburg cell and the evidence suggests that terrorist cells,even before 9/11, saw Germany as one of the easier places in Europe from which to operate. Terrorists were able to take advantage of Germany's liberal asylum laws, as well as strong privacyprotections, and rights of religious expression which shielded activities in Islamic Mosques fromsurveillance by authorities. In its efforts to combat terrorism, Germany has emphasized the need to ensure that all of itsdomestic and international actions are consistent with the country's own laws, values and historicallessons of the Nazi era. Germany has given high priority to the protection of the civil rights andliberties of all those residing in Germany, including non-citizens. Germans stress that thislong-standing emphasis on civil rights should not be seen as a lack of political will to target terroriststoday. (5) However, someobservers are concerned that the German interpretation of its civil rights requirements could hinderthe capture and prosecution of important terror suspects. Although Germany has contributed troops to international operations, German officials donot believe that military force can serve as the principal instrument to fight terrorism and do not evenlike to use the term "war" to describe the international response to global terrorism. Germany tendsto stress "soft power" instruments such as diplomacy, development assistance, and addressing issuesthat can give rise to terrorism: "Providing support for modernization, resolving bitter regionalconflicts, rebuilding shattered structures is just as important as the work being done by the military,the police and the secret services", according to Foreign Minister Joschka Fischer. (6) Chancellor Schroeder has saidthat "the foremost task of international politics is to prevent wars" (7) and that Germany seekspeaceful resolution of international disputes as a guiding principle. Some critics, however seeGermany's stance against the use of force as unrealistic, particularly when facing hard core Islamicterrorist groups and "rogue" states. Germany also sees itself as limited in its ability to respond militarily to the threat of terrorismabroad both by its historical experience and by the fact that upon the reunification of the twoGermanies in 1990, Germany formally pledged to use its military forces only within the frameworkof the UN Charter. Although Germany supported the UN-sanctioned intervention in Afghanistan to root out theTaliban and al Qaeda, the German government strongly opposed the U.S. policy of broadening thewar against terrorism to a war against Iraq. Chancellor Schroeder argued that "those who want toresolve the crisis with military means must have an answer to the question of whether this will helpthe global alliance against terrorism, which includes about fifty Moslem states, or whether it willjeopardize this alliance, or perhaps even destroy it." (8) From Germany's perspective, the war in Iraq is intensifying theterrorist threat. (9) Despite differences over Iraq, Germany is viewed as a key partner in the global war onterrorism. In the wake of the 9/11 attacks, Germany has redefined its security strategy and foreignpolicy. (10) Today,Germany perceives threats to its domestic security that lie far beyond its own borders. The so-called"Struck-Doctrine" (11) states that Germany's security is now defended in places far removed from its borders, such as inAfghanistan. Germany's global economic position makes counterterrorism an important German foreignpolicy concern. Alongside security concerns, Germany has extensive economic interests worldwidethat it believes are now potentially threatened by terrorism. As one of the world's largest exportingnations, Germany exports nearly 50% of its goods to non-EU (European Union) countries. (12) Furthermore, Germanyimports 98% of its natural gas and oil from abroad. Germany views secure trade routes and marketsas vital to its economic security. Thus, global stability and combating terrorism are connected inGerman foreign policy. Reform Measures Implemented. The Germangovernment has taken extensive domestic measures against terrorism since 9/11, in the legal, lawenforcement, financial, and security realms. The first step taken was to identify weaknesses in thelaws that allowed some of the terrorists to live and plot in Germany largely unnoticed. After 9/11, Germany adopted two major anti-terrorism packages. The first, approved inNovember 2001, targeted loopholes in German law that permitted terrorists to live and raise moneyin Germany. Significant changes included (1) The immunity of religious groups and charities frominvestigation or surveillance by authorities was revoked, as were their special privileges under rightof assembly, allowing the government greater freedom to act against extremist groups; (2) terroristscould now be prosecuted in Germany, even if they belonged to foreign terrorist organizations actingonly abroad; (3) the ability of terrorists to enter and reside in Germany was curtailed; and 4) borderand air traffic security were strengthened. The second package was aimed at improving the effectiveness and communication ofintelligence and law enforcement agencies at the federal and state levels. Some $1.8 billion wasmade immediately available for new counterterrorism measures. In fiscal years 2002 and 2003, thebudget for relevant security and intelligence authorities was increased by about $580 million. (13) The new laws providedthe German intelligence and law enforcement agencies greater latitude to gather and evaluateinformation, as well as to communicate and share information with each other and with lawenforcement authorities at the state level. The most important intelligence authorities in Germany are the Federal Intelligence Service(BND), (14) the FederalBureau for the Protection of the Constitution (BfV), (15) and the Military Counterintelligence Service (MAD). (16) The most importantsecurity authorities are the Federal Bureau of Criminal Investigation (BKA) (17) and the Federal BorderGuard (BGS). (For a more detailed picture of the organizational structure, see Appendix A.) Since the approval of these laws, further measures have been instituted. For instance, aviationsecurity has been increased by placing armed security personnel and installing bullet- and entry-proofcockpit doors on German planes. Full inspection of all luggage is now mandatory at German airports. As elsewhere in Europe, the presence of Germany's large Muslim population also influencesanti-terror policies. Germany has a strong record of tolerance and protecting Muslim religiousfreedoms. However, the government is determined to go after Muslim extremists. Profiling isconsidered an acceptable means for identifying likely terrorists under German law. The government launched a major effort to identify and eliminate terrorist cells. Germany'srecent annual "Report on the Protection of the Constitution 2003" (18) indicated that about 31,000German residents are thought to be members of Islamic organizations with extremist ties. Shortly after the 9/11 attacks the government moved against twenty religious groups andconducted more that 200 raids. (19) Three radical Islamic organizations are now banned in Germany(i.e., Kalifatstaat, Al-Aksa e.V., and Hizb-ut-Tahrir). Currently, the German Justice Ministry isinvolved in 80 preliminary proceedings related to Islamic terrorism against 170 suspects. (20) Since February 2004, theGerman government has prosecuted members of a splinter group of the Iraqi Tawhid and Jihad(referred to as the Al Tawhid case in Germany). This terrorist group is accused of having preparedattacks against Israeli facilities in Germany; some members were caught in April 2002. Reportedly,they had connections to Abu Musab Al-Zarqawi, head of the Iraqi Tawhid and Jihad, and alsoaffiliated with Al Qaeda. With the legislative reforms giving it the authority to lead its own investigations and withincreased law enforcement capacity, the BKA has placed some 250 to 300 suspects who are thoughtto have links to international terror networks under surveillance. (21) Shortly after 9/11, Germanauthorities conducted a computer-aided search of the type that had proven successful in profiling andeventually dismantling the Red Army Faction in the 1990s. Reportedly, this effort uncovered anumber of radical Islamic "sleepers" in Germany, and a "considerable number of investigations" havebeen started. (22) In the financial area, new measures against money laundering were announced in October2001. A new office within the Ministry of Interior was charged with collecting and analyzing information contained in financial disclosures. Procedures were set up to better enforce asset seizureand forfeiture laws. (23) German authorities were given wider latitude in accessing financial data of terrorist groups. Stepswere taken to curb international money laundering and improve bank customer screening procedures.The Federal Criminal Police Office set up an independent unit responsible for the surveillance ofsuspicious financial flows. Measures to prevent money laundering now include the checking ofelectronic data processing systems to ensure that banks are properly screening their clients' businessrelationships and following the requirement to set up internal security systems. In seeking to dry up the sources of terrorist financing, new laws (24) are aimed at strengtheningGermany's own capabilities, as well as German cooperation with the broader international effort.Under the oversight of the German Federal Banking Supervisory Office, banks, financial serviceproviders and others must monitor all financial flows for illegal activity. Within the BKA, aFinancial Intelligence Unit (FIU) was established to serve as Germany's central registration officefor money laundering as well as a main contact point for foreign authorities. Germany was the firstcountry to implement an EU guideline against money laundering as well as the recommendationsof the Financial Action Task Force on Money Laundering (FATF). (25) The FATF hascharacterized Germany's anti-money laundering regulations as comprehensive and effective. (26) Additional measures are being implemented by Germany. A new aviation security law isunder consideration which would allow the military to shoot down threatening hijacked aircraft. (27) A new immigration lawmakes it easier to deport suspected foreigners and makes naturalization more difficult. (28) In early July 2004, federaland state Ministers of the Interior implemented some key organizational changes: 1) a centraldatabase will now collect and store all available information regarding Muslim radicals suspectedof terrorism; 2) a joint Coordination Center consisting of the BKA, BND, BfV and MAD will seekto cooperate more closely to prevent terrorist attacks; and 3) German federal states will be integratedinto the coordination center. Germany's approach to terrorism is influenced by its geographic position in the heart ofEurope and its membership in the European Union. Germany has two borders, its own and the EUborder within which it sees its economic and security future. EU procedures and the EU jurisdictionin certain areas affect the domestic affairs of its member states. A lot of basic anti-terrorismmeasures -- for instance EU definitions of terrorism, terrorist organizations and common penalties,border control within the Schengen System, the EU-wide arrest warrant and the EU-wide assetfreezing order -- are governed by EU legislation. Possible Issues and Problems. DespiteGermany's sweeping reforms, critics point to continuing problems hampering Germany's domesticefforts. As a result of the emphasis on guarding civil liberties, the German law enforcement andintelligence communities face more bureaucratic hurdles, stricter constraints, and closer oversightthan those in many other countries. They are required to operate with greater transparency. Privacyrights of individuals and the protection of personal data are given prominent attention. Theseprotections are extended to non-citizens residing in Germany as well. Police are prohibited fromcollecting intelligence and can only begin an investigation when there is probable cause that a crimehas been committed. Thus, no legal recourse exists against suspected "dangerous persons," until acase can be made of a felony or its planning. (29) In turn, intelligence agencies cannot make arrests andinformation collected covertly cannot be used in court. Although the ease of entry of terrorists into Germany and their movement has beensignificantly curtailed, suspects already living in Germany are able to take advantage of apparentweaknesses in German law. Academic and job training programs, as well as the granting of asylum,have allowed potential terrorists to obtain extended residency permits. (30) Some terrorists may havemarried into German citizenship. Second generation immigrants possess citizenship and serve as apotential recruitment pool. The new immigration law, which becomes effective in January 2005, isexpected to close some loopholes. (31) Authorities have arrested, interviewed, and searched the homes of a number of suspects butreleased them for lack of evidence. (32) Similarly, the number of asset seizures and forfeitures inGermany has remained relatively low because of the high burden of proof under German law. (33) Another problem relates to Germany's organizational framework for fighting terrorism. Nocentral agency or person is in charge of overseeing and coordinating all anti-terrorism andcounterterrorism efforts. (34) Opinions differ on whether greater centralization would bebeneficial or harmful. Moreover, the most important domestic security and intelligence authorities,the BKA and BfV, are divided into one federal and 16 state bureaus each. The state bureaus workindependently of each other and independently of the federal bureaus. (35) Furthermore, German lawrequires a complete organizational separation of executive agencies such as the BKA and federalstate police agencies, as well as intelligence authorities such as the BfV. (36) The fact that automaticcooperation is not possible, increases the potential for information loss. (37) Cooperation is possibleonly in selected cases after formal requests have been approved. An Information Board was recentlyestablished to facilitate such exchanges and interaction between authorities in certaininvestigations. (38) Recently, the decision was made to establish a Coordination Center to improve cooperation amongfederal and state-level authorities. Eliminating remaining weaknesses in Germany's domestic response may be difficult. Manydoubt that the German government will be able to institute significant further changes to itsinstitutional and legal structures, so long as Germany does not suffer a large-scale attack. Already,the 16 federal states are blocking proposals for tighter centralization at the federal level, not wantingto cede authority. (39) Yet, there have been indications of terrorist activities in individual states with importantinternational traffic hubs (e.g., airports, harbors) and large Muslim populations. (40) Some have suggested thatthe upcoming 2006 Soccer World Cup in Germany, a potential target for terrorist attacks, mightprovide a catalyst for officials and security experts to rethink legal and security measures and to gainsupport for further steps to counter the terrorist threat. The German international response to the 9/11 terrorist attacks also has many elements. OnSeptember 12, 2001, the German government, along with other U.S. allies, invoked NATO's ArticleV, paving the way for military assistance to the United States. Chancellor Schroeder gainedparliamentary approval to deploy troops to Afghanistan. Since then, Germany has contributed in anumber of ways to the international fight against terrorism. However, the German support hasstopped short of supporting U.S. actions in Iraq or playing a direct role there. The Germangovernment has continued to oppose the war and occupation and to reject the linkage between Iraqand the war on terrorism. Some highlights of German efforts follow. Military. Currently Germany has about 7,800troops based abroad. (41) Some forty percent of those troops are directly engaged in counterterror missions. Germany isdirectly involved in five major counterterror missions as part of the global coalition (see below).German costs for these military deployments are estimated at $3.5 billion for 2002 and 2003. (42) In order to adjust Germansecurity strategy to the new threat environment, the Ministry of Defense issued new "Defense PolicyGuidelines" (43) in May2003. In the aftermath of the September 11th attacks, German crews participated in Operation NobleEagle patrolling North American airspace in NATO's airborne early warning aircraft (AWACS).Germany contributed one third of the squadrons' personnel. This mission lasted until May 15, 2002. Since January 2002, when the first German troops were deployed there, Afghanistan has beencentral to Germany's international military involvement. Chancellor Schroeder has said he is willingto maintain this engagement indefinitely. (44) In Afghanistan, some 2,300 German soldiers participate in theInternational Security Assistance Force (ISAF) and the Provincial Reconstruction Team(PRT)missions in the region of Kunduz and Feizabad. From February until August 2003, Germany and theNetherlands had joint command of ISAF . German special forces units which participated in specialoperations in Afghanistan are now on standby in Germany. (45) German forces are part of two naval missions as well: One associated with Operation Enduring Freedom (in the region around the Horn of Africa) and the other with Active Endeavor (inthe southeastern Mediterranean Sea and Straits of Gibraltar). These multilateral missions aredesigned to gather intelligence about possible terrorist activity in these regions, cut off terroristsupply channels, and safeguard international shipping routes. Currently, some 720 German navalpersonnel participate in these two missions. From May 2002 until October 2002, Germany tookcommand of allied naval forces in the Horn of Africa. Additionally, from February 2002 until July2003, a Nuclear, Biological, and Chemical (NBC) detection unit with up to 250 soldiers wasdeployed in Kuwait as part of Enduring Freedom . However critics point out that German military efforts have been hampered by the fact that,among major U.S. allies, German forces are presently among the least quickly deployable due todelays in implementing military reforms and, specifically, addressing a lack of airlift capacity. Delays and problems were encountered in fulfilling the German force commitments in Afghanistanin part because the military did not have the necessary transport planes and had to charter Ukrainianaircraft. While Germany is implementing military reforms to make its armed forces moreexpeditionary and committed to overcoming post-Cold War deficiencies, budget shortfalls may delaythese efforts. Diplomacy. By hosting two internationalconferences on Afghanistan, Germany has been engaged in establishing global support for thatcountry's post-war reconstruction. (46) Within the United Nations, Germany supported a number of counterterror resolutions, mostnotably the UN sanctions regime targeting members or associates of Al Qaeda and the Taliban.Germany also ratified the UN International Convention for the Suppression of Terrorist Bombings. Germany has ratified all eleven UN anti-terror Conventions and is preparing legislation for theratification of the 12th Convention against terrorist financing. (47) At the European level, Germany is pressing to shorten the transition period before new EUanti-terror legislation takes effect. Germany is working with other countries to improve theSchengen-system (a system that allows passport-free travel between participating EU member states-- travel into or out of the EU-wide system still requires traditional passports and visas) withphotographs on visas and resident permits. Moreover, Germany is pushing for the use of biometricidentifiers on passports, visas and resident permits, and for international standardization of thesesystems. (48) Germanyviews itself as a driving force in European counterterrorism efforts. Germany's Interior Minister hassaid: "Maybe a few of the EU countries will have to take the lead. After all, the pace cannot be setby the slowest, but by the fastest and most determined." (49) Within the G8, a German initiative has led to the establishment of a working group onbiometrics. The U.S. has supported Germany's proposal that G8 countries develop joint standardsfor the deployment of air marshals. (50) Germany has coordinated its efforts to adopt measures againstterrorism with the United States and other G-8 member states. (51) Reconstruction and Foreign Aid. Foreignassistance and economic development are integral parts of Germany's security and foreign policy.As a member of the German Federal Security Council, the Ministry of Economic Cooperation andDevelopment takes an active part in foreign policy decision-making. The Schroeder Government unveiled a new plan for "Civil Crisis Prevention, ConflictResolution, and Peace Consolidation," (52) in May 2004. Financial resources for reconstruction and otherforeign aid are constrained, however, by spending cuts to deal with current German economicproblems. Critics have argued that the plan is underfunded. (53) Nonetheless, Germany'scontribution remains important, especially in Afghanistan. By the end of 2004, Germany will havecontributed $384 million for the reconstruction of Afghanistan. Through 2008, Germany haspromised $1.2 billion (non-monetary contributions not included). (54) Germany is coordinatingand leading efforts to build the Afghan police forces. (55) Despite its opposition to the war in Iraq, Germany hascontributed about $196 million toward the postwar effort there. Moreover, at the Paris ClubGermany has agreed to waive some fifty percent ($ 2.4 billion) of debt owed it by Iraq in threestages through 2008. (56) Total German foreign aid and reconstruction funding worldwide for 2002 and 2003 was about $13.9billion. (57) Security cooperation between the United States and Germany, which had been close evenbefore 9/11, was greatly expanded after the attacks. The BKA now has two permanent liaisonofficers at the German Embassy in Washington, DC and a liaison officer from the office of theGerman Federal Prosecutor is working in the U.S. Department of Justice. In Germany, up to 15 U.S.liaison officers are participating in the investigations of the 9/11 terrorist cells that were based inGermany. Several other measures have been taken. An agreement on bilateral cooperation for theprotection of computer systems and networks was reached in June 2003. This effort is aimed atdefending critical infrastructure such as power supplies, and transportation and telecommunicationsgrids in both the United States and Germany. Steps are being taken to extend this cooperation to theprotection of nuclear facilities. (58) Moreover, the United States and Germany reached an agreementon increased legal cooperation in criminal matters in October 2003. Bilateral cabinet-level meetingsare frequent. Germany plays an active role in the U.S. Container Security Initiative (CSI). Officials inWashington, DC and Berlin signed an agreement to improve bilateral cooperation on containersecurity with the aim of stopping terrorists from smuggling weapons of mass destruction in sea-cargocontainers. U.S. Customs agents are stationed in Germany to monitor suspicious containers beforethey leave German harbors. (59) Furthermore, Germany is an active member of the 14-countrycore group of the Proliferation Security Initiative (PSI). This initiative is aimed at preventing thespread of materials that could be used to build weapons of mass destruction. U.S. and Germanintelligence cooperation led to seizure of a ship bound for Libya in the Mediterranean Sea in October2003. Illicit nuclear material aboard was confiscated. (60) Some believe that bilateral cooperation is weaker in the field of information sharing for avariety of reasons. The United States has security concerns about sharing sensitive information.German authorities in turn fear that the United States will use sensitive shared information in waysthat might conflict with Germany's practices with regard to data protection and civil liberties. (61) Also, German critics claimthat the U.S. expectation of information sharing by others is not matched by a U.S. willingness toshare with them. A recent example of the problems created by inadequate information sharing concerned twotrials of suspects in the 9/11 attacks. Mounir el Motassadeq and Abdelghani Mzoudi were eventuallyacquitted by a German Federal Court with the explanation that the United States had not madecrucial evidence available. (62) After the Department of Justice forwarded the evidence requestedby the German government, the Motassadeq trial was reopened on August 10, 2004. What effect theinformation might have on the outcome of the new trial is unclear. U.S.-German cooperation in the area of information sharing mostly occurs on a case-by-casebasis and is not based on formal governmental agreements. Some question whether this is adequate. Given the way that transnational terrorist networks operate, some argue that it is necessary to targetthe entire terrorist infrastructure (e.g., recruitment, fund raising, logistics, and training). (63) A shared databasecontaining all available information regarding the most threatening persons might allow bothcountries to better track terrorist suspects, to harmonize surveillance activities, and to target travelby terrorists (as was recommended by the U.S. 9/11 Commission). Apparently the only databasesof such dangerous persons accessible to both governments are the lists of Islamic terroristorganizations and persons maintained by the UN and the EU. (64) Sharply different perspectives on the death penalty have also hampered bilateral cooperationin some cases. Germany, like all EU member countries, has abolished the death penalty. Germanlaw does not allow extradition of a person wanted by another country if there is a possibility that theperson might be executed if found guilty. In previous cases, Germany extradited suspects only afterit had received assurances that the death penalty would not be imposed. In 1998, Germany arrestedand extradited a key suspect in the 1998 U.S. Embassy bombings in Africa, after U.S. prosecutorsagreed to waive the death penalty. Germany has interpreted its laws to forbid even provision ofevidence relating to such a case, if that information might lead to the imposition of a death sentence. This became an issue when the United States sought to obtain documents from Germany related tothe case of Zacarias Moussaoui, the so-called 20th hijacker. The information was eventually suppliedbased on the understanding that the United States would agree not to seek the death penalty solelybased on the evidence gained from Germany. (65) Still, the death penalty issue remains a potential impediment tocooperation in specific cases. Germany and the United States also differ on the question of the status of prisoners,particularly the Al Qaeda and Taliban detainees in Guantánamo Bay. Germany's Foreign MinisterJoschka Fischer and other politicians have argued that all detainees should be granted formal statusas prisoners of war. Germans, like other Europeans, have also criticized U.S. plans to use militarytribunals to try at least some of the terrorist suspects. Such tribunals are seen as unnecessary andcounterproductive by German officials. Some question has been raised whether terrorist suspectswould be extradited by Germany and other EU countries, if they were likely to face a militarytribunal. (66) In the German view, conduct of the fight against global terrorism requires multilateralcooperation, formally sanctioned by the relevant international organizations. Germans argue thatmost unilateral measures are illegitimate and ineffective. In this context, German officials are hopingthat the second Bush Administration will place greater emphasis on multilateralism to strengtheninternational support for U.S. counterterrorism initiatives. From Germany's perspective, joint actionon counterterrorism is also tied closely to joint decision making. (67) The U.S. Administration rejects any absolute commitment to multilateralism in terms ofwaiting for UN approval for any military action. Such a policy would be seen in the United Statesas a dangerous and unacceptable recipe for paralysis. Some criticize the German approach as toowedded to process over results, especially when dealing with "rogue" states and weapons of massdestruction. While Germany has declared WMD non-proliferation a core element of its nationalsecurity strategy, the German approach has been criticized by some for relying almost exclusivelyon positive engagement and avoiding conflict, an approach that might not be very successful ininfluencing certain regimes or potential terrorists. Some observers believe that the German stancereflects the reality that the country presently lacks the military means or the political will to confrontWMD states with anything other than "soft power" instruments (such as diplomacy and economiclevers). Some see a complementarity in the differing U.S. and German approaches. The U.S. hasextensive military capabilities to deal with threats of terrorism, while Germany views its strengthsin conflict prevention and reconstruction. This could mean, for instance, that Germany might bebetter positioned to take on a greater role in long-term reconstruction efforts in countries likeAfghanistan. Some argue that with a better understanding of the potential complementary roles thetwo countries can play based on the strengths and advantages of each, new opportunities forenhanced cooperation in the global war on terrorism might be found. The final report of the U.S.9/11 Commission suggests that long-term success in the war against terrorism demands the use ofall elements of national power, including "soft power" instruments such as diplomacy, intelligence,and foreign aid. A key question is to what degree differences are likely to hamper U.S.-German cooperationagainst terrorism. It could be argued that U.S. and German security in the near and mid-term arelikely to be affected far more by what Germany does to cooperate with the United States in terms ofdomestic security and bilaterally than by Germany's stance on other international issues. Lapses inGerman domestic surveillance or other shortcomings in German domestic policy could directlythreaten U.S. security. For example, according to statements from the BND, some dozen or soIslamic militants capable of carrying out assaults may have left Germany for Iraq not too longago. (68) Therefore, manyquestion whether the United States and Germany can afford the risk of allowing international policydifferences to lead to declining cooperation within the crucial arena of domestic security. The United States and Germany may see security threats through different lenses, andresponses to those threats are shaped by different national interests, practices, and historicalexperiences. (69) Ultimately, understanding and accepting these differences (agreeing to disagree), in the minds ofsome observers, may be the best approach to enhancing future U.S.-German cooperation in theglobal war on terrorism. Close bilateral cooperation with the United States is important forGermany's own global interests. For the United States, as well, German cooperation againstterrorism is likely to remain significant in light of Germany's importance as a European and worldactor, as a key hub for the transnational flow of persons and goods especially to the United States,and as a country whose soil has been used by terrorist to target the United States. At the Information Board data is shared regarding Networks of Arab Mujaheden ("Jihadists"). The Federal Security Council is a committee of the Federal Cabinet. Its top-confidential sessions are convened and led by the Chancellor. Association/Organization Law. Before 9/11, religious associations were protectedfrom surveillance and investigation under German law. The anti-terror laws passedin late 2001 have removed this legal protection, permitting state authorities to probeand investigate groups with suspected terrorist ties. In the future, associations offoreigners that promote violent or terrorist activities will be prohibited. Penal Code Changes. In the future terrorist activities are subject to prosecution ofGerman authorities even if they occur outside Germany's borders and without directinvolvement of German citizens or organizations. Alien Act. People who present a danger to the democratic order in Germany, andwho are engaged or encourage others to engage in terrorist organizations will bedenied entry or residence permits in Germany regardless of whether the individualsare tourists, immigrants, or asylum seekers. Asylum Procedure Law. All asylum applications will be required to include a voicerecording stating the exact country of origin of applicants. Fingerprints will also becollected with applications. All records will be on file with the security authoritiesfor 10 years. Law on Central Foreigner Registry. Information filed in the Central AlienRegister (for instance) is now automated and more accessible for security authorities.Moreover the collected data includes information about visa applications anddecisions and about people already living in Germany. Security Oversight Law. Personnel working in areas of counterterrorism and othersensitive defense occupations will receive security screening. Air Traffic Law. Clarification of this law restricts the carrying and use of firearmsto air marshals. Additionally, security clearances are required for all airport and flightpersonnel, as well as others working in activities connected to airports or air traffic. Passport and Personal I.D. Law. Changes in this law will provide for an improvedcomputer-supported identification system. This will help prevent the use of bogusidentification documents. Encrypted biometric identification codes will be added tophotographs and signatures. Act on the Protection of the Constitution. The Federal Bureau for the Protectionof the Constitution (BfV) is given authority to track any activities of extremist groupsthat seek to intensify ideological or religious differences. The law calls for combiningseveral databases with civil information to make computerized searches moreeffective. Federal Bureau for Criminal Investigation. The BKA now has the right to lead itsown investigations, replacing the former system which required formal requests bythe BfV. Federal Border Guard Act. Armed officers of the Federal Border Guard (BGS) arenow deployed aboard German airplanes. Moreover, the BGS has been tasked toconduct in-depth screening of border traffic. | This report examines Germany's response to global Islamic terrorism after the September 11,2001 attacks in the United States. It looks at current German strategy, domestic efforts, andinternational responses, including possible gaps and weaknesses. It examines the state ofU.S.-German cooperation, including problems and prospects for future cooperation. This report maybe updated as needed. Although somewhat overshadowed in the public view by the strong and vocal disagreementsover Iraq policy, U.S.-German cooperation in the global fight against international terrorism hasbeen extensive. German support is particularly important because several Al Qaeda members and9/11 plotters lived there and the country is a key hub for the transnational flow of persons and goods.Domestically, Germany faces the challenge of having a sizable population of Muslims, some withextremist views, whom terrorists might seek to recruit. German counterterrorism strategy shares a number of elements with that of the United States,although there are clear differences in emphasis. Like the United States, Germany now sees radicalIslamic terrorism as its primary national security threat and itself as a potential target of attack. Today, Germany also recognizes that threats to its domestic security lie far beyond its own borders,in places such as Afghanistan. Germany has introduced a number of policy, legislative, and organizational reforms since9/11 to make the country less hospitable to potential terrorists. Despite these reforms, critics pointto continuing problems hampering Germany's domestic efforts. German law enforcement andintelligence communities face more bureaucratic hurdles, stricter constraints, and closer oversightthan those in many other countries. The German government has sent troops into combat beyond Europe for the first time sinceWorld War II. Currently Germany has about 7,800 troops based abroad of which some forty percentare directly engaged in counterterror missions. In Afghanistan, some 2,300 German soldiersparticipate in the International Security Assistance Force (ISAF). Germany's role in Afghanistan'sstabilization and reconstruction is substantial. German military efforts have been hampered to someextent by delays in implementing military reforms to make German forces more expeditionary. A key question for U.S. German relations is whether differences on issues such as Iraq policy-- shaped by different national interests, practices, and historical experiences -- will harmU.S.-German cooperation against terrorism. Some believe that understanding and accepting thesedifferences (agreeing to disagree) may be the best approach to enhancing future U.S.-Germancooperation in the global war on terrorism. Both countries have strong incentives to make thecooperation work. |
The United Nations High Commissioner for Refugees (UNHCR) has helped over 3.69 million Afghan refugees return to Afghanistan since March of 2002, marking the largest assisted return operation in UNHCR's history. In addition, more than a million refugees have returned to Afghanistan without availing themselves of UNHCR's assistance (also known as "spontaneous returns") bringing the total number of returnees to 4.8 million or more. Almost all of these Afghans have returned from neighboring Iran and Pakistan, where the vast majority of Afghan refugees have lived for well over two decades (see Table 1 ). Issues of particular concern to the 110 th Congress are 1) continuing and sustaining refugee returns as part of Afghanistan's overall reconstruction; 2) developing funding strategies for the next phase of Afghanistan's remaining refugees; and 3) examining the refugee situation in light of border security issues, particularly with regard to Pakistan's recently announced plan to lay land mines and build a fence along its border with Afghanistan. In the long term, the impact of Afghan migration trends may need to be better understood in light of its potential impact on political arrangements in South Asia. Afghans began fleeing their country in April 1978, when the Marxist People's Democratic Party of Afghanistan (PDPA), overthrew the government of Muhammad Daoud (who had himself seized power from his cousin Afghan king Zahir Shah in a bloodless coup in 1973). The trickle of refugees accelerated when the Soviet Union invaded in December 1979, ostensibly to restore order to the country as the PDPA became increasingly splintered. While political infighting was certainly a problem, some observers also noted that Afghanistan's leadership had begun irking Moscow by making decisions without Soviet approval. The Soviet attempt to subjugate the Afghans was at times particularly brutal, including the alleged use of torture and collective punishment. By the beginning of 1981, some 3.7 million refugees had fled to Iran and Pakistan. Smaller numbers of refugees continued to flee Afghanistan for the next decade, as the Soviets fought an insurgency mounted by a loosely allied group of mujahideen , or holy warriors. In 1988, the Soviet Union agreed to withdraw from Afghanistan, and UNHCR and the international assistance community prepared for the massive repatriation of refugees. Large-scale returns did not begin until 1992, however, when the Soviet-installed leader Najibullah was finally forced from power. No sooner had some million and a half refugees returned, however, than Kabul descended into armed disorder as various mujahideen factions began fighting for control of the capital and the surrounding area. A new wave of people was displaced (possibly up to a million), a majority of whom remained within Afghanistan's borders as internally displaced people (IDPs). After a year-long siege, the Taliban took Kabul in 1996, and had gained control of most of the country by 1998. Although they brought a measure of peace to the areas they captured, many Afghans, especially the educated, fled the Taliban's particularly austere vision of Islamic propriety, with its severe restrictions on women's activities, education, and social and cultural life. A final wave of refugees numbering 200,000 to 300,000 left Afghanistan during the U.S.-led invasion of October 2001. With the defeat of the Taliban a month later, UNHCR led consultations with the three governments centrally involved in the Afghan refugee issues—Pakistan , Iran, and Afghanistan—and began planning for another mass repatriation. Beginning in 2002, UNHCR along with Afghanistan, established separate Tripartite Agreements with Pakistan and Iran to provide a legal and operational framework for voluntary repatriations from each country. These agreements have been renewed several times since then. The working assumption at the time was that there were approximately 2 million refugees in Pakistan and 1.5 million in Iran. Almost everyone was caught off-guard, when subsequently 2.15 million Afghans returned in 2002, and yet most of the camps in Pakistan (and to some extent the cities in Iran) continued to house large numbers of Afghan refugees. It turned out that there were far more Afghans living in Pakistan than most analysts had thought. Although the numbers of returns declined in subsequent years, it can be seen from Table 1 that through 2005 the pace remained very strong. UNHCR estimates that, as of December 2006, perhaps 2.46 million registered and unregistered Afghans are currently living in Pakistan and more than 900,000 in Iran. Who among these Afghans is a refugee and who is not is a matter of debate in each country. Still, perhaps as many as 3.5 million registered and unregistered Afghans still live in exile. In Pakistan, 80 percent of those remaining have been there for more than two decades; 50 percent were born in exile. A census was completed by UNHCR and the Government of Pakistan (GoP) in March of 2002 that provided a clear picture, for the first time in years, of the Afghan population in Pakistan. The census found 3,049,268 Afghans living in Pakistan, 42% of them in camps and 58% in urban areas. Over 81% of the Afghans were Pashtuns, with much smaller percentages of Tajiks, Uzbeks, Turkmen, and other ethnic groups (see Figure 1 ). The census revealed two related factors that could have profound implications for the future of repatriation from Pakistan. First, the vast majority of Afghan families in Pakistan arrived in the first years of the refugee crisis; over 50% arrived in 1979 and 1980 alone. Second, it appears that a very substantial number of the Afghans remaining in Pakistan were in fact born in Pakistan—not Afghanistan (see Figure 2 ). Encouraging Afghans who have been living for two and a half decades outside their country—some of whom, in fact, may never have even set foot in Afghanistan—to repatriate may be a distinct challenge in the coming months and years. Although most Afghans in Pakistan date their arrival to the early years of the Soviet occupation, agricultural and economic instability have long been a feature of life in the highlands of Afghanistan, and for centuries Afghans have migrated in response to crop failures, drought, and other problems, often across international borders, to look for temporary work. While the numbers crossing into Pakistan in 1979 and 1980 probably dwarfed any previous population flows, many of the fleeing Afghans had connections—social networks, kinship ties, economic contacts—in Pakistan that helped ease their transition. For the first decade and a half of the refugee crisis, the GoP, although it has never signed the 1951 Refugee Convention or the 1967 Protocol, was relatively tolerant in its treatment of Afghan refugees. Several dozen camps were set up beginning in 1979, most of them in the Northwest Frontier Province (NWFP) and a few in Balochistan. Although the GoP did not allow the primarily rural Afghans to own or work the land, it did permit them to freely move and work within the country. Nevertheless, it was assumed at the time that most Afghans remained in the camps, where they received food rations, along with basic health and educational services. (The subsequent realization that there were far more Afghans in Pakistan than anyone knew suggests that urbanization was far more extensive during this period.) The camps were, and are, overseen by UNHCR and the Pakistani Chief Commissionerate for Afghan Refugees (CCAR), a division of the Ministry of States and Frontier Regions (SAFRON). UNHCR and CCAR contracted with a number of international and local NGOs to provide health, education, water, and sanitation services in the camps. These have included major U.S.-based NGOs, including Mercy Corps, International Rescue Committee, Save the Children, American Refugee Committee, Church World Service, and others. In 1995, the World Food Programme (WFP) determined that Afghans were capable of providing for their own food needs, and it ceased providing rations to the camps. The GoP's position toward the refugees began to harden as the flow of international aid began to diminish, and more Afghans were driven into cities to look for work. With the cessation of food aid, the sole identity document given to Afghans, a refugee passbook, became meaningless; therefore, Afghans (until very recently) had no identification in Pakistan, a factor that doubtless contributed to the general uncertainty about their numbers. With the defeat of the Taliban, the GoP began strongly advocating that conditions were appropriate for the return of all Afghans to Afghanistan. The GoP appears to have both economic and security concerns about the Afghan population in Pakistan. On the economic level, some Pakistani politicians believe that Afghans are taking jobs that might otherwise go to Pakistanis. Additionally, Afghans are reportedly willing to work for lower wages than Pakistanis, causing some Pakistanis to believe that wage levels are being depressed. Some recent research has shown that several business sectors—particularly transport and construction—make heavy use of Afghan labor. Economic worries about the Afghan population have become more persistent in recent years, as the overall level of international funding for refugees in Pakistan has decreased. The census provided more fuel for this concern when it revealed that, despite the record repatriation, millions of Afghans still remain in Pakistan. In addition to their economic impact, some Pakistani leaders are concerned that Afghans represent a security risk for Pakistan. These fears concern lawlessness, terrorism, and anti-government activity. There is a perception among many Pakistanis, including government officials, that Afghans are responsible for a great deal of the smuggling of stolen goods, narcotics, and weaponry across Pakistan's western border. The so-called "smugglers' markets"on the outskirts of Peshawar and Quetta, for instance, where one can allegedly buy anything from counterfeit passports to heroin to Kalashnikovs, are alleged to be run by Afghans and to flourish because of their proximity to Afghanistan. Pakistani police, in justifying their sweeps through Afghan areas, have cited the imperative to crack down on crime. One of the reasons the smugglers' markets have been difficult for Islamabad to deal with is that they exist in the so-called Federally Administered Tribal Areas (FATA), where the central government's writ is weak. Although each of the FATA's seven agencies is ostensibly governed by a "political agent" appointed by the government in Islamabad, in practice the tribal areas are ruled by traditional Pashtun leaders, exercising a blend of personal decree, Islamic law ( sharia ), and traditional Pashtun legal practices known collectively as pushtunwali . Despite Islamic proscriptions against drugs and alcohol, the smugglers' markets have been an important source of revenue for some FATA leaders, who continue to permit this operation. It is not merely lost economic revenue or local law and order that concerns Pakistani government officials. Many experts and officials believe that the FATA is being used as a staging area for militant activity, some of it directed against coalition forces in neighboring Afghanistan and some against the Pakistani government. This worry has grown more acute in the wake of several assassination attempts against Pakistan's President Pervez Musharraf. In light of the difficult to verify but nevertheless oft-stated presumption that Osama bin Laden and other senior members of Al Qaeda are hiding in the mountainous tribal areas of Pakistan, perhaps with the knowledge of local leaders, the government's efforts to gain control over these areas have gained urgency. Security was considered to be one of the reasons behind the GoP's decision to close all of the remaining refugee camps in the FATA. The GoP had for at least two years declared its desire to clear out the FATA camps, but only began the operation in summer 2005 when it closed refugee camps in South Waziristan Agency. Camps in North Waziristan were next with the most recent closures occurring in Bajaur and Kurram agencies in autumn 2005. All told, close to 200,000 refugees were displaced in the closures, the majority of them electing to repatriate to Afghanistan. The GoP received some criticism during each closure operation for failing to identify suitable relocation alternatives for Afghans unable to repatriate because they lacked shelter or the means to earn a living in Afghanistan, or other reasons. According to some reports, this resulted in many Afghans crossing the border into Afghanistan without the desire to do so and without adequate preparation, support, or security on either side of the border. According to the terms of the Tripartite Agreement between the GoP, the government of Afghanistan (GoA) and UNHCR, which was signed in March 2002 (and extended several times since), all returns must be voluntary. While there have been isolated reports of forced deportations, most observers believe that the GoP has largely abided by the agreement. On January 17, 2007, Pakistan's government announced the pending closure of four Afghan refugee camps in the border areas, stating it was doing so in order to ensure security. Two camps will reportedly be closed in March 2007 with another two to follow later in the year. The camps are located in the provinces of Balochistan and North West Frontier. Some closures had been announced several years ago, but were postponed until 2007. The move could affect as many as 250,000 Afghan refugees. The United Nations and other humanitarian organizations have expressed their concerns for the wellbeing of the refugees affected. In order to gather more information on Afghans in Pakistan, and ultimately to sort out those who have legitimate protection concerns from others, the GoP conducted a census in February and March 2005 that has become the basis for the registration program developed with UNHCR and the government of Afghanistan. Registration of Afghans began on October 15, 2006, and is being conducted by Pakistan's National Database and Registration Authority (NADRA) with the support of UNHCR and the government's Commissionerate for Afghan Refugees. To encourage Afghans to come forward for the registration, those who are registered are given a new identity document entitling them to live and work in Pakistan for three years. The validity period of the documentation is still being negotiated among UNHCR, the GoP, and the government of Afghanistan. Initially, only those Afghans counted in the census (about 2.5 million) could register, but in December 2006, the list was expanded to include all Afghans who could show documented evidence as proof that they were living in Pakistan at the time the census was conducted. The idea was to provide for a transition period during which Afghans may reconnect with Afghanistan and ultimately return home. As of January 17, 2007, 1.5 million had registered. The registration was supposed to end on December 31 but has been extended twice—the first time until January 19, 2007, and then again to February 2, 2007. With each passing year, however, it may become more difficult to encourage refugees to return voluntarily to Afghanistan. According to UNHCR data, the refugees who have already returned to Afghanistan have spent, on average, less time in Pakistan than those who remain. This may suggest that those who left in the early years did so because it was easier for them: they still had connections with Afghanistan. Those who remain, by contrast, may find it especially difficult to return to a country to which they have, relatively speaking, few ties. UNHCR, the U.N. Development Program (UNDP) and the Pakistani authorities are developing a needs assessment to address these ongoing refugee issues. In contrast to Pakistan, there are almost no refugee settlements in Iran. Instead, Afghans tend to occupy urban areas, where, as long as they have official refugee status (see below) they are entitled to basic government-subsidized services such as health care and education. According to recent government statistics, and based on a registration initiative undertaken by the government in November 2005, there were approximately 920,000 registered Afghans in Iran as of May 2006. This figure includes only officially registered refugees, however. It is likely that additional hundreds of thousands (the Government of Iran (GoI) estimates perhaps close to one million) Afghans are living in Iran as undocumented workers. It is estimated that 60% of the registered Afghan refugees have been living in Iran for at least 15 years. As with Pakistan, the history of Afghan migration to Iran long predates the refugee crisis. Thousands of ethnic Turkmen, for instance, sought work in Iran in the 19 th century, and received official recognition from the Persian government. The flow continued a century later, when many Afghans sought work in Iran during the oil crisis of the 1970s, and when, because of increasing international demand and high oil prices, Iran both needed and could afford foreign workers. The cross-border flow picked up dramatically, however, after the Soviet invasion of 1979. By 1981, some 1.5 million Afghans were estimated to have fled to Iran. The number would expand to over 3 million by 1990. The status of Afghans in Iran went through several changes over the course of the refugee crisis. Although Iran is a signatory to the 1951 Refugee Convention, Afghans fleeing the Soviet invasion were initially greeted not as refugees ( panahandegan ) but as "involuntary religious migrants" ( mohajerin ). While this category, based on Islamic principles, was technically not an international legal designation, it was considered a higher-status term than "refugee" in post-revolutionary Iran. Mohajerin were given indefinite permission to reside in Iran and had access to free education and subsidized health care and food. After the Soviet withdrawal, however, the status of Afghans began to change. Although 1.4 million Afghans are estimated to have repatriated in 1992, well over a million remained in Iran. Beginning in 1993, new migrants were no longer deemed to be fleeing religious persecution and were categorized as refugees ( panahandegan ); instead of being granted indefinite residency status, they were issued with temporary registration cards. After the fall of the Taliban, Afghans once again began to return in large numbers to Afghanistan (see Table 1 ). As in Pakistan, there is ample evidence that Afghan labor migration now plays in important role in both the Afghan and Iranian economies. Remittances from Afghans working in Iran bring a good deal of revenue to their families in Afghanistan, and Afghans continue to be an important source of labor in Iran, where they are particularly prevalent in construction and agriculture. One measure of the continuing importance of Afghan labor in Iran is the fact that the GoI has recently offered to permit some 200,000 Afghans to work in Iran as guest workers. A key aspect of this offer is that the Afghan workers will be required to leave their families in Afghanistan, presumably to ensure that they will not attempt to emigrate. In fact, however, a number of recent research papers commissioned and published by the Afghanistan Research and Evaluation Unit (AREU) show that this migration pattern has already been a model for some time. Many young Afghan men travel to Iran for a period of months or even years to supplement their family income, while the women and other men remain in Afghanistan. This contrasts with many of the Afghans in Pakistan, who emigrated with their entire extended families or even whole tribal groups. Indeed, there may be something of a reverse migration of single Afghan men in Pakistan, who, leaving their families in Pakistan, return to Afghanistan in search of higher-paying seasonal work and to look after family assets. Although there has not yet been a systematic study of population movement across the Afghan-Iranian border similar to the International Organization for Migration (IOM) study of the Afghan-Pakistani border, it is clear that since 1979 the volume and frequency of Afghan migration to Iran is much less than it is into Pakistan. To begin with, traffic across the Iranian border is more tightly regulated than it is across the Pakistani border; it is not possible to simply walk from Afghanistan into Iran. Furthermore, Afghans crossing into Iran must pay for a passport and a visa. Obtaining these legally is expensive and time-consuming; obtaining them illegally is even more expensive. In addition, there is much less settlement along Afghanistan's rather arid border with Iran than there is along the border with Pakistan. Afghans wishing to work in Iran must travel fairly deeply into the country before reaching the major population centers of Tehran and Isfahan; even Iran's eastern city of Mashad is over 200 miles from Herat in Afghanistan. The cost of transportation can be prohibitive for many Afghans. For these reasons, Afghan migration to and from Iran does not happen as frequently or as casually as it does along Afghanistan's eastern border. While Afghan refugees in Pakistan have, for at least a decade, gone relatively undocumented, the GoI through the Ministry of Interior's Bureau of Aliens and Foreign Immigrant Affairs (BAFIA) has maintained a fairly detailed list of Afghans whom it has accepted as refugees. Afghans on this "Amayesh" list have been entitled to basic health and education services provided by the Iranian government. The list is updated periodically, at which time Afghans must re-register with Iranian authorities in order to remain in the country legally. Afghans who are not on the list are subject to deportation; since the beginning of the assisted repatriation program in Spring of 2002, the GoI has deported some Afghans often to protests by UNHCR and other humanitarian agencies. It has been reported that some of the deported Afghans do, in fact, have prima facie refugee status. Hundreds of deported Afghans allegedly were held in detention facilities for days where they were beaten before being sent back to Afghanistan. Although deporting Afghan refugees is contrary to the terms of the Tripartite Agreement signed with UNHCR and Afghanistan, Iran holds that the deportees are illegal immigrants, and not refugees, and that Tehran is thus legally permitted to send them back to Afghanistan. Afghans who are clearly on the Amayesh list have encountered increasing difficulties in recent years. Whereas Afghan refugees in the past have received subsidized—or even free—education, health care, and food rations, the GoI has begun implementing measures to force Afghans to pay for these resources. These efforts reached a peak in February 2004, when the GoI announced Afghans would lose their exemption to paying school fees and have to pay increased health care premiums. Additionally, the GoI announced in early 2005 that Afghans would be subject to a nominal tax. Previously, Afghans had received free education and paid the same amounts as Iranians for health care. UNHCR, which felt that the service reductions were particularly draconian considering its own budget cuts in Iran, has reported that the GoI has not been overly fastidious in enforcing the new rules. Nevertheless, Iran's position, like that of Pakistan, has generally been that it is time for Afghans to return home, and these efforts are part of an explicit effort to encourage Afghans to return to Afghanistan. In both cases, GoI and GoP argue that relative stability has returned to Afghanistan, and there are no further reasons that Afghans require protection abroad. Indeed, the GoI's Director-General of the Interior Ministry's Department for Immigrants and Foreign Nationals Amad Hoseyni recently announced in early 2006 that Iran plans to "voluntarily repatriate" all Afghans—no matter what their status is—by March 2007. There is a certain implicit contradiction in this and other such statements by both Tehran and Islamabad: if repatriation is indeed to be voluntary, many Afghans may choose to remain in countries of asylum, thus rendering somewhat questionable the government's assertion that all Afghans will leave. The GoI's announcement that it is considering extending a limited number of work visas to Afghans suggests that the GoI is remaining flexible in its planning—or that there may be some disagreement among leaders. The United States government (USG) has provided humanitarian assistance to Afghan refugees since the early 1980s. Funding for Afghan refugees declined rapidly since it peaked after the U.S.-led invasion in October 2001. Almost all assistance has been provided through the Migration and Refugee Assistance (MRA) account, and has been programmed by the Department of State's Bureau of Population, Refugees, and Migration (PRM). This funding is used not only for the protection and care of refugees in countries of asylum, but also for the reintegration of Afghan returnees in Afghanistan. Table 2 presents USG assistance to Afghan refugees and returnees since the U.S.-led invasion in October 2001. Since the majority of PRM funding is provided to regional projects, it is not possible to provide a breakdown of assistance by country. The majority of PRM's assistance for Afghans is provided to international organizations (IOs), principally UNHCR and the International Committee of the Red Cross (ICRC), both of which have been active in Afghanistan since the 1980s. In past years, some funding has also been provided to the International Federation of Red Cross and Red Crescent Societies (IFRC), IOM, the U.N. Children's Fund (UNICEF), and the U.N. Office for the Coordination of Humanitarian Affairs (OCHA). PRM also provides funding directly to non-governmental organizations (NGOs) for targeted projects. Proposals are selected by a panel of PRM experts based on the NGO's track record, the cost-effectiveness of the proposal, and the extent to which the work meets PRM's stated guidelines. USG assistance to Afghan refugees and returnees through PRM is generally intended to meet the most basic humanitarian needs, including food, shelter, protection, water and sanitation, health care, and primary education. In addition, PRM helps support the assisted repatriation of refugees back to Afghanistan. Much of this activity is carried out by PRM's principal IO partners. UNHCR, in addition to managing the massive repatriation operation, also oversees shelter construction and water and sanitation activities in Afghanistan. In Pakistan and Iran, UNHCR is responsible for refugee protection and camp management, including provision of health care, primary education, and adequate water and sanitation to refugees. Many of these activities are actually conducted by international and local NGOs with oversight and funding from UNHCR. UNHCR has also taken on a leading role in the humanitarian response to the South Asia earthquake of October 2005. Although most of the earthquake's victims were not refugees, because of its experience and assets in Pakistan, UNHCR was designated the lead agency for the camp management cluster, which officially ended on August 31, 2006. Although it has offices in Iran and Pakistan, the ICRC is more active in Afghanistan, where it supports health care, demining, water and sanitation, family reunification, promotion of international humanitarian law, and detention visits. In addition to supporting the activities of IOs, PRM directly funds NGOs to carry out humanitarian projects, such as shelter construction for returnees, refugee education, skills training for women, and refugee and returnee health care. These projects are designed to complement the activity of the IOs. In keeping with humanitarian practice, PRM does not single out refugees and returnees alone for assistance. Most PRM-funded projects also benefit host communities as well as the target population. Even after four years of exceptionally high refugee return numbers, the population of Afghan refugees in Pakistan and Iran remains the second-highest in the world. If recent returnees—also central to PRM's mandate—are added to this number, Afghans represent by far the largest population of refugees and returnees in the world. Funding for Afghan refugees has, however, diminished both overall and as a percentage of PRM's total annual budget since FY2002. The United States thus faces the challenge of maintaining its crucial assistance in this area of the world despite competing priorities. This challenge may become even more difficult in the near future, because maintaining the successful repatriation program is likely to become more, not less, expensive as time goes on. This is because the refugees remaining in Pakistan and Iran have fewer resources in and ties to Afghanistan than those who returned earlier. They have also, on average, spent far more time outside of Afghanistan than earlier returnees (see Figure 2 ). As time goes on, it becomes increasingly more difficult—and expensive—to encourage remaining refugees to voluntarily return to Afghanistan. Thus, as funding is declining, its importance may be increasing. A related issue may be whether Pakistan and Iran would be receptive to encouragement to grant citizenship to Afghans who do not want to return to Afghanistan. Another factor influencing the success of the repatriation program is the sustainability of previous returns to Afghanistan—that is, the degree to which returnees are being adequately anchored in their communities, whether they are receiving health care, education, and opportunities to make a living. Integration of returnees increasingly is examined in both studies and reports and getting the attention of policymakers. The success of the repatriation program thus depends on the success of the overall reconstruction effort in Afghanistan, including the extent to which returned refugees (and IDPs) are integrated into reconstruction efforts. There is already evidence that many Afghan returnees do not remain in Afghanistan; traffic across the Pakistani border in particular—in both directions—is heavy. To a certain extent, and as noted above, this is a historical pattern that pre-dates not only the repatriation program but the refugee crisis as well. A cause for concern may emerge, however, if it is concluded that many of the Afghans crossing back into Pakistan and Iran are doing so because they could not sustain themselves in Afghanistan. A renewed outward flow of Afghans, in addition to signaling the possible inadequacies of the reconstruction effort in Afghanistan, could increase tensions with host countries. Both the GoI and the GoP, indicate some possible flexibility on the future of Afghan migration, but have nevertheless made clear that they believe the refugee crisis in Afghanistan is over, and that there is no excuse for Afghans to remain in their countries on humanitarian grounds. Future study of the reasons for Afghan population movements is required in order to determine their reasons for migration. It remains to be seen what effect the Pakistani government's recently announced plans for controlling and securing the Afghan border, through the construction of fences and planting of landmines, will have on refugee movements. Humanitarian groups have voiced their concerns and condemned the plan. Pakistan is not a signatory to international conventions banning the use of landmines and the government says the plan is a necessary step to increase border security. President Hamid Karzai apparently also objected strongly to the announcement not only for political and humanitarian reasons, but because he does not believe the plan will be effective in preventing terrorists from crossing the border into Afghanistan. In the longer term, the governments of Afghanistan, Pakistan, and Iran may need to come to new political arrangements concerning the migration of Afghans in South Asia. New research indicates that Afghan labor migration may prove beneficial to both Afghanistan—in the form of remittances—and to countries of asylum—in the form of labor. Indeed, experts have noted that such migration is nothing new; many Afghans have for a long time migrated seasonally in search of livelihood opportunities. It remains to be seen what role the United States might take on this issue. Despite its economic advantages, establishing such a "labor migration regime" in South Asia may prove politically difficult on the Pakistani and Iranian domestic fronts. Segments of both the GoI and GoP have indicated that they believe Afghans are a net drain on the economy. Maintaining security along the border with Afghanistan is also a concern. Afghans in Pakistan are blamed for a good deal of lawlessness in the country, and there are few down sides for authorities to engage in this kind of scapegoating. Ultimately, however, Afghans will likely continue to live and work outside of Afghanistan, regardless of the legality of doing so; understanding and regulating as much of this migration as possible may be one way to ensure that it is done so in a secure, humane, and effective manner. | The United Nations High Commissioner for Refugees (UNHCR) has helped 3.69 million Afghan refugees return to Afghanistan since March 2002, marking the largest assisted return operation in its history. In addition, more than 1.11 million refugees have returned to Afghanistan without availing themselves of UNHCR's assistance, bringing the total number of returnees to at least 4.8 million. Despite the massive returns, possibly 3.5 million registered and unregistered Afghans still remain in these two countries of asylum—up to 2.46 million in Pakistan and more than 900,000 in Iran—making Afghans the second-largest refugee population in the world. These numbers are far greater than the initial working assumption in 2002 of 3.5 million refugees; in fact, the total is believed to be more than 8 million. The United States spent approximately $332.37 million between FY 2002 and FY 2005 on humanitarian assistance to Afghan refugees and returnees through the Department of State's Bureau of Population, Refugees, and Migration (PRM). It continues to provide support to refugees and returnees. The 110th Congress faces several relevant challenges. The safe and voluntary return of refugees to Afghanistan is not only a major part of the U.S. reconstruction effort in Afghanistan, but also an important indicator of its success. To the extent that refugees continue to return, it can be seen that Afghans are taking part in the future of their country. It is becoming more difficult, however, to encourage refugees to return. Those who were most capable of returning did so in the early years; those who remain have progressively less to return to—houses, livelihoods, family—in Afghanistan. Furthermore, maintaining the high pace of returns will require greater levels of reintegration assistance to anchor returnees in their homes and help them reestablish their lives in Afghanistan. Security will also be a major factor in population displacement within and across borders. The status of Afghan refugees in Pakistan and Iran has also been somewhat controversial in recent years as these governments want all Afghan refugees to return to Afghanistan. Officials in Pakistan have become concerned that the concentrations of Afghans in the country pose a security and crime risk, as individuals and goods are smuggled across the border. At the same time, however, many observers argue that Afghan labor migration may be beneficial to both Iran and Pakistan—which take advantage of cheap and effective immigrant labor—as well as Afghanistan, whose citizens benefit heavily from remittances sent in from abroad. To cut off this source of income for many poor Afghans could have disastrous consequences—not only humanitarian, but in the security sphere as well, as more than a million Afghans along the Afghan-Pakistan border are deprived of livelihoods and resort to other means to feed their families. Reportedly, many Afghans cross the border regularly, without documentation, and Islamabad does not appear to have the resources to control this flow. A future challenge will thus be to balance reasonable concerns about security with the importance of Afghanistan's labor plans in the regional economies and the forces that drive its migration patterns. It remains to be seen what effect the Pakistani government's recently announced plans for controlling and securing the Afghan border, through the construction of fences and planting of landmines, will have on refugee movements. This report will be updated. |
Shooting incidents such as the one at Sandy Hook Elementary School in December 2012 and the one at an Aurora, CO, movie theater in July 2012 have focused attention on federal policy issues in the law enforcement, public health, and education arenas, among others. The Congressional Research Service (CRS) has identified 78 public mass shootings that have occurred in the United States since 1983. These shootings have claimed almost 550 lives according to CRS estimates. How does the death toll tied to public mass shootings compare with figures related to the preeminent threat that federal law enforcement has confronted in the last decade? CRS estimates that since the terrible events of September 11, 2001 (9/11), Al-Qaeda-inspired homegrown terrorists have killed 14 people in two incidents in the United States. Since 9/11, according to CRS estimates, 281 people have died in 38 public mass shootings. Arguably, the comparatively low death toll associated with Al Qaeda-inspired incidents at least partly results from a large-scale federal focus on homeland security and counterterrorism efforts. It is important to caution the reader that, while tragic and shocking, public mass shootings account for few of the murders related to firearms that occur annually in the United States. According to the Federal Bureau of Investigation (FBI, the Bureau), in 2011, firearms were used to murder 8,583 people. To provide further context, over the last two decades, the nation has experienced a general decline in violent crime. In 1992, 1.9 million violent crimes were reported, while 2011 saw 1.2 million. In the same period, the national murder rate dropped from 9.3 to 4.7 per 100,000 inhabitants. As a starting point, this report delves into public mass shootings over the last three decades, exploring the nature of this threat. In its broader discussion of related federal public health and safety issues, the report covers selected policy implications in three areas: law enforcement , public health , and education . While mass shootings may occur in a number of public settings, the education realm is one that has generated concern from policy makers, officials, and the public alike—at least since the 1999 shooting at Columbine High School in Littleton, CO. The tragedy at Sandy Hook Elementary has renewed such concerns for many. In this report, discussion of each of these is further broken down into efforts geared toward prevention —actions intended to reduce the likelihood of shootings. preparedness — planning how to cope with potential shootings. response —structured efforts employed to react to an actual shooting. Policy measures that deal with recovery are also discussed within the context of education and public health initiatives. Recovery entails helping institutions, communities, and individuals cope with the aftermath of a shooting. This report is not intended as an exhaustive review of specific federal programs in these areas. Also, this report does not focus on gun violence or writ large, nor does it discuss gun control policies. This report attempts to refine the relatively broad concept of mass shooting (which could potentially involve a wide variety of actors targeting victims for any number of reasons) into a narrower formulation: public mass shootings. This has been done to focus discussion around a number of violent incidents that lie outside of specific crime issues such as terrorism, drug trafficking, gang activity, and domestic violence that have federal policies, law enforcement structures, and laws tailored in many instances to specifically address them. In order to delineate a workable understanding of public mass shooting for this report, CRS examined scholarly journal articles, monographs, and government reports. These sources discussed a variety of terms such as mass murder, mass shooting, mass killings, massacres, and multiple homicide. Definitions of these terms varied with regard to establishing the number of victims or fatalities involved, the weapons used, the motives of the perpetrator, and the timeframes within which the casualties or injuries occurred. This report defines public mass shootings as incidents occurring in re latively public places, involvin g four or more deaths—not including the shooter(s)—and gunmen who select victims somewhat indiscriminately. The violence in these cases is not a means to an end such as robbery or terrorism . Relatively public places. For this report, public mass shootings happen in relatively public circumstances. Such settings can include schools, workplaces, restaurants, parking lots, public transit, or even private parties that include at least some guests who are not family members of the shooter. Tallying Fatalities. Any definition of mass shootings requires a somewhat arbitrary threshold demarcating the number of victims killed per incident. This report's threshold is based on a definition of mass murder offered by the FBI. An important caveat deserves mentioning. A compilation of incidents based on any such arbitrary threshold may fail to adequately describe the universe of incidents to which educators, public health professionals, and law enforcement have to react and for which they have to prepare. One author has stated that gunmen "injure far more victims than they kill; however, they must certainly be considered mass murderers by obvious intentions of their actions." In the critical early moments of a shooting, police, teachers, and rescue personnel do not necessarily know how many people are injured versus dead. Personnel and resources are initially mobilized in response to a shooting, regardless of the number of fatalities. Indiscriminate Selection of Victims. For this report's definition, a killer's relationship to his or her victims is important. Driven by a desire for revenge and/or power, some killers may target family members or intimate friends. In the incidents described as public mass shootings for this report, the gunmen cannot solely kill such individuals. This particularly rules out cases of domestic violence—instances only involving family members either inside or outside the home—from consideration as public mass shootings. Thus, for this report, the gunmen in public mass shootings somewhat indiscriminately select their victims. For example, a student assailant involved in a public mass shooting plans on killing particular teachers, while simultaneously staging a wider assault on his school. Violence Not a Means to an End. For this report, a public mass shooter's agenda certainly may stem from his specific personal experiences and psychological conditions. However, as implied in the above definition, the shooters who perpetrated the incidents counted in this report did not have broad socio-political objectives, such as using violence to advocate the fall of a regime. Thus, gunmen acting in the name of a terrorist organization or a clearly framed philosophy of hate typically were not considered public mass shooters. Also, shootings largely motivated by criminal profit were not counted. Based on the purpose undergirding the assailant's violence, the following examples do not fit the definition of public mass shooting used for this report. In December 2012, Dwayne Moore was convicted of home invasion, armed robbery , and four counts of first-degree murder in Massachusetts. He reportedly gunned down four victims, including a child, in a September 2010 drug-related incident in Boston, MA. A mass murder that has been widely reported as a hate-motivated incident occurred on the morning of August 5, 2012, when Wade Michael Page shot to death six people at the Sikh Temple of Wisconsin in Oak Creek—near Milwaukee, WI. According to the FBI, police responding to the scene returned fire, wounding Page. He then took his own life by shooting himself. U.S. Army Major Nidal Hasan was charged in a shooting at Fort Hood, TX, on November 5, 2009. The mass murder, which has been described as a terrorist incident , killed 13 and injured more than 40 others. To identify incidents of public mass shootings, CRS reviewed descriptions of mass shooting events found in scholarly journal articles, monographs, lists created by government entities and advocacy organizations, and news accounts. It is important to note that while every effort was made to be thorough in reviewing the sources used, the incidents identified by CRS should not be considered as constituting an exhaustive list of public mass shootings. Readers are also cautioned against tying this report's definition of public mass shootings directly to specific federal policy responses. In other words, the policy responses discussed below are not restricted to preventing or reacting to public mass shootings as defined in this report. For instance, many of the policy measures discussed herein respond to shooting events or threats that could include fewer than four deaths or shooters with specific ideologies and targets. The shooting definition offered in this report is meant to help illustrate the nature and breadth of a threat that lacks an agreed-upon conceptualization among experts, capturing some of the most extreme shooting cases over the last three decades. For many years, mass shootings have been of interest and concern to a variety of experts—including psychologists, sociologists, criminologists, public health experts, policy makers, and students of popular culture—who have written much on the topic. Journalists have tracked such killings for a long time as well. For example, a case involving gunman Howard B. Unruh in September 1949 received national attention. There were over 50 news articles in more than a dozen major newspapers in the United States in the month after the shooting occurred. In what was reported at the time as the largest mass murder in U.S. history, Unruh killed 13 people in a 20-minute-long incident in Camden, NJ. He shot people he knew as well as strangers. His victims included three children. All of this interest in such shootings has produced a wide variety of terms and concepts that address an assortment of issues. Categorizing types of murder—and mass shootings, more narrowly—can be tricky. In many cases, individual incidents involving assailants who kill one, two, or three people are described as single, double, or triple murder. However, when the number of victims rises or the case involves complicating circumstances such as the killer assailing individuals in different locations or a string of murders committed over a period of days, months, or years, efforts to define and understand murder can grow much more difficult. Most scholarly and expert sources suggest that mass shootings are rare violent crimes. One study has described them as "very low-frequency and high intensity event[s]." The 78 public mass shootings between 1983 and 2012 that CRS has identified claimed 547 lives (see Figure 1 ). Public mass shootings, as defined by this report, can be viewed as part of the larger issue of "multiple murder." A lexicon has emerged since the 1980s to describe instances of multiple murder. Qualitatively broader than cases of single, double, or triple murder, instances of multiple murder can be divided into a number of categories including serial or mass killings. Figure 2 lays out how this report frames the issue of public mass shootings. Starting at the top of Figure 2 , serial murders involve multiple victims killed by the same offender or offenders in separate events over a period of days, months, or years. For this report, m ass murders involve four or more people killed—not including the shooter(s)—in less than one day by the same offender or offenders. Mass murder can then be divided into subcategories—that may or may not involve gunmen—such as massacres perpetrated by people interested in genocide, cult killings, terrorist plots, the slaying of people during the course of drug trafficking, and, as conceptualized in this report, public mass shootings. Among the 78 public mass shootings since 1983 that CRS has identified, 26 occurred at workplaces where the shooter was employed either at the time of the incident or prior to it. The next largest number of public mass shootings occurred at places of education (12). In 2000 in Wakefield, MA, Michael McDermott took three guns to Edgewater Technology Inc., where he was employed, and shot seven coworkers. In 2006, Charles Roberts entered a one-room Amish schoolhouse in Lancaster County, PA, where he shot and killed five students and injured five others. As the above implies, the public mass shootings identified by CRS involve a high level of localization. A mass shooter usually targets individuals in one location or, as the examples below demonstrate, in a small handful of closely clustered geographic sites. In 1988, Michael Hayes shot at people randomly as he roamed his neighborhood in Winston Salem, NC, killing four and injuring five. In 2009, Michael McLendon shot his mother before driving to the nearby town of Samson, GA, where he shot five more people. He then drove to another neighboring town, Geneva, where he shot several more people before killing himself. In total McLendon killed 10 people and injured 6. Many experts agree that a workable, detailed profile of mass shooters does not exist. However, there are some observations that can be made regarding public mass shooters. For instance, among the public mass shooting incidents reviewed by CRS, the gunmen generally acted alone, were usually white and male, and often died during the shooting incident. The average age of the shooters in the incidents identified by CRS was 33.5 years. Only on rare occasions was more than one perpetrator involved in a public mass shooting. CRS has identified three such incidents since 1983. In 1993, Juan Luna and James Degorski killed seven employees at a restaurant in Palatine, IL. In 1998, Andrew Golden and Mitchell Johnson killed 5 people and injured 10 at their middle school in Jonesboro, AR. In 1999 Dylan Klebold and Eric Harris killed 13 and injured 23 at their high school in Littleton, CO, and then killed themselves. Of the public mass shooting incidents identified by CRS for which information on the race of the perpetrator(s) was available, over half of the shooters were reportedly white. The shooters were almost always male. Of the incidents compiled by CRS, only one involved a female assailant. In January 2006, Jennifer Sanmarco shot to death seven individuals—six were fatally wounded in a U.S. postal facility in Goleta, CA, and one death occurred near Sanmarco's condominium, also in Goleta. She killed herself as well. It was common for the gunmen involved in the shootings identified by CRS to kill themselves during their assaults. Forty-one of 81 shooters killed themselves. In 10 instances, law enforcement officers killed the gunmen involved. The shooters identified by CRS ranged in age from 11 to 66 years old. All but 10 were age 20 or older. Most of them were in their 20s, 30s, or 40s (see Figure 3 ). When considering law enforcement's role in coping with public mass shootings, policy makers and the public likely are most aware of how police forces react when they learn of an incident. Public mass shootings typically trigger a rapid police response, followed by an investigation and, potentially, prosecutions and sentencing. Also, while a shooting incident may spur an immediate law enforcement response, the potential for such a scenario impacts law enforcement prevention and preparedness measures. Police are not typically involved in recovery efforts. From a law enforcement perspective, mass shootings tend to be single-jurisdiction issues involving a particular community. As such, while the federal government may not play a direct role in formulating specific state and local practices, it may influence these practices through the availability of grants. For example, the Department of Homeland Security (DHS) offers funding via its Homeland Security Grant Program to "fund a range of preparedness activities, including planning, organization, equipment purchase, training, exercises, and management and administration." Although Department of Justice (DOJ) grants are not necessarily framed in terms of prevention, preparedness, or response, they can certainly address these issues regarding mass shootings. One foundational question is what, if anything, does the federal government want to influence in the states via grant funding related to law enforcement? Should the federal government enhance interagency information sharing and coordination on procedures to evaluate and deal with shooting threats? Should it increase law-enforcement-related grant funding to bolster school resource officer training or the number of metal detectors in academic settings? In this area, the Obama Administration's January 16, 2013, report, Now Is the Time: The President's Plan to Protect Our Children and Our Communities by Reducing Gun Violence ( The President's Plan ), included a commitment to using the Community Oriented Policing Services (COPS) program to incentivize police departments to hire more school resource officers. The plan also indicates that DOJ will develop a model—including best practices—for using school resource officers. Of course, such issues potentially involve a variety of specialists—not only police officials but also public health experts and educators, among others. Grants impacting preparedness may shape first responder training, and grants influencing response could affect the development of law enforcement protocols for responding to mass shootings. Some policy makers may wish to incentivize the establishment and training of tactical emergency medical services (EMS) teams to support law enforcement during instances of mass shootings or related events. These teams could provide medical threat assessments, deliver medical care, and promote law enforcement safety, among other things. Little research has evaluated the effectiveness of such tactical EMS teams in the civilian domain, and policy makers may wish to request additional research in this arena. Congress may debate which elements of law enforcement prevention, preparedness, and response—if any—the federal government could try to influence in the states and localities. In addition to providing financial assistance and incentives for certain law enforcement activities, the federal government may provide assistance in the form of manpower. Policy makers may debate whether federal law enforcement has sufficient authority and resources to assist state and local entities—if requested and if appropriate—in preparing for and responding to mass shootings and related incidents. For example, The President's Plan calls for additional funding for the federal government to train law enforcement, school officials, and others to respond to scenarios involving shooters. While law enforcement's role in crime control traditionally has been viewed as largely reactive , there has been a trend toward enhancing proactive law enforcement efforts. Thus, in the past three decades, much of the policing world has incorporated investigative strategies bent on preventing crimes in addition to solving crimes that have already occurred. However, the effectiveness of proactive law enforcement techniques in preventing public mass shootings is unclear. As modern policing has evolved, several prominent philosophies and techniques—including community policing and intelligence-led policing—have focused on law enforcement preventing rather than solely responding to crime. As laid out by DOJ, "[c]ommunity policing is a philosophy that promotes organizational strategies, which support the systematic use of partnerships and problem-solving techniques, to proactively address the immediate conditions that give rise to public safety issues such as crime, social disorder, and fear of crime." Community policing can employ a range of techniques to control crime, and these techniques can be tailored to the specific needs of individual communities. The federal government has incentivized community policing efforts through DOJ's COPS office. Research on community policing generally speaks to its impact on overall crime rates, and CRS has not identified any comprehensive research on how community policing may be used to specifically address mass shootings. Policy makers may question whether community policing efforts are useful in targeting a specific type of crime (mass shootings) in a specific setting (public places). Based in part on community policing and problem solving efforts, intelligence-led policing initiatives, originally developed in Great Britain, have emerged throughout the nation. After 9/11, intelligence operations were transformed at the federal level as well as at the state and local levels. More and more, intelligence-led policing is not a single methodology, but a framework that encompasses much of modern operational police activity. Similar to community policing, intelligence-led policing relies upon information input (as the basis for intelligence analysis), two-way communications with the public, scientific data analysis (using the basic formula that information plus analysis equals intelligence), and problem solving. The impact of intelligence-led policing cannot yet be fully evaluated because "long term studies of police forces that have fully implemented and adopted intelligence-led policing have yet to be conducted." Further, like research on community policing efforts, available information on intelligence-led policing does not address whether intelligence-led policing may be an effective approach to use in addressing mass shootings. Using intelligence-led policing to thwart mass shooters may be especially challenging for a number of reasons. Mass shooters most often act alone and share few of their plans with others. Typically, they do not engage in ongoing conspiracies that can be infiltrated by undercover police officers or monitored by informants. There may be too few public mass shooting incidents to establish detailed geographic patterns (hot spots) for law enforcement to exploit. Researchers and policy makers have questioned whether law enforcement can develop a profile of a mass shooter to help identify at-risk individuals before a shooting incident occurs. No effective mass shooter profile exists for law enforcement to use to proactively identify potential suspects. One researcher has succinctly noted that "the predictors [for mass murder] are invariably far more common than the event we hope to predict, and mass murder is very rare. Although mass murderers often do exhibit bizarre behavior, most people who exhibit bizarre behavior do not commit mass murder." Aside from usually, but not always, being male, there are few other characteristics found across mass murderers that would be reliable or valid for creating a general profile for individuals most likely to engage in a public mass shooting. This also holds true when examining individuals who carry out mass shootings in specific settings; for instance, "[t]here is no accurate or useful profile of 'the school shooter'." Also of note, criminal profiling is generally utilized after a crime has been committed, and not usually as a preventive tool. In the course of investigating serial crimes by a repeat offender such as a serial murderer, it could be utilized as a proactive tool to narrow the pool of potential offenders before a subsequent crime is committed. However, because mass shooters generally do not have the opportunity to commit a second crime—they are most typically either killed or captured after the mass shooting—investigative analysis would most commonly be employed after the mass shooting to understand how it happened rather than as a tool to identify potential shooters before an incident occurs. All of this does not mean that preventing public mass shootings is wholly beyond the scope of federal law enforcement. For instance, to enhance law enforcement efforts in the violent crime domain, DHS, DOJ, and the FBI have been working to "identify measures that could be taken to reduce the risk of mass casualty shootings." Alternatively, what has come to be known as "threat assessment" may be more appropriately suited to prepare for the threat of potential shooters and to prevent them from harming others. Federal law enforcement has been involved in providing threat assessment approaches to front-line professionals, such as educators, who may encounter potential shooters. Threat assessments are used after a potentially harmful individual has come to the attention of authorities. The assessment process evaluates the threat he or she poses. Certainly, threat assessments may be used to prevent a mass shooting. Law enforcement efforts to train front-line professionals in the assessment process can be seen as an effort geared toward preparing these individuals to cope with threats. The National Threat Assessment Center (NTAC), which is part of the U.S. Secret Service, provides research on threat assessment as well as on targeted violence. The threat assessment approach used by the U.S. Secret Service was developed as part of its broader intelligence activities designed to protect the President and other officials. Nonetheless, it "can be applied with some modification to evaluating risk for other forms of targeted violence." It does not rely on "profiles" of potential malicious actors (as profiles have not proven to be reliable predictors for actual threat), nor does it depend on stated threats as a starting point for evaluating risk (because not every person who makes a threat poses a true risk, and not all persons who pose risks make threats). Within this threat assessment framework, it has been suggested that information be collected relating to (1) facts that bring the subject to the attention of authorities, (2) the subject of interest, (3) attack-related behaviors, (4) possible motives, and (5) potential targets. Of note, law enforcement may not be the only authorities involved in evaluating information and conducting such a threat assessment, but the assessment framework may be one of several tools that law enforcement relies on in an attempt to prevent targeted violence, including mass shootings. Policy makers may wonder whether threat assessment has proved to be a viable tool for law enforcement to use in preventing incidents of mass shootings. Further, they may question if the threat assessment framework could be modified to better serve law enforcement and other professionals who collaborate on efforts to prevent targeted violence. If threat assessments can effectively identify potential mass shooters, policy makers may debate how law enforcement could use this information. One potential option could be to create a criminal watchlist, similar to the Terrorist Screening Database (or terrorist watchlist) to be used in background checks for firearms, among other things. Similar to questions regarding the threshold for placing a suspected individual on the terrorist watchlist, one of the relevant issues would involve establishing criteria for the addition of potential mass shooters to a violent criminal watchlist. There may also be questions about if or how law enforcement may engage with others such as mental health professionals and community leaders in decisions to place someone on such a watchlist. (For a discussion of how the federal government coordinates preparedness efforts for incidents involving mass casualties, see " Preparedness " under the " Public Health Implications " section of this report.) As another means of preparing for mass shootings, some law enforcement agencies have participated in tailored trainings. DHS, for instance, sponsors preparedness courses for shootings as well as webinars, and workshops. The California Highway Patrol has taken advantage of these opportunities and, between August 2012 and January 2013, "has led 18 active shooter trainings on campuses across Northern California." In these two-day classes, officers participate in simulated scenarios; they are trained to respond to a reported incident, bring a shooter under control, and ensure the safety of building occupants. From a law enforcement perspective, public mass shootings are often highly localized incidents involving lone gunmen acting near where they live. Thus, these cases largely do not involve conspiracies or the extensive crossing of jurisdictions. As such, mass shootings generally may be considered a local concern. Nonetheless, federal law enforcement—most notably the FBI—has historically provided assistance, when requested, to state and local law enforcement in the investigation of crimes that do not automatically fall under the jurisdiction of federal law enforcement. Some have expressed concerns that without official authority to respond to such incidents that fall primarily under a single state's jurisdiction, the federal response to these incidents could be slowed by questions of jurisdiction. However, in practice, federal law enforcement has routinely assisted state and local law enforcement in a variety of capacities. The FBI's Office of Law Enforcement Coordination (OLEC), for one, is the liaison between the FBI and the greater law enforcement community. FBI assistance includes a variety of criminal justice information and research, background checks and security clearances, and disaster and hazardous material response teams. Of note, the 112 th Congress passed legislation ( P.L. 112-265 ) that formally authorizes the Attorney General to provide investigative assistance to states in instances of violent crimes in public venues, including attempted and actual mass killings. Some may question whether this authority will change federal law enforcement involvement in responding to and investigating instances of public mass shootings or whether it will simply formalize an already well-established practice. As noted, the definition of a mass shooting is not always consistent across the scholarly, policy, and law enforcement realms. Within the law enforcement realm, a clear definition of mass shootings may be more critical during certain phases of the criminal justice process than others. Take, for instance, the question of who counts as a "victim" of a mass shooting. Is a victim Only someone who was killed at the scene of the crime? Someone who was shot and hospitalized in critical condition for an extended period of time? Someone who was caught in the cross-fire but not critically injured by bullets? Someone who died or was injured in attempting to escape the situation, but who did not die from a gunshot wound? The individual circumstances involving victims are quite varied, but in certain steps of the criminal justice process, the need for a concrete definition may be more pressing. The fact that law enforcement will respond to a public mass shooting may not depend on the ability to pinpoint the exact number of dead or injured victims. However, the details regarding victimization may more greatly impact how the incident is investigated and prosecuted after the conclusion of the mass shooting. Once an investigation begins, information about individuals considered "victims" may be of special interest to investigators and prosecutors. If the shooter survives the incident and is prosecuted, whether or not a victim dies as a result of the mass shooting will influence the charges brought against the shooter. These charges may include actual and attempted homicide, manslaughter, and assault, among others. The charges can, in turn, influence the length of sentence a shooter may receive if convicted of the charges brought against him. A gunman's motives influence how police investigate shootings. A shooter's motives may also drive the charges ultimately brought against him, if he survives the incident. While some cases may be instances of relatively indiscriminate killing, others involve assailants driven by particular hatreds that lead to the targeting of specific groups and can be considered hate crimes and investigated and prosecuted accordingly. Still others can involve ideologically motivated killing, leading to terrorism-related investigations and charges. In considering a shooter's motives and intentions, law enforcement may question whether it is the shooter's resolve to die along with his victims, either in an act of self-inflicted suicide or through "suicide-by-cop," what some have termed "suicide by mass murder." When law enforcement officers respond to a report of a shooter, they are faced with multiple concerns in attempting to disarm and arrest the shooter. Will they have to use lethal force on the suspect? Will the suspect take his own life? Will the suspect try to prolong his life and his rampage through the use of body armor and other defensive tactics? From a public health policy perspective, public mass shootings are mass casualty incidents (MCI) that cause both injury and death. Although public mass shootings are infrequent, the health sector has considerable related experience to bring to bear on preparing for and responding to these events. The health sector addresses mass shootings as it does any other health threat, through (1) prevention, (2) preparedness, (3) response, and (4) recovery over the long term. Prevention focuses on the perpetrators of mass shooting. The other three components of the health sector approach concentrate on the victims of such incidents. Public health options to thwart mass shootings are likely limited. Of these four components, the effectiveness of preventive efforts may be most unclear. Fundamentally, this area likely lacks strong evidence regarding what might successfully stop potential shooters from becoming actual shooters. This evidence could come from evaluation of new or existing policies. Such efforts could help fill a gap in knowledge about what is effective. In terms of preparedness, response, and recovery, proven approaches exist. However, policy makers may wish to consider how existing capacities (or policies to increase capacity) vary across geographic areas and populations. Also, the ability to rapidly evaluate the effectiveness of existing programs and/or deploy resources may hinge on the flexibility of funding structures. Public health interventions are often based on research with large-scale datasets and rigorous information collection regimens. The effectiveness of this approach may be limited largely because public mass shootings are rare, potential perpetrators cannot be identified accurately, and no systematic means of intervening are known to be effective. Regardless, a public health-oriented discussion of prevention of mass shootings should consider the field's traditional approach to stemming any cause of injury or death, highlighting some of the ways that this approach may or may not address public mass shootings. Public health professionals address prevention of injury and death via a three-step process focused on understanding and stemming health-related problems: First, systematic collection of data ( surveillance ) may help define the scope of the problem, identify an outbreak of the problem, and detect trends related to the problem. Second, research may identify characteristics associated with higher rates of injury or death attributed to the problem (called risk factors and protective factors , respectively). Such research may be based on surveillance or other sources of information. Third, efforts to reduce risk factors and enhance protective factors may be developed to stem the problem. These are founded on research pursued in the previous step of this process. Called preventive interventions within the context of public health, such undertakings traditionally focus on victims. However, as mentioned above, in the case of public mass shootings, the focus of prevention is generally on the gunmen involved. Mass shootings are rare, high-profile events, rather than broad trends that require systematic data collection to understand. The public health system does not conduct surveillance specifically for public mass shootings as defined in this report. Some broader information about shootings is collected (e.g., from death certificates) ; however, this information is largely about victims rather than assailants, limiting its usefulness for research into the prevention of mass shootings. For example, the Centers for Disease Control and Prevention's (CDC's) National Violent Death Reporting System (NVDRS) enables participating states to supplement death certificates with information from law enforcement agencies, crime laboratories, coroner or medical examiner reports, health providers, and other state and local agencies. The NVDRS is currently in operation in fewer than half the states. The President's Plan proposes expanding the NVDRS to all 50 states at a cost of $20 million. According to the parameters of this CRS analysis, the victims of public mass shootings are essentially random. Thus, health research into risk and protective factors tied to these incidents would likely focus on things that would either boost or lower the chances that one might become a gunman. One obstacle in identifying such factors is the relatively small data pool available for research (several dozen tragedies over the last thirty years in the United States). Gun violence broadly, rather than public mass shootings, accounts for many more instances of death and injury per year and yields a far larger pot of observable information. This information may be used in research to identify risk and protective factors. Therefore, potential risk and protective factors may have more utility when public health professionals confront the much broader phenomenon of gun violence, not just public mass shootings. Consequently, potential risk factors such as mental illness, substance abuse, exposure to violence, and easy access to guns are all addressed to some extent in The President's Plan, which covers the wider issue of gun violence. The President's Plan also responds to the suggestion by some that health research related to gun violence has been hampered by a statutory prohibition on the use of certain funding to "advocate or promote gun control." The President's Plan states that research into gun violence is not advocacy, and a Presidential Memorandum directs the Health and Human Services (HHS) Secretary to "conduct or sponsor research into the causes of gun violence." Prevention of public mass shootings in a public health context would in theory involve interventions targeted at potential perpetrators, not potential victims. These interventions would be founded on well-tested risk and protective factors, which—as noted above—do not currently exist. If relatively unproven factors were to be used in the development of preventive interventions, this would likely yield many misidentifications. Because the number of public mass shootings in the United States may be too small to offer substantive analysis that could produce effective interventions, it may be most feasible to address gunmen involved in such incidents as a subset of violent offenders. Preventive interventions directed at potential violent offenders may target populations, at-risk subgroups, or high-risk individuals. These approaches may or may not prove effective within the broader context of gun violence, and what effect (if any) they would have on mass shootings is unclear as well. The President's Plan provides examples of each approach: Population-wide interventions include finalizing regulations for mental health parity in private health insurance and ensuring that Medicaid plans are in compliance with parity requirements. Interventions targeting at-risk subgroups include a clarification that doctors are permitted to talk about gun safety with patients who have access to guns and efforts to make mental health and conflict resolution services available specifically for students who have been exposed to violence. Interventions targeting high-risk individuals include a clarification that health professionals are permitted to report to law enforcement violent threats that patients may make. Also, on January 15, 2013, the HHS Office of Civil Rights issued a letter to health care providers to clarify that federal health privacy laws do not prohibit them from disclosing "necessary information about a patient to law enforcement, family members of the patient, or other persons, when [they] believe the patient presents a serious danger to himself or other people." Interventions focused on high-risk individuals can also involve training law enforcement officers to work with mental health professionals to intervene with students in crisis. The federal government has supported coordinated mass casualty incident (MCI) preparedness efforts in large cities since 1997 and in all 50 states, territories, and the District of Columbia since 2002, through federal grants and contracts to public health agencies. These agencies are required to develop plans to integrate responding entities—including federal, state, and local law enforcement; emergency medical services (EMS); private sector health care facilities; and others. These federal grants and contracts support the rapid establishment of interdisciplinary communications (e.g., emergency operations centers) and periodic exercises that bring key responders together to practice before an actual incident, among other things. Although these federal grants and contracts were established in response to concerns about terrorism, they may also help local agencies prepare for MCIs such as public mass shootings. Some are concerned about whether these programs are sufficiently dispersed to enable rural areas to prepare for an MCI. Certain aspects of the health care delivery system, such as the capacity and proximity of critical facilities to a mass shooting, can affect survival from a public mass shooting. Three components of the health care delivery system contribute to MCI readiness: (1) emergency medical services (EMS), (2) hospital-based emergency departments (EDs), and (3) trauma care. Emergency medical services ( EMS ) include 911 call centers, medical care that occurs at the scene of an emergency, the transportation of victims to hospitals, and any treatment that occurs on the way. EMS systems vary by locality—some are operated by municipal or county governments, others by fire departments, and still others by private for-profit companies. This may mean that response times, quality, availability, and preparedness vary by locality. Federal responsibility for EMS is shared across the Department of Transportation, DHS, and HHS, which raises potential concerns about coordination and sustainability. Also, an HHS grant program administered by the Health Resources and Services Administration (HRSA) supports an effort to ensure that emergency medical services are appropriate for children. Hospital-based emergency departments (ED) vary by locality, and not all hospitals have an ED. Rural areas in particular may have both fewer hospitals overall and fewer hospitals that offer emergency care. In both urban and rural areas, some EDs may not function optimally on a day-to-day basis, which would affect their ability to respond to an MCI. EDs may be overcrowded, may "board" patients when inpatient beds are unavailable, and may divert ambulances because they are operating at capacity. The federal government supports EDs through a variety of mechanisms including hospital preparedness grants, interagency coordination, and training of emergency health providers. Through the Medicare and Medicaid programs, the federal government provides payments to hospitals that deliver care to uninsured patients in hospital EDs. These payments (called disproportionate share payments) are an important source of a financial support for EDs. Trauma centers are specialized hospitals with the resources and equipment needed to treat severely injured patients. They provide specialized care that is beyond the capability of the typical ED. Trauma centers are classified into four levels, with lower numbers (I, II) providing more specialized care. Trauma centers may play a role in responding to MCIs, but not all areas have the patient volume to support a trauma center. Distance to the nearest trauma center may be an issue in some MCIs. The federal government provides some funding for trauma centers through grants authorized under HHS, but not of all these programs have received funding. In addition, the CDC is working to raise awareness of trauma centers and has produced research showing the importance of access to trauma care in surviving a severe injury. The medical response to an MCI involves triage and limited treatment of victims on-site, as well as the transfer of victims to appropriate health care facilities for definitive treatment. As described above, federal preparedness funding aims to ensure (1) that the medical components of MCI response work as well as possible when needed, (2) that individual components are as capable as they can be in response, and (3) that medical responders can coordinate and communicate well with each other and with other response sectors such as law enforcement and public education. However, when an incident occurs, local authorities and health systems are largely on their own during the initial phases of a response. The federal government, through HHS (and, when needed, the Department of Defense), can support local efforts to respond to MCIs, making available mobile medical teams, mobile field hospitals, medical supply and pharmaceutical caches, and medical evacuation and transport. In general, however, mass shootings resolve quickly, often before federal operational assistance can be delivered. In the event of a public mass shooting or other MCI, as with any emergency medical situation, delaying treatment while determining a patient's insurance status or ability to pay for health care services may prove fatal. The Emergency Medical Treatment and Active Labor Act (EMTALA) protects against such a delay. EMTALA requires a hospital that receives Medicare payments (as the vast majority of hospitals do) to screen a patient for emergency medical conditions without regard for the patient's ability to pay. If the screening identifies an emergency medical condition, EMTALA requires the hospital to stabilize the patient. In instances where a patient's injuries are too severe to be treated at an ED, a patient may be sent to a trauma center. EMS or local EDs may determine whether a transfer to a trauma center is needed. Trauma centers are also subject to EMTALA (if the hospitals receive Medicare payments) and are required to accept transfers when an ED has determined that the trauma center possesses the specialized services that the patient needs but the ED lacks. Recovery of affected individuals and communities over the long term may require ongoing services to meet the physical and mental health care needs of both victims and responders. Ongoing services may involve inpatient and outpatient medical care; psychosocial interventions such as pastoral or peer counseling; and population-level interventions such as public announcements about common reactions to traumatic events (which can help normalize people's experiences and reduce anxiety around symptoms that are likely to be transient) or information about how to discuss an incident with children. The availability of such services in a timely and accessible manner may also be important for reducing long-term consequences such as posttraumatic stress disorder. Although federal resources generally focus on the immediate aftermath of an MCI, the federal government may fund public health interventions as well as programs that support the physician and behavioral health workforce and other infrastructure. The federal government also has a role in providing and financing health services that victims and responders may access. For an individual's long-term recovery from a public mass shooting, lack of insurance or inability to pay for health care services may limit the treatment options available (e.g., physical rehabilitation or counseling). Thus, financial support may play a key role in long-term recovery. Schools are unique institutions. They have a mission of great importance to our nation—they are responsible for keeping our children safe while educating them and helping prepare them to be responsible and productive citizens. All levels of government are involved to some extent in this mission. As mentioned earlier in this report, 12 of the 78 public mass shootings identified by CRS occurred in academic settings. Eight of these happened at primary or secondary education facilities. One incident, the December 14, 2012, shooting deaths of 20 children and 6 adults at Sandy Hook Elementary School in Newtown, CT, has heightened congressional interest in school security. Policy makers are examining whether school security can be further enhanced, and if so, how best to accomplish that goal. Four of the 12 public mass shootings in education settings involved high school or middle school students as assailants. The federal government has supported efforts to preempt students from engaging in gun violence at school. More broadly, it has promoted policies to curb violence in schools, such as anti-bullying programs, which may or may not stem public mass shootings by student perpetrators. This section of the report focuses on those federal programs and initiatives administered by the Department of Education that may be relevant in the event of a public mass shooting in a school setting. The President's Plan was released following the Newtown tragedy—it includes several provisions specifically related to schools. However, funding for these provisions may not be sufficient to provide meaningful assistance to all schools that could potentially benefit. Difficult decisions confront policy makers. They must consider how to make the greatest possible improvements in student safety while likely being faced with limited federal resources to devote to safety initiatives. Policy makers may have to decide whether funds should be spread across many activities so that each activity gets some additional funding, or whether funding should be concentrated in fewer programs believed to be most cost effective. This decision is made even more difficult because research on effectiveness is limited for many school security programs. This may lead to consideration of whether more funding should be provided for research into program effectiveness, and if so, whether it would restrict funding for existing school security programs. Policy makers must also consider the importance of continuity of funds for local program success. It can be difficult for local school districts to plan, develop, and implement programs if they cannot be certain of a reliable funding stream. In recent years much of the dedicated funding for school safety programs provided by the Department of Education has been cut. Some programs were cut because they were perceived as too small to make a difference. Others were cut because they failed to demonstrate their effectiveness. For example, funding for the Safe and Drug Free Schools and Communities Act (SDFSCA) program, the federal government's primary program aimed at preventing drug abuse and violence in and around public schools, has declined from $435 million in FY2009 to $65 million in FY2012. Department of Education guidance has divided the crisis management process for schools into four phases. Those four phases, in sequential order, are prevention, preparedness, response, and recovery. Because emergency planning at institutions of higher education occurs in a significantly different environment and context, this report focuses on emergency planning at the elementary and secondary school level. Prevention (and mitigation) involves broadly structured efforts to help schools reduce the need to respond to crises including mass shootings. This stage of crisis management is critical for educators. If students do not feel safe at school, they will not be able to focus their energy on the most important task before them—learning. According to the Department of Education, this first stage of crisis management should include the following activities: connecting with community responders to identify potential hazards, reviewing the most recent school safety audit, determining who is responsible for overseeing violence prevention at the school, soliciting staff input on the crisis plan, reviewing school incident data, determining major crime and violence problems at the school and assessing how effectively they are currently being addressed, and conducting an assessment to determine how existing threats may impact the school's vulnerability to particular crises. Improving school climate is one strategy for mitigating and preventing a variety of crises, including mass shootings (if the perpetrators involved in these incidents are students). A CDC report states that a positive school climate is "characterized by caring and supportive interpersonal relationships; opportunities to participate in school activities and decision-making; and shared positive norms, goals, and values." Research has indicated that one of the most important elements in a positive school climate is for students to have a feeling of school connectedness. School connectedness is defined as "the belief by students that adults and peers in the school care about their learning as well as about them as individuals." The Department of Education's Office of Special Education Programs funds a Technical Assistance Center on Positive Behavioral Interventions and Supports. The Center provides capacity-building information and technical assistance to schools, districts, and states who are implementing a school climate protocol called School-wide Positive Behavioral Interventions and Supports (SWPBIS). SWPBIS is a three-tiered prevention-based approach to improving school-wide disciplinary practices. According to the Center, SWPBIS is used in more than 9,000 schools across 40 states. SWPBIS has been linked to reductions in student suspensions and office discipline referrals. Bullying prevention is also an important aspect of improving school climate. The federal government recognizes the importance of this issue and has become increasingly involved in bullying prevention initiatives in recent years. Research indicates that both victims of bullying and those who engage in bullying behavior can experience both short and long-term effects resulting in psychological difficulties and social relationship problems. A GAO literature review of seven meta-analyses on the impact of bullying on victims found that bullying could result in psychological, physical, academic, and behavioral issues. In addition, a Secret Service study on school safety and school attacks found that "Many attackers felt bullied, persecuted or injured by others prior to the attack." The SDFSCA defines school resource officers as career law enforcement officers assigned by a local law enforcement agency to work with schools and community based organizations to: (A) educate students in crime and illegal drug use prevention and safety; (B) develop or expand community justice initiatives for students; and (C) train students in conflict resolution, restorative justice, and crime and illegal drug use awareness. The President' s Plan would provide an incentive for DOJ's Community Oriented Policing Services (COPS) grants to be used to hire more school resource officers in the current year, and would seek $150 million in funding for a new Comprehensive Safety Grants program. This new grant program would provide school districts and law enforcement agencies with funding to hire new school resource officers and school psychologists. This new funding stream could also be used to purchase school safety equipment, develop or expand school safety proposals, and to train crisis intervention teams of law enforcement officers to respond and assist students in a crisis. School resource officers are popular with the public. A recent Pew research study found that 64% of those surveyed supported having armed security guards or police in more schools. However, some researchers and civil rights organizations have expressed concern about increasing the presence of school resource officers in schools, arguing that the presence of law enforcement can have a negative impact on the learning environment, and may lead to more school suspensions and referrals to the juvenile justice system. On December 12, 2012, the Senate Judiciary Subcommittee on the Constitution, Civil Rights and Human Rights, held a hearing titled "Ending the School-to-Prison Pipeline." In his opening statement Chairman Richard Durbin stated that: For many young people, our schools are increasingly a gateway to the criminal justice system. This phenomenon is a consequence of a culture of zero tolerance that is widespread in our schools and is depriving many children of their fundamental right to an education. Preparedness involves marshaling the necessary resources to ensure that they are available in the event of a crisis, including shooting incidents. This involves confirming that the school's current emergency plan is consistent with the National Incident Management System; acquiring the necessary equipment and first aid resources to address a potential crisis; establishing procedures to account for the location of all students; developing procedures to communicate with staff, families, and the media; ensuring all school staff are familiar with the school's layout, safety features, utility shutoffs, etc.; and conducting practice drills for students and staff. One of the proposals included in The President's Plan would provide $30 million in one-time grants to school districts to help them develop and implement Emergency Management plans. In addition, a current SDFSCA program—Readiness and Emergency Management for schools (REMS) provides competitive grants to LEAs to strengthen and improve their emergency response and crisis plans. No grants were awarded in FY2012. The Department of Education has developed resources and training materials that are available online to help schools develop emergency plans and respond to crises. However, these resources are not limited to addressing a school shooting crisis; they are intended to be applicable to a range of potential crises that could impact a school (e.g., natural disaster, pandemics, terrorism). Indicators of School Crime and Safety data show that many schools have been increasing measures intended to improve school safety. In school year 1999-2000, 54.1% of surveyed students (ages 12-18) reported that their school had security guards and/or assigned police officers; this percentage had increased to 68.1% by school year 2009-2010. Other school security measures that have increased between school year 1999-2000 and school year 2009-2010 include the use of security cameras (from 19.4% to 61.1%); locking or monitoring doors (from 74.6% to 91.7%); and requiring faculty and staff to wear badges or IDs (from 25.4% to 62.9%). The President's Plan would set up an interagency group to release a model set of emergency management plans for schools, houses of worship, and institutions of higher education. It would also require the Department of Education to collect and disseminate best practices for addressing school discipline. Maintaining crisis response capacity is required of schools by 92% of states. Press accounts of school shootings have provided anecdotal evidence indicating that school emergency planning (lock-down procedures and practice drills, etc.) may have minimized deaths and injuries in incidents of mass shootings. However, federal legislation does not regulate the content or quality of these plans, and the comprehensiveness and implementation of these plans vary considerably across school districts. An organized and coordinated response to a crisis is based in large part on the prevention and preparedness activities that schools have adopted and implemented. According to the Department of Education, during a crisis (which can include mass shootings), schools should undertake the following activities: identifying the type of crisis that is occurring, activating the incident management system, identifying the appropriate response to the crisis (e.g., evacuation, shelter in place, lockdown, etc.), implementing the plans and procedures established in the preparation phase, ensuring that important information is being communicated to staff, students and parents, and ensuring that emergency first aid is being provided to the injured. Many school shootings last only minutes—as a consequence, teachers and school staff become the immediate responders out of necessity in many crises, sometimes heroically sacrificing their own lives to protect the children in their care. Community first responders, including law enforcement and emergency medical personnel, are also key to ending a crisis as quickly as possible. Among their many tasks, they must immediately subdue the shooter, if he is still alive; and they most coordinate all the emergency services that are required by survivors of the shooting. Recovery efforts are focused on returning students to the learning environment as soon as possible. These efforts include restoring school facilities, identifying the supports and services needed by students, staff, and families to help them recover from the crisis, connecting individuals to services, including mental health and counseling services, and allowing sufficient time for recovery and deciding how to commemorate the event. The primary Department of Education program available to schools to assist recovery efforts following a crisis is Project SERV (School Emergency Response to Violence). This program provides education-related services to schools that have been disrupted by a violent or traumatic crisis. Local educational agencies and institutions of higher education (IHEs) are eligible to apply for these grants. Project SERV funds may be used for a wide variety of activities, including mental health assessments, referrals, and services for victims and witnesses of violence; enhanced school security; technical assistance in developing a response to the crisis; and training for teachers and staff in implementing the response. School counselors can also play an important role in facilitating a school community's recovery following a crisis. School counselors can provide an avenue for students to be heard by a caring adult, and can provide needed services or make referrals for services to community providers. The President's Plan includes several provisions that would increase student access to mental health services. It seeks $150 million in funding for a new Comprehensive Safety Grants program. One of the authorized uses of this program would be to hire school counselors. In addition, the proposal seeks $50 million to train 5,000 additional mental health professionals to serve youth in schools and communities, and $25 million to provide mental health services for trauma, conflict resolution, and other school-based violence prevention strategies. The proposal would also provide $55 million for a new Project AWARE which would train teachers and other adults to recognize and help youth with mental illness and work with a variety of community agencies and organizations to ensure youth who need help are connected to service providers. When addressing public mass shootings, many of the policymaking challenges may boil down to two interrelated concerns: (1) a need to determine the effectiveness of existing programs—particularly preventive efforts—and (2) figuring out where to disburse limited resources. The law enforcement and public health fields have lengthy histories of applying preventive approaches to their work. However, the utility of widely employed preventive measures in these areas to fight public mass shootings is far from clear. For example, it appears that intelligence-led policing fails to address this threat. Likewise, preventive public health approaches reliant on research drawn from large data sets, covering broad populations, and examining general trends may not adequately address relatively rare—though devastating—public mass shootings. Given this, policy makers may be interested in supporting the development of useful preventive schemes in the law enforcement and public health arenas. In the area of education, preventive efforts may be more effective. Fostering a positive school climate can be seen as a key element in preventing shootings. Additionally, the use of school resource officers as a preventive measure is popular among Americans. Yet, there are those who question the impact of such officers on the learning environment. Policy makers confront the task of disbursing resources among a wide assortment of programs to tackle public mass shootings. Which efforts are more important than others? For example, should prevention trump response in most cases? Should programs that have multiple uses be favored over others that may be seen as more focused (or vice versa)? For example, which should receive more support related to dealing with mass shootings: EMS or efforts to cultivate positive school climate? Which untested programs or approaches should be evaluated thoroughly? Who should evaluate them? How long should funding exist to tackle the threat of mass shootings? All of this hints at an overarching difficulty confronting experts interested in crafting policy to address mass shootings. Essentially, baseline metrics gauging the effectiveness of policies to thwart public mass shootings are often unclear or unavailable. This lack of clarity starts with identifying the number of shootings, themselves, since no broadly agreed-to definition exists. Several questions flow from this issue. How many people have such incidents victimized? How much does prevention of, preparedness for, and response to such incidents cost the federal government? What measurements can be used to determine the effectiveness of such efforts? In other words, and most importantly, how will we measure our successes or determine our failures in fighting this problem? | This report focuses on mass shootings and selected implications they have for federal policy in the areas of public health and safety. While such crimes most directly impact particular citizens in very specific communities, addressing these violent episodes involves officials at all levels of government and professionals from numerous disciplines. Defining Public Mass Shooting Policy makers may confront numerous questions about shootings such as the December 2012 incident at Sandy Hook Elementary School in Newtown, CT, that claimed 27 lives (not including the shooter). Foremost, what are the parameters of this threat? How should it be defined? There is no broadly agreed-to, specific conceptualization of this issue, so this report uses its own definition for public mass shootings. These are incidents occurring in relatively public places, involving four or more deaths—not including the shooter(s)—and gunmen who select victims somewhat indiscriminately. The violence in these cases is not a means to an end—the gunmen do not pursue criminal profit or kill in the name of terrorist ideologies, for example. One Measure of the Death Toll Exacted by Public Mass Shootings. Applying this understanding of the issue, the Congressional Research Service (CRS) has identified 78 public mass shootings that have occurred in the United States since 1983. This suggests the scale of this threat and is intended as a thorough review of the phenomenon but should not be characterized as exhaustive or definitive. According to CRS estimates, over the last three decades public mass shootings have claimed 547 lives and led to an additional 472 injured victims. Significantly, while tragic and shocking, public mass shootings account for few of the murders or non-negligent homicides related to firearms that occur annually in the United States. Policymaking Challenges in Public Health and Safety Aside from trying to develop a sense of this phenomenon's scope, policy makers may face other challenges when addressing this topic. To help describe some of the health and safety issues public mass shootings pose, this report discusses selected policy in three areas: law enforcement, public health, and education. While mass shootings may occur in a number of settings, the education realm is one that has received particular attention from policy makers, officials, and the public alike—at least since the 1999 shooting at Columbine High School in Littleton, CO. The tragedy at Sandy Hook Elementary has renewed such concerns for many. In the areas of law enforcement, public health, and education, this report discusses some key efforts to prevent mass shootings as well as efforts geared toward preparedness and response. Policy measures that deal with recovery are also discussed within the context of education and public health initiatives. Policy Effectiveness and Outlay of Resources. Many of the policymaking challenges regarding public mass shootings boil down to two interrelated matters: (1) a need to determine the effectiveness of existing programs and (2) figuring out where to disburse limited resources. Finally, baseline metrics related to this problem are often unclear or unavailable. This lack of clarity starts with identifying the number of shootings themselves, since no broadly agreed-to definition exists. Several questions flow from this issue. How many people have such incidents victimized? How much does prevention of, preparedness for, and response to such incidents cost the federal government? What measurements can be used to determine the effectiveness of such programs? This report does not discuss gun control policies and does not systematically address the broader issue of gun violence, which can include topics such as gun-related suicide and a wide variety of gun-related crimes. Also, it is not intended as an exhaustive review of federal programs addressing the issue of mass shootings. |
In April 2003, the Department of Defense (DOD) sent a proposal entitled "The DefenseTransformation for the 21st Century Act" to Congress. (1) Changes in the uniformed military personnel and acquisitionsystems were the principal focus of the proposal. However, it also recommended changes to thestatutory bases for much of DOD's civilian personnel system, which covers some 700,000 civilianemployees (about 26% of federal civilian executive branch personnel worldwide). (2) On May 22, 2003, the House of Representatives passed H.R. 1588 , the NationalDefense Authorization Act for FY2004, amended, by a 361 to 68 (Roll No. 221) vote. (3) As reported to the House,H.R. 1588 included provisions at Subtitle A of Title XI related to government-widepersonnel management. The bill also included provisions for a National Security Personnel System(NSPS) for DOD at Subtitle B. Many of the provisions had originated in DOD's April 2003 proposaland had been included in H.R. 1836 , the Civil Service and National Security PersonnelImprovement Act, reported to the House, amended ( H.Rept. 108-116 , part 1), by the Committee onGovernment Reform on May 19, 2003. (4) The provisions were added to H.R. 1588 during ArmedServices Committee markup. (5) Several additional amendments were made to the personnelmanagement provisions during House consideration and passage of H.R. 1588. The Senateversion of the defense authorization bill, S. 1050 , as passed by the Senate, amended,on May 22, 2003, on a 98 to 1 (No. 194) vote, did not include these Title XI personnel managementprovisions (but included other personnel provisions at Title XI). On June 4, 2003, the Senate struckall after the enacting clause and substituted the text of S. 1050 in H.R. 1588. TheSenate then passed H.R. 1588, amended, by voice vote the same day. (6) H.R. 1588, aspassed by the Senate, included, at Title XI, personnel provisions on pay authority for criticalpositions, the experimental personnel program for scientific and technical personnel, and personnelinvestigations that were not included in the House-passed version of the bill or S. 1166 . Senator Susan Collins, Chairman of the Senate Committee on Governmental Affairs,introduced S. 1166 , the National Security Personnel System Act, on June 2, 2003, andit was referred to the Senate Governmental Affairs Committee. On June 4, 2003, the committeeconducted a hearing on the bill. Following the hearing, Senators Voinovich and Thomas Carperasked the Comptroller General, David Walker, to respond to several additional questions. Hisresponse, submitted on July 3, 2003, included the following comments. [I]t is critical that agencies or components have in placethe human capital infrastructure and safeguards before implementing new human capital reforms.This institutional infrastructure includes, at a minimum (1) a human capital planning process thatintegrates the agency's human capital policies, strategies, and programs with its program mission,goals, and desired outcomes, (2) the capabilities to develop and implement a new human capitalsystem effectively, and (3) a modern, effective, credible and, as appropriate, validated performanceappraisal and management system that includes adequate safeguards, such as reasonable transparencyand appropriate accountability mechanisms, to ensure the fair, effective, and nondiscriminatoryimplementation of the system. Although we do not believe that DOD should wait forthe full implementation of the new human capital system at the Department of Homeland Security(DHS), ... we do think that there are important lessons that can be learned from how DHS isdeveloping its new personnel system. For example, DHS has implemented an approach that includesa design team of employees from DHS, the Office of Personnel Management (OPM), and majorlabor unions. To further involve employees, DHS has conducted a series of town hall meetingsaround the country and held focus groups to further learn of employees' views and comments ...DOD ... needs to ensure that employees are involved in order to obtain their ideas and gain adequate"buy-in" for any related transformational efforts. [W]e suggest that DOD also be required to link itsperformance management system to program and performance goals and desired outcomes.... [This]helps the organization ensure that its efforts are properly aligned and reinforces the line of sightbetween individual performance and organizational success so that an individual can see how her/hisdaily responsibilities contribute to results and outcomes. In our view, it would be preferable to employ agovernmentwide approach to address certain flexibilities that have broad-based application andserious potential implications for the civil service system .... broad banding, pay for performance,reemployment, and pension offset waivers. In these situations, it may be prudent and preferable forCongress to provide such authorities on a governmentwide basis and in a manner that assures thata sufficient personnel infrastructure and appropriate safeguards are in place before an agencyimplements the new authorities. Based on our experience, while DOD's leadership hasthe intent and the ability to transform the department, the needed institutional infrastructure is notin place in a vast majority of DOD organizations.... In the absence of the right institutionalinfrastructure, granting additional human capital authorities will provide little advantage and couldactually end up doing damage if the authorities are not implemented properly by the respectivedepartment or agency. (7) The Senate Governmental Affairs Committee marked up the bill on June 17, 2003, and, onthe same day, ordered S. 1166 to be reported to the Senate, amended, on a 10 to 1 rollcall vote. During the mark-up, the committee agreed to an amendment offered by Senator JosephLieberman to clarify the intent of the bill's provisions on collective bargaining and an amendmentoffered by Senator George Voinovich to exclude 10 DOD laboratories from the NSPS. Bothamendments were agreed to by voice vote. On September 5, 2003, the committee reported S.1166 to the Senate with amendments and without a written report. Senator Collins, a conferee on the conference committee for H.R. 1588 , alongwith Senators Voinovich and Carl Levin (an H.R. 1588 conferee), among others, expressedthe hope that the provisions of S. 1166 , as amended, would be seriously considered bythe conference as an alternative to the provisions in H.R. 1588 on the NSPS. On July 14,2003, Senators Collins, Voinovich, Stevens, and Sununu wrote a letter to their Senate colleaguesexpressing their support for, and sharing their views on, the personnel provisions of S.1166. They stated that, "[a]s a template for future governmentwide civilian personnelreform, the personnel provisions in the defense bill must strike the right balance between promotinga flexible system and protecting the rights of our constituents who serve in the federal civil service"and that "[w]e believe that our proposal strikes such a balance." (8) Several provisions that werethe same or similar to S. 1166 were added to H.R. 1588 in conference. On November 7, 2003, the House agreed to the conference report ( H.Rept. 108-354 )accompanying H.R. 1588 on a 362-40, 2 present (Roll No. 617) vote. The Senateagreed to the conference report on a 95-3 (No. 447) vote on November 12, 2003. President Bushsigned H.R. 1588 into law on November 24, 2003, as P.L. 108-136 (117 Stat. 1392). This report discusses each of the provisions in Title XI of P.L. 108-136 and plans toimplement the law. (9) Fordiscussion of the background to the provisions and side-by-side comparisons of the provisions withcurrent law, see CRS General Distribution Memorandum, Department of Defense TransformationProposal (Title I, Subtitle A, Section 101) and H.R. 1588 Conference Report (Title XI,Subtitles A,B,C): A Side-by-Side Comparison , coordinated by [author name scrubbed]; CRS Report RL31924 , Civil Service Reform -- H.R. 1836, Homeland Security Act, and Current Law ,by [author name scrubbed] and [author name scrubbed]; and CRS Report RL31916 , Defense DepartmentOriginal Transformation Proposal: Compared to Existing Law , by [author name scrubbed], Gary J.Pagliano, [author name scrubbed], and [author name scrubbed]. Contributors to this report are Richard Best, Valerie Grasso, [author name scrubbed], Fred Kaiser,[author name scrubbed], Thomas Nicola, [author name scrubbed], Barbara Schwemle, [author name scrubbed], and JonShimabukuro. The timetable for implementing the NSPS has changed several times. Discussions onimplementation began in January 2004. (10) Initially, DOD planned to publish details of the new system byApril 2004, and cover 300,000 civilian DOD employees under the NSPS by October 1, 2004. Inearly February 2004, Secretary of Defense Donald Rumsfeld named then-Navy Secretary andnow-Deputy Secretary of Defense Gordon England as the DOD official responsible for negotiatingwith labor organizations on the personnel reform effort. (11) On April 14, 2004, Secretary England announced thatimplementation of the NSPS would be phased in over several years so that all employees would becovered by the NSPS by October 1, 2006. More specific implementation steps and a revised timetable were announced by SecretaryEngland on December 15, 2004, as follows. (12) Civilian DOD employees being converted to the NSPS were tobe grouped into three "spirals." Upwards of 300,000 General Schedule employees from the Army,Navy, Marine Corps, Air Force, Office of the Secretary of Defense, and other DOD offices who arebased in the United States were to comprise Spiral One. Spiral Two was to consist of all remainingeligible employees and Spiral Three was to cover employees of the DOD laboratories if currentlegislative restrictions covering laboratory employees had been eliminated. The new system was tobe implemented in phases. Spiral One was scheduled to be implemented in three phases over 18months beginning around July 2005 and covering some 60,000 employees. Spiral Two wasscheduled to begin after the department had assessed Spiral One and after the Secretary of Defensecertified DOD's performance management system. Full implementation of the new system wasanticipated anywhere from July 2007 through January 2008. Implementation of the labor relationscomponent of the new system was anticipated by summer 2005. On October 26, 2005, DOD announced a further revised implementation schedule for theNSPS. Key implementation steps were to occur as follows: In early FY2006, the labor relations system was to be implemented acrossDOD for employees who are currently covered by 5 U.S.C. Chapter 71, and training in performancemanagement was to begin for employees, managers and supervisors, and human resourcespractitioners. In early calendar year 2006, Spiral 1.1 was to be implemented and cover some65,000 employees. In spring 2006, Spiral 1.2 was to be implemented and cover some 48,000employees. In fall 2006, Spiral 1.3 was to be implemented and cover some 160,000employees and the performance cycle was to end for employees in Spirals 1.1 and1.2. In early calendar year 2007, employees in Spirals 1.1 and 1.2 were to receivetheir first pay-for-performance payout. In early calendar year 2008, employees in Spiral 1.3 were to receive their firstpay-for-performance payout. (13) Another revision to the NSPS implementation schedule was announced by DOD on January17, 2006, and updated on February 13, 2006, and March 3, 2006. Beginning in late April 2006, theclassification, performance management, compensation, staffing, and workforce shaping provisionsof the new system will be implemented. Under the revised schedule, the following was established: Spiral 1.1 will include the first employees to be covered by the NSPS, some11,000 workers in department-wide, Army, Navy, and Air Force activities. (14) The performance ratingcycle for these employees will extend through October 2006, and the first performance payout willoccur in January 2007. Spiral 1.2 will begin in October 2006, and Spiral 1.3 will begin in January2007. Performance payouts will occur in January 2008. The DOD agencies that will participate inthese Spirals are still to be determined. Spirals 2 and 3 will be formed and commence following certification of theperformance management system. (15) Proposed regulations to implement the system were jointly published in the Federal Register by DOD and OPM on February 14, 2005. (16) DOD and OPM conducted a joint briefing on the proposedregulations on February 10, 2005. (17) According to the Defense Department, more than 58,000comments were submitted on the proposed regulations. DOD and OPM jointly published the finalregulations in the Federal Register on November 1, 2005. (18) The regulations generallyexpress concepts for the new system rather than details about how it will operate. The regulationsstate that "issuances" to implement the regulations will be prepared by DOD. On November 23,2005, DOD released the drafts of the "issuances" and, as of the date of the report, are still underreview by the department and labor organizations. Revised drafts of the "issuances" on performancemanagement and pay pools were released on February 28, 2006, and, likewise, are subject tocontinuing collaboration between DOD and the unions. The process for designing the new personnel system involved Program Executive Officeworking groups, which began a nearly two-month process to develop and evaluate options for theNSPS in late July 2004. Focus groups and town hall meetings and discussions with union leaderswere employed by the working groups to gather input from employees and stakeholders. (19) Other specificimplementation steps are noted below under relevant sections of the law. DOD has established awebsite to monitor implementation of the NSPS. (20) Prior to the enactment of the provisions authorizing the Department of Defense to create anew human resources management system, DOD civilians were covered by the personnel lawscodified in Title 5 United States Code on government organization and employees. Under theauthority granted by Title XI of P.L. 108-136 , some 700,000 civilian employees are expected to becovered by the new National Security Personnel System. The NSPS policies (especially in the areasof pay, performance management, adverse actions and appeals, and labor management relations) aremore flexible than those under Title 5. During debate prior to the enactment of P.L. 108-136 andin discussions that have continued since, several Members of Congress stated that implementationof the NSPS (along with the Department of Homeland Security's new HRM system currently beingcreated) should be monitored as a possible model for amending Title 5 and extending thoseprovisions to the rest of the federal government's civilian workforce. Reflecting the importance of carefully crafting the NSPS, Senators Susan Collins, Carl Levin,Ted Stevens, John Sununu, and George Voinovich reportedly sent a letter to Secretary England onMarch 3, 2004, which stated that [t]he involvement of the civilian work force in thedesign of the new National Security Personnel System is critical to its ultimate acceptance andsuccessful implementation. Full collaboration with the Office of Personnel Management and thefederal employee unions will assist the department in meeting this critical challenge. (21) A March 12, 2004, letter sent by Senator Daniel Akaka to Secretary of Defense DonaldRumsfeld urged DOD to issue all proposals on the NSPS in the Federal Register and not as internalregulations, for reasons of "openness, transparency, public comment, and scrutiny of thedetails." (22) SenatorEdward Kennedy, in a December 10, 2004, press release, also emphasized development of the newsystem "in the most transparent way possible." According to the Senator: Congress gave the Department of Defense the authorityto make major personnel changes affecting 700,000 defense employees, but only with theunderstanding that those changes would be made in consultation with representatives of theemployees. It's appalling that the Bush Administration is ignoring that understanding bystonewalling the representatives and refusing to let them review personnel changes before they arepublished.... (23) Government Executive reported that Senator Kennedy wrote to Defense Secretary DonaldRumsfeld and OPM Director Kay Coles James on November 19, 2004, to voice opposition to theirrefusal to share the details of the new personnel system with officials of the unions representingDOD employees in advance of the publication of the regulations in the Federal Register . Reportedly, DOD believes that do to so would "depart from the intent of the AdministrativeProcedures Act." (24) In a press release issued on February 10, 2005, Senator Lieberman expressed his deepdisappointment with the personnel rules, stating: "The proposal imposes excessive limits oncollective bargaining ... changes the appeals process to interfere with employees' rights to dueprocess ... and ... contains unduly vague and untested pay and performance provisions." (25) P.L. 108-136 provides the following. (26) Section 1101(a)(1) of P.L. 108-136 amends Part III, Subpart I,of Title 5 United States Code by adding a new Chapter 99 entitled Department of Defense (DOD)National Security Personnel System. The new system covers some 700,000 DOD civilianemployees. This section defines terms for the new chapter. "Director" means the Director of the Officeof Personnel Management (OPM) and "Secretary" means the Secretary of Defense. In General. The new Section 9902(a) of P.L.108-136 provides that notwithstanding any other provision of Part III, the Secretary of Defense may,in regulations prescribed jointly with the OPM Director, establish, and from time to time adjust, ahuman resources management (HRM) system, referred to as the National Security Personnel System(NSPS), for some or all of the organizational or functional units of DOD. Requirements for the HRM System. The HRMsystem must be flexible and contemporary. The new Section 9902(b) provides that it could notwaive, modify, or otherwise affect: the public employment principles of merit and fitness at 5 U.S.C. §2301,including the principles of hiring based on merit, fair treatment without regard to political affiliationor other non-merit considerations, equal pay for equal work, and protection of employees againstreprisal for whistleblowing; any provision of 5 U.S.C. §2302, relating to prohibited personnelpractices; any provision of law referred to in 5 U.S.C. §2302(b)(1)(8)(9); or any provisionof law implementing any provision of law referred to in 5 U.S.C. §2302(b)(1)(8)(9) by providing forequal employment opportunity through affirmative action; or providing any right or remedy availableto any employee or applicant for employment in the public service. Various subparts and chapters of Part III of Title 5 United States Code which cannot bewaived, modified, or otherwise affected in the new HRM system are listed at the new Section9902(d) as follows: Subpart A -- General Provisions, including Chapter 21Definitions; Chapter 23 Merit System Principles; Chapter 29 Commissions, Oaths, Records, andReports; Subpart B -- Employment and Retention, includingChapter 31 Authority for Employment; Chapter 33 Examination, Selection, and Placement; Chapter34 Part-time Career Employment Opportunities; Chapter 35 Retention Preference (RIF), Restoration,and Reemployment; Subpart E -- Attendance and Leave, including Chapter61 Hours of Work; Chapter 63 Leave; Subpart G -- Insurance and Annuities, including Chapter81 Compensation for Work Injuries; Chapters 83 and 84 Retirement; Chapter 85 UnemploymentCompensation; Chapter 87 Life Insurance; Chapter 89 Health Insurance; Chapter 90 Long Term CareInsurance; Subpart H -- Access to Criminal History RecordInformation, including Chapter 91 for individuals underinvestigation; Chapter 41 --Training; Chapter 45 -- IncentiveAwards; Chapter 47 -- Personnel Research Programs andDemonstration Projects; Chapter 55 -- Pay Administration, including biweeklyand monthly pay periods and computation of pay, advanced pay, and withholding of taxes from pay,except that Subchapter V of Chapter 55 on premium pay (overtime, night, Sunday pay), apart fromsection 5545b, may be waived or modified; Chapter 57 -- Travel, Transportation, andSubsistence; Chapter 59 -- Allowances, which includes uniforms,quarters, overseas differentials; Chapter 71 -- Labor Management and EmployeeRelations [ H.R. 1588 , as passed by the House, did not include thisprovision]; Chapter 72 -- Antidiscrimination, Right to PetitionCongress, including minority recruitment, antidiscrimination on the basis of marital status andhandicapping condition, furnishing information to Congress; Chapter 73 -- Suitability, Security, and Conduct,including security clearance, political activities (Hatch Act), misconduct (gifts, drugs,alcohol); Chapter 79 -- Services to Employees, including safetyprogram, protective clothing and equipment; or any rule or regulation prescribed under any provisionof law referred to in any of the statements in bullets immediatelyabove. Other requirements for the HRM system include that it must: ensure that employees may organize, bargain collectively as provided for inthe proposed Chapter 99, and participate through labor organizations of their own choosing indecisions that affect them, subject to the provisions of the proposed Chapter 99 and any exclusionfrom coverage or limitation on negotiability established pursuant to law; not be limited by any specific law or authority under Title 5, or by any rule orregulation prescribed under Title 5, that is waived in regulations prescribed under the proposedChapter 99, subject to the requirements stated above; and include a performance management system. Such a system must incorporatethese elements: adherence to the merit principles of 5 U.S.C. §2301; a fair, credible, and transparentemployee performance appraisal system; a link between the performance management system andthe agency's strategic plan; and a means for ensuring employee involvement in the design andimplementation of the system. Other elements the system must incorporate are: adequate trainingand retraining for supervisors, managers, and employees in the implementation and operation of theperformance management system; a process for ensuring ongoing performance feedback anddialogue between supervisors, managers, and employees throughout the appraisal period, and settingtimetables for review; effective safeguards to ensure that the management of the system is fair andequitable and based on employee performance; and a means for ensuring that adequate agencyresources are allocated for the design, implementation, and administration of the performancemanagement system; and a pay-for-performance evaluation system to better link individual pay toperformance, and provide an equitable method for appraising and compensatingemployees. Personnel Management at Defense Laboratories. The NSPS will not apply with respect to the laboratories listed below before October 1, 2008. It willapply on or after October 1, 2008, only to the extent that the Secretary determines that theflexibilities provided by the NSPS are greater than the flexibilities provided to those laboratoriespursuant to section 342 of the National Defense Authorization Act for Fiscal Year 1995( P.L.103-337 ) and section 1101 of the Strom Thurmond National Defense Authorization Act forFiscal Year 1999 (5 U.S.C. §3104 note) respectively. The laboratories covered by this provision (5U.S.C. §9902(c)) are the Aviation and Missile Research Development and Engineering Center; theArmy Research Laboratory; the Medical Research and Materiel Command; the Engineer Researchand Development Command; the Communications-Electronics Command; the Soldier andBiological Chemical Command; the Naval Sea Systems Command Centers; the Naval ResearchLaboratory; the Office of Naval Research; and the Air Force Research Laboratory. (SenatorVoinovich offered a similar provision as an amendment that was agreed to by voice vote by theSenate Governmental Affairs Committee during mark-up of S. 1166 . According toSenator Voinovich's office, the amendment continued the authority of the reinvention laboratoriesto use various personnel flexibilities that DOD has found to be successful. The NSPS provisionsmight reduce these personnel flexibilities at the laboratories if they were to be included in NSPS saidhis office. In an article on the Governmental Affairs Committee mark-up, The Washington Post quoted a DOD official who said that the provision "while designed to protect existing flexibilitiesat the labs, would prevent the Pentagon from increasing those flexibilities." (29) Limitations Relating to Pay. Nothing in Section9902 constitutes authority to modify the pay of any employee who serves in an Executive Scheduleposition. Except for this provision, the total amount of allowances, differentials, bonuses, awards,or other similar cash payments paid under Title 5 in a calendar year to any employee who is paidunder 5 U.S.C. §5376 (senior-level pay) or 5383 (Senior Executive Service pay) or under Title 10or other comparable pay authority established for DOD senior executives or equivalent employeesmay not exceed the total annual compensation payable to the Vice President ($212,100, as of January2006). The law provides that to the maximum extent practicable, the rates of compensation forcivilian DOD employees would be adjusted at the same rate, and in the same proportion, as are ratesof compensation for members of the uniformed services. To the maximum extent practicable, for FY2004 through FY2008, the overall amountallocated for compensation of the civilian employees of an organizational or functional unit of DODthat is included in the NSPS may not be less than the amount of civilian pay that would have beenallocated for compensation of such employees for such fiscal year if they had not been converted tothe NSPS. The amount will be based on, at a minimum, the number and mix of employees in suchorganizational or functional unit prior to the conversion of such employees to the NSPS; andadjusted for normal step increases and rates of promotion that would have been expected had suchemployees remained in their previous pay schedule. ( S. 1166 included a similarprovision.) To the maximum extent practicable, the regulations implementing the NSPS will provide aformula for calculating the overall amount to be allocated for fiscal years after FY2008 forcompensation of the civilian employees of an organizational or functional unit of DOD that isincluded in the NSPS. The formula will ensure that in the aggregate, employees are notdisadvantaged in terms of the overall amount of pay available as a result of conversion to the NSPS,while providing flexibility to accommodate changes in the function of the organization, changes inthe mix of employees performing those functions, and other changed circumstances that mightimpact pay levels. ( S. 1166 included a similar provision.) The Executive Schedule is the pay system for the heads of federal departments and agencies. As of January 2006, pay for the five levels of the Executive Schedule ranges from $133,900 to$183,500. This provision appears to authorize pay, for individual employees, which could exceedthat of the department or agency heads. Under current law, OPM is required to certify that an agencyhas an acceptable performance management system in place before salaries for these employeescould range up to the Vice President's salary. Since the proposals would not amend 5 U.S.C. §5307,it remains to be determined if OPM certification of the DOD policy will be required. Under the new Section 9902(d) in P.L. 108-136 , DOD is authorized to make changes in Title5 Chapters 43 (Performance Appraisal) and 53 (Pay Rates and Systems) in establishing the newHRM system. The law does not provide any further detail on the design and operation of that newpay system. Implementation of the Law. Several key chapters ofPart III of Title 5 United States Code may be waived, modified, or otherwise affected as the newHRM system is developed. These are: Chapter 43 -- Performance Appraisal Chapter 51 -- Position Classification Chapter 53 -- Pay Rates and Systems Chapter 71 -- Labor Management and EmployeeRelations Chapter 75 -- Adverse Actions Chapter 77 -- Appeals (30) During testimony before the House Subcommittee on Civil Service and Agency Organizationat its April 29, 2003 hearing on the proposed NSPS of the Defense Transformation for the 21stCentury Act, David Chu discussed DOD's Best Practices Initiative. He referred Members ofCongress to an April 2, 2003, Federal Register notice for additional details on the types of HRMflexibilities the department is implementing at its science and technology reinventionlaboratories. (31) A September 3, 2004, paper by the Program Executive Office working groups listed (withoutdetails) "Potential Options for the National Security Personnel System Human ResourceManagement System." Among the design options identified were those establishing a pay bandingsystem with broad salary ranges and simplified criteria and procedures for assigning positions to thebands; developing a market-sensitive pay system; streamlining and consolidating appointingauthorities to simplify the hiring of external candidates; developing a pay-for-performance systemallowing for progression through a pay band based on performance and/or contribution; allowingbase pay increases for reassignments; and streamlining the Performance Improvement Planprocess. (32) As stated above, the proposed regulations to implement the NSPS were published in the Federal Register on February 14, 2005, and the final regulations were published on November 1,2005. Provisions on Classification (Subpart B, §§9901.201-9901.231), Pay and Pay Administration(Subpart C, §§9901.301-9901.373), Performance Management (Subpart D, §§9901.401-9901.409),Staffing and Employment (Subpart E, §§9901.501-9901.516) and Workforce Shaping (Subpart F,§§9901.601-9901.611) are included in the regulations. Many of the details that will govern theoperation of these areas are currently under discussion by DOD and the labor organizations. A townhall briefing in March 2006 revealed the following details, which are subject to continuingcollaboration between the department and the unions. Classification. Positions will be grouped into broad pay bands based on thenature of the work and the competencies required to perform them. Performance, complexity of thejob, and market conditions will determine the progression of employees through a pay band.Positions descriptions will be less detailed. Managers will have flexibility to assign new or differentwork to employees. Classification decisions could be appealed. There are expected to be four careergroups -- Standard (covers 71% of DOD's white collar workforce), Scientific and Engineering(covers 18% of DOD's white collar workforce), Investigative and Protective Services (covers 6% ofDOD's white collar workforce), and Medical (covers 5% of DOD's white collar workforce). Table1 below shows the proposed career groups and the pay bands and salary ranges corresponding topositions under each. Table 1. Proposed Career Groups, Pay Bands, and Salary Rangesfor the National Security Personnel System Performance Management. The system will directly link pay, performance,and mission accomplishment. It will have five rating levels -- "Unsuccessful," "Fair," "ValuedPerformance," "Exceeds Expectations," and "Role Model." The performance of employees will berated on responsibilities, behaviors, skills, and tasks. An individual's technical proficiency, criticalthinking, cooperation and teamwork, communication, customer focus, resource management, andleadership will be evaluated. Employees who perform at Level 3, "Valued Performance," Level 4,"Exceeds Expectations," or Level 5, "Role Model," will be eligible for a rate range adjustment, alocal market supplement, and performance-based pay. Individuals who perform at Level 2, "Fair,"will be eligible for a rate range adjustment and a local market supplement. There will not be any payincreases for those employees whose performance is rated at Level 1,"Unsuccessful." Compensation. An employee could receive three types of pay adjustments --a rate range increase, a local market supplement, and a raise based on performance. The rate rangeincrease may vary by pay band. Employees must perform at Level 2, "Fair," or higher to receive arate range increase. The local market supplement will be included in base pay and will be based onmarket conditions in a geographic area or for an occupation. This increase could differ from oneoccupation to another within a given area. Employees must perform at Level 2, "Fair," or higher toreceive a local market supplement. The performance-based adjustment will be an annual pay raiseor bonus based on job performance. Employees must perform at Level 3, "Valued Performance,"or higher to receive a performance-based pay increase. High-performing employees could receivehigher pay raises. The rate ranges and local market supplements will be reviewed annually. Apromotion will result in a minimum six percent salary increase. Employees will not lose pay uponconverting to the new system. Individuals eligible for a within-grade increase will receive apro-rated salary increase. Staffing. The hiring process will be streamlined. Qualification requirementsfor positions will recognize DOD's unique mission. Some occupational categories will have longerprobationary periods for evaluating new employees. Veterans' preference rights willapply. Workforce Shaping. An employee's retention standing in a reduction in force(RIF) will be determined by tenure, veterans' preference, performance, and seniority. Multiple yearsof performance ratings will be used in making RIF determinations. Two years (104 weeks) ofretained pay will be provided to employees who are displaced. Provisions to Ensure Collaboration With EmployeeRepresentatives on National Security Personnel System. P.L. 108-136 adds a newsection, 5 U.S.C. §9902(f), that requires the Secretary of Defense and the Director of OPM toprovide a written description of the proposed personnel system or adjustments to such system to thelabor organizations representing employees in the department. The measure uses the term "employeerepresentatives" to describe these organizations. The employee representatives are given at least 30calendar days to review and make recommendations with respect to the proposal, unlessextraordinary circumstances require earlier action. Such recommendations must be given full andfair consideration by the Secretary and the Director. Section 9902(f)(B)(i) requires the Secretary andthe Director to notify Congress of those parts of the proposal for which recommendations weremade, but not accepted. Section 9902(f)(B)(ii) requires the Secretary and the Director to meet and confer with theemployee representatives for not less than 30 calendar days to attempt to reach agreement on whetherand how to proceed with those parts of the proposal for which recommendations were made, but notaccepted. At the Secretary's option, or if requested by a majority of the employee representativesparticipating, the Federal Mediation and Conciliation Service may assist with the discussions. After30 calendar days following notification and consultation, the Secretary may implement any or all ofthe disputed parts of the proposal if it is determined that further consultation and mediation areunlikely to produce agreement. However, such implementation may occur only after 30 daysfollowing notice to Congress of the decision to implement the part or parts involved. Implementationmay occur immediately for those parts of the proposal that did not generate recommendations fromthe employee representatives, and where the Secretary and the Director accepted therecommendations of the employee representatives. The Secretary may, at his discretion, engage inany and all of the collaboration activities at an organizational level above the level of exclusiverecognition. If a proposal is implemented, the Secretary and the Director must develop a method foremployee representatives to participate in any further planning or development which might becomenecessary. In addition, employee representatives must be given adequate access to information tomake participation productive. Provisions Regarding National Level Bargaining. A new section, 5 U.S.C. §9902(g)(1), allows any personnel system implemented or modified underSection 9902(f) to include employees from any bargaining unit with respect to which a labororganization has been accorded exclusive recognition. (A labor organization is described generallyas having been accorded "exclusive recognition" when an election has occurred (with the labororganization receiving support from a majority of employees) and the results have been certified bythe Federal Labor Relations Authority ("FLRA").) For any of these bargaining units, the Secretaryis permitted to bargain at an organizational level above the level of exclusive recognition. Thedecision to bargain at a level above the level of exclusive recognition is not subject to review or todispute resolution procedures outside the department. Any bargaining conducted at a level above the level of exclusive recognition is binding onall subordinate bargaining units and on the department and its subcomponents; supersedes all othercollective bargaining agreements, except as otherwise determined by the Secretary; is not subject tofurther negotiations for any purpose, except as provided for by the Secretary; and is subject to reviewby an independent third party only to the extent permitted by the act. Because organizational bargaining would likely focus on the larger issues affecting allemployees, other topics may not be considered, including concerns that are significant only to aparticular bargaining unit. Proponents of organizational bargaining, however, contend that suchbargaining is more expeditious. Provisions to Ensure Collaboration With EmployeeRepresentatives on Development of Labor Relations System. Section 9902(d)(2)prevents the new personnel system from waiving the application of Title 5, Chapter 71 of the UnitedStates Code . Chapter 71 sets forth the labor-management relations structure for the federalgovernment. At the same time, however, Section 9902(m)(1) states: "Notwithstanding section9902(d)(2), the Secretary, together with the Director, may establish and from time to time adjust alabor relations system for the Department of Defense to address the unique role that the Department'scivilian workforce plays in supporting the Department's national security mission." To ensure that there is collaboration between the Secretary, the Director, and employeerepresentatives, the Secretary is required to implement a process similar to the one defined for thecreation of the NSPS. The Secretary and the Director are required to give employee representativesand management the opportunity to have meaningful discussions concerning the development of thenew system. Representatives must be given at least 30 calendar days to review the proposal for thesystem and make recommendations with respect to the proposal, unless extraordinary circumstancesrequire earlier action. Recommendations must be given full and fair consideration. Section 9902(m)(3)(B)(i) requires the Secretary and the Director to meet and confer with theemployee representatives for not less than 30 calendar days to attempt to reach agreement on whetherand how to proceed with those parts of the proposal for which recommendations were made, but notaccepted. At the Secretary's option, or if requested by a majority of the employee representativesparticipating, the Federal Mediation and Conciliation Service may assist with the discussions. After30 calendar days following consultation and mediation, the Secretary may implement any or all ofthe disputed parts of the proposal if it is determined that further consultation and mediation isunlikely to produce agreement. However, such implementation may occur only after 30 daysfollowing notice to Congress of the decision to implement the part or parts involved. Implementation may occur immediately for those parts of the proposal that do not generaterecommendations from the employee representatives, and where the Secretary and the Director haveaccepted the recommendations of the employee representatives. The process for collaboration with the employee representatives must begin no later than 60calendar days after the date of enactment. Section 9902(m)(4) authorizes the Secretary to engagein any and all of the collaboration activities at an organizational level above the level of exclusiverecognition. The labor relations system developed or adjusted under Section 9902(m) must provide forthe independent third party review of decisions and for determining which decisions could bereviewed, who would conduct the review, and the standards to be used during the review. Unlessextended or otherwise provided for in law, the authority to establish, implement, and adjust the laborrelations system expires six years after the date of enactment. At that time, the provisions of Chapter71 will apply. Implementation. On November 7, 2005, followingthe issuance of final regulations to establish the NSPS, a coalition of federal unions, including theAmerican Federation of Government Employees, filed a lawsuit in federal district court challengingthe regulations. On February 27, 2006, the court enjoined the new regulations on the grounds thatthey failed to ensure collective bargaining rights, did not provide for the independent third-partyreview of labor relations decisions, and failed to provide a fair process for appealing adverseactions. (33) DOD hasindicated that it will appeal the decision. (34) Despite the court's actions, this section reviews and discussesthe new regulations. Subpart I of the regulations defines the department's labor-relations system. The regulationsprovide for a variety of new features that would be unique to DOD. For example, the regulationsestablish a new labor relations board that would assume some of the duties that are performedcurrently by the FLRA. The regulations would also expand management rights beyond whatcurrently exists under chapter 71. The regulations provide for the creation of a National Security Labor Relations Board(NSLRB) that would do the following: conduct hearings and resolve complaints of unfair laborpractices; resolve issues relating to the scope of bargaining and the duty to bargain in good faith;resolve disputes concerning requests for information; resolve exceptions to arbitration awards;resolve negotiation impasses; and conduct de novo reviews on all matters within the Board'sjurisdiction. (35) Underthe regulations, the Board could also issue binding department-wide opinions for matters within itsjurisdiction upon request of a department component or a labor organization. (36) Many of these duties arecurrently performed by the FLRA pursuant to 5 U.S.C. § 7105. The regulations contemplate a more limited role for the FLRA. Under the regulations, theFLRA is authorized to determine the appropriateness of bargaining units, to supervise or conductelections to determine whether a labor organization has been selected as an exclusive representativeby a majority of the employees in an appropriate unit, to resolve disputes regarding the granting ofnational consultation rights, and to review specified NSLRB decisions. (37) In addition to retaining many of the rights otherwise provided to management under Title 5,Chapter 71 of the United States Code , department managers are granted additional rights under thefinal regulations. For example, management is given the right "to determine the numbers, types, payschedules, pay bands and/or grades of employees or positions assigned to any organizationalsubdivision, work project or tour of duty, and the technology, methods, and means of performingwork." (38) Managementcould also assign employees to meet any operational demand. (39) Under the regulations,management is prohibited from bargaining not only over the exercise of its rights, but over theprocedures it would observe in exercising its rights. Although the regulations require the agency and any exclusive representative in anyappropriate unit to meet and negotiate in good faith for the purpose of arriving at a collectivebargaining agreement, they also indicate that management would have no obligation to bargain overa change to a condition of employment "unless the change is otherwise negotiable pursuant to [the]regulations and is foreseeable, substantial, and significant in terms of both impact and duration onthe bargaining unit, or on those employees in that part of the bargaining unit affected by thechange." (40) Theregulations do not identify when a change would be considered "substantial" and "significant." Finally, the regulations provide for the establishment of procedures by the NSLRB for the"fair, impartial, and expeditious" assignment and disposition of cases. (41) The NSLRB would usea single, integrated process to address disputes and claims, to the extent practicable. Certaindecisions by the NSLRB, including those involving negotiability disputes and arbitral awards, couldbe reviewed by the FLRA. Under the regulations, the FLRA would have to accept the findings of factand interpretations made by the NSLRB and sustain the NSLRB's decision unless the partyrequesting review could show that the NSLRB's decision was (1) arbitrary, capricious, an abuse ofdiscretion, or otherwise not in accordance with law; (2) caused by harmful error in the applicationof the Board's procedures in arriving at such a decision; or (3) was unsupported by substantialevidence. (42) Provisions Relating to Adverse Actions and AppellateProcedures. (43) The new section, 5 U.S.C. §9902(h), of P.L. 108-136 (1) (A)authorizes the Secretary of Defense to establish an appeals process that must provide employees ofDOD organizational and functional units that are included in the NSPS fair treatment in any appealsthat they bring in decisions relating to their employment; and (B) mandates that the Secretary, inprescribing regulations for that appeals process, (i) ensure that these employees are afforded dueprocess protections; and (ii) toward that end, be required to consult with the Merit SystemsProtection Board (MSPB) before issuing such regulations. (2) Regulations implementing theappeals process may establish legal standards and procedures for personnel actions, includingstandards for applicable relief, to be taken for employee misconduct or performance that fails to meetexpectations. These standards must be consistent with the public employment principles of meritand fitness set forth in section 2301 of Title 5 of the United States Code . (3) Legal standards andprecedents applied before the effective date of the new section 9902 of Title 5 by the MSPB and thecourts under Chapters 43 (Performance Appraisal), 75 (Adverse Actions) and 77 (Appeals) of Title5 must apply to DOD employees included in the NSPS, unless these standards and precedents areinconsistent with standards established in section 9902. (4) An employee who (A) is removed, suspended for more than 14 days, furloughed for 30days or less, reduced in pay, or reduced in pay band (or comparable reduction) by a final decisionunder the appeals process established under paragraph 1; (B) is not serving a probationary periodunder regulations established under paragraph (2); and (C) is otherwise eligible to appeal aperformance-based or adverse action under Chapters 43 or 75, as applicable, to the MSPB has theright to petition the full MSPB for a review of the record of that decision pursuant to regulationsestablished under paragraph (2). The board is authorized to dismiss any petition that, in the board'sview, does not raise substantial questions of fact or law. No personnel action may be stayed and nointerim relief may be granted during the pendency of the board's review unless specifically orderedby the board. (5) The board is authorized to order corrective action as it considers appropriate only if itdetermines that the department's decision was (A) arbitrary, capricious, an abuse of discretion, orotherwise not in accordance with law; (B) obtained without procedures required by law, rule, orregulation having been followed; or (C) unsupported by substantial evidence. (6) An employee whois adversely affected by a final order or decision of the MSPB may obtain judicial review of the orderor decision as provided in section 7703. The Secretary of Defense, after notifying the OPM Director,may obtain judicial review of any board final order or decision under the same terms and conditionsas provided an employee. (7) Nothing in subsection (h) of the new section 9902 of Title 5 of the United States Code should be construed to authorize the waiving of any provision of law, including an appeals provisionproviding a right or remedy under section 2302(b)(1), (8), or (9) of Title 5 that is not otherwisewaivable under subsection (a) of the new section 9902. Section 2302(b)(1) makes it a prohibitedpersonnel practice to discriminate for or against any employee on such bases as race, color, religion,sex, or national origin, age, handicapping conditions under relevant statutes, or marital status orpolitical status under any law, rule, or regulation. Section 2302(b)(8) prohibits personnel actions inreprisal for whistleblowing. Section 2302(b)(9) prohibits personnel actions in reprisal for suchthings as exercising any right of appeal, complaint, or grievance; cooperating with or disclosinginformation to the Inspector General or Special Counsel; or refusing to obey an order that wouldrequire an individual to violate a law. (8) The right of an employee to petition the final decision of DOD on an action covered byparagraph (4) of section 9902(h) to MSPB, and the right of the board to review such action or toorder corrective action pursuant to paragraph (5), is provisional for seven years after the date Chapter99 is enacted, and becomes permanent unless Congress acts to revise such provisions. Chapter 77 is one of the chapters of Title 5 that is subject to waiver or modification by theSecretary of Defense in establishing an HRM system for DOD. Section 7701 of Title 5 grantsemployees and applicants for employment a right to appeal to MSPB any action which is appealableto the board under any law, rule, or regulation. An appellant has a right to a hearing at which atranscript will be kept and to be represented by an attorney or other representative. An agency decision is sustained by the board only if it is supported by substantial evidencein the case of an action based on unacceptable performance described in 5 U.S.C. §4303 or a removalfrom the Senior Executive Service for failing to be recertified or if it is supported by a preponderanceof evidence in any other case. Notwithstanding these standards, an agency's decision may not besustained, if the employee or applicant for employment (1) shows harmful error in the applicationof the agency's procedures in arriving at its decision; (2) shows that the decision was based on anyprohibited personnel practice described in 5 U.S.C. §2302; or (3) shows that the decision was notin accordance with law. Section 7702 of Title 5 prescribes special procedures for any case in which an employee orapplicant who has been affected by an action appeals to the board and alleges that a basis for theaction was discrimination. The board first decides both the appealable action and the issue ofdiscrimination within 120 days after it is filed. In any action before an agency which involves anappealable action and discrimination, the agency must resolve the matter within 120 days. Anagency decision is judicially reviewable unless the employee appeals the matter to the board. Any decision of the board in an appealable action where discrimination has been alleged isjudicially reviewable as of the date the board issues its decision if an employee or the applicant doesnot file a petition for consideration by the Equal Employment Opportunity Commission. Within 30days after a petition is filed, the commission must decide whether to consider the board's decision. If the commission decides to consider such a decision, within 60 days it must concur in the board'sdecision or issue a written decision which differs from it. Within 30 days after receiving acommission decision that differs from the board's initial decision, the board must consider thecommission's decision and either concur in whole in it or reaffirm its initial decision or reaffirm itsinitial decision with appropriate revisions. A board decision to concur and adopt in whole acommission decision is judicially reviewable. If the board reaffirms its initial decision or reaffirms it with revisions that it determinesappropriate, the matter must immediately be certified to a special panel comprised of one individualappointed by the President, one board member, and one commission member. Within 45 days aftercertification, the special panel is required to review the record, decide the disputed issues on thebasis of the record, and issue a final decision, which is judicially reviewable. The special panel mustrefer its decision to the board, which is required to order the agency involved to take any appropriateaction to carry out the panel's decision. The panel must permit the employee or applicant whobrought the complaint and the agency to appear before it to present oral arguments and to presentwritten arguments. If prescribed time periods for action by an agency, board, or commission are not met, anemployee is entitled to file a civil action in district court under some antidiscrimination statutes. Ifan agency does not resolve a matter appealable to the board where discrimination has been allegedwithin 120 days, the employee may appeal the matter to the board. Nothing in section 7702 of Title5 "Actions Involving Discrimination" can be construed to affect the right to trial de novo in districtcourt under named antidiscrimination statutes after a judicially reviewable action. Under Section 7703 of Title 5, any employee or applicant who is adversely affected oraggrieved by a final order or decision of the MSPB may obtain judicial review of the order ordecision. Except in cases involving allegations of discrimination, a petition to review a final boardorder or decision must be filed with the United States Court of Appeals for the Federal Circuit within60 days after the petitioner received notice of the final order or decision. Cases involvingdiscrimination must be filed in district court under procedures prescribed in antidiscriminationstatutes within 30 days after the individual filing the case receives notice of a judicially reviewableaction. In any case filed with the Federal Circuit Court of Appeals, the court is required to holdunlawful and set aside any agency action, findings, or conclusions found to be (1) arbitrary,capricious, an abuse of discretion, or otherwise not in accordance with law; (2) obtained withoutprocedures required by law, rule, or regulations having been followed; or (3) unsupported bysubstantial evidence, except that in the case of discrimination brought under namedantidiscrimination statutes, an employee or applicant has a right to have the facts heard in a trial denovo by a reviewing court. Implementation. Subpart G of the final regulationson adverse actions contains procedural requirements for employees who are removed, suspended,furloughed for 30 days or less, reduced in pay, or reduced in a pay band (or comparable reduction). DOD may prescribe implementing issuances to carry out the provisions of the subpart. With respectto any covered category of employee, these regulations waive and replace relevant subchapters ofChapter 75 "Adverse Actions" and Chapter 43 "Performance Appraisal" of Title 5 of the UnitedStates Code. Subpart G authorizes the Department to take an adverse action under this subpart for suchcause as will promote the efficiency of the service. It grants to the Secretary of Defense sole,exclusive, and unreviewable discretion to identify "mandatory removal offenses" (i.e., those thathave a direct and substantial adverse effect on the Department's national security mission). Theseoffenses will be identified in advance in implementing issuances, publicized in notices in the FederalRegister and made known to all employees on a periodic basis, as appropriate, through meansdetermined by the Secretary. The proposed regulation provided that mandatory removal offenseswould be identified in advance as part of departmental regulations and that employees would benotified when they are identified. Under the final and proposed regulation, the Secretary has thesole, exclusive, and unreviewable discretion to mitigate the removal penalty on his or her owninitiative or at the request of the employee in question and the Secretary's authority to removeemployees for offenses other than those that the Secretary identifies as mandatory removal offensesis not limited by the regulation relating to them. An employee against whom an adverse action is proposed is entitled to (1) a proposal notice,(2) an opportunity to reply, and (3) a decision notice. The Department must provide a minimum of15 days advance written notice of a proposed adverse action, unless there is reasonable cause tobelieve that the employee has committed a crime for which a prison sentence may be imposed, inwhich case the advance notice period can be shortened to a minimum of five days. No proposalnotice is required for furlough without pay, such as sudden breakdown of equipment, acts of God,or sudden emergencies requiring immediate curtailment of activities. Covered DOD employees are given a minimum of ten days, which run concurrently with thenotice period, to reply orally and/or in writing. If there is reasonable cause to believe that theemployee has committed a crime for which a prison sentence may be imposed, however, theDepartment may be reduced to a minimum of five days, which run concurrently with the noticeperiod, to reply orally and/or in writing. No opportunity for reply is necessary for furlough withoutpay due to unforeseen circumstances such as acts of God, or sudden emergencies requiringimmediate curtailment of activities. The opportunity to reply orally does not include the right to a formal hearing withexamination of witnesses. During the opportunity to reply period, an employee is given a reasonableamount of official time to review evidence and to furnish affidavits and other documentary evidenceif the employee is otherwise in active duty status. The Department is required to designate an official to receive the employee's written and/ororal response. That official has authority to make or recommend a final decision on the proposedadverse action. The employee may be represented by an attorney or other representative of theemployee's choice and at the employee's expense, but the Department may disallow a representativeunder some conditions. In arriving at its decision on an adverse action, DOD may not consider any reasons other thanthose specified in the proposal notice. The Department must consider any response from theemployee and the employee's representative given to the designated official during the opportunityto reply period, as well as any medical documentation furnished in accordance with relevantregulations. The decision notice must specify in writing the reasons for the decision and advise theemployee of any appeal or grievance rights. To the extent practicable, the Department must deliverthe notice to the employee on or before the effective date of the action. If the notice cannot bedelivered in person, the Department may mail the notice to the employee's last known address ofrecord. The Department is required to keep a record of all relevant documentation concerning theaction for a period of time pursuant to the General Records Schedule and the Guide to PersonnelRecordkeeping. DOD must make the record available for review by the employee and furnish a copyof the record upon request of the employee or the Merit Systems Protection Board. The requirementsin Subpart G do not apply to adverse actions proposed prior to the date of an affected employee'scoverage under the subpart. Subpart H of the final regulations on appeals implements the provisions of Section 9902(h)of Title 5 of the United States Code, which establishes the system for DOD employees to appealcertain adverse actions covered under Subpart G. In applying existing legal standards andprecedents, the Merit Systems Protection Board (MSPB) is bound by the regulation set forth inSection 9901.107(a)(2)of Title 5 of the Code of Federal Regulations, which provides that theregulations must be interpreted in a way that recognizes the critical national security mission of theDepartment of Defense and that each provision must be construed to promote the swift, flexible,effective day-to-day accomplishment of this mission as defined by the Secretary of Defense. When a specified category of employees is covered by an appeals system established underthis subpart, these regulations waive the provisions of Section 7701 "Appellate procedures" of Title5 of the United States Code established for that category to the extent that they are inconsistent withthe subpart. The regulation on discrimination cases, Section 9901.809 of Title 5 of the Code ofFederal Regulations, modifies the provisions of Section 7702 "Actions involving discrimination" ofTitle 5 of the United States Code. The appellate procedures specified in Subpart H supersede thoseof the MSPB to the extent that the MSPB regulations are inconsistent with the subpart. MSPB isrequired to follow the provisions of Subpart H until it issues conforming regulations, which may notconflict with the DOD regulations. Appellate procedures in Subpart H, subject to a determination by the Secretary of Defense,apply to employees in DOD organizational and functional units included under the National SecurityPersonnel System who appeal removals; suspensions for more than 14 days, including indefinitesuspensions; furloughs of 30 days or less; reductions in pay; or reductions in a pay band (orcomparable reductions), which constitute appealable adverse actions for the purpose of the subpart,provided that they are covered by the adverse actions procedures in Subpart G. The Department of Defense recognizes the value of using alternative dispute resolutionmethods such as mediation, an ombudsman, or interest-based problem-solving to addressemployee-employer disputes and encourages using alternative dispute resolution. The methods aresubject to collective bargaining under Subpart I "Labor Management Relations" of the DODregulations. A covered DOD employee may appeal an appealable adverse action to the Merit SystemsProtection Board. The employee has a right to be represented by an attorney or other representativeof his or her own choosing. The MSPB is required to refer all appeals to an administrative judge foradjudication. The administrative judge must make a decision at the close of the review and providea copy of the decision to each party to the appeal and to the Office of Personnel Management. Allappeals, including class appeals, must be filed no later than 20 days after the effective date of theaction being appealed, or no later than 20 days after the date of service of an adverse action,whichever is later. An initial decision by an administrative judge must be made no later than 90 daysafter the date on which the appeal is taken. An adverse action taken against an employee must be sustained by the MSPB administrativejudge if it is supported by a preponderance of evidence unless the employee shows by apreponderance of the evidence that (1) there was harmful error in the application of DODprocedures in arriving at the decision; (2) the decision was based on any prohibited personnelpractice; or (3) the decision was not in accordance with law. Preponderance of the evidence isdefined as the degree of relevant evidence that a reasonable person, considering the record as awhole, would accept as sufficient to find that a contested fact is more likely to be true than untrue. A Board administrative judge must give great deference to DOD's determination regardingthe penalty imposed. An administrative judge may not modify the penalty imposed unless it istotally unwarranted in light of all pertinent circumstances. In evaluating the appropriateness of apenalty, the administrative judge must give primary consideration to the impact of the sustainedmisconduct or poor performance on the Department's national security mission. In cases of multiplecharges, the third party's determination in this regard is to be based on the justification for the penaltyas it relates to the sustained charge or charges. When a penalty is mitigated, the maximum justifiablepenalty must be applied. That penalty is the severest one that is not so disproportionate to the basisfor the action as to be totally unwarranted in light of all pertinent circumstances. The final regulation changes some aspects of the proposed regulation. It states that anadministrative judge cannot modify a DOD penalty; the proposed regulation stated that anadministrative judge, an arbitrator, or the full MSPB could not modify one. The final regulation alsochanges the standard for mitigation. The final regulation provides that an administrative judge maynot modify a penalty imposed by DOD "unless it is totally unwarranted in light of all pertinentcircumstances;" the proposed regulation said that such a penalty could not be modified unless it is"so disproportionate to the basis for the action as to be wholly without justification." Under the final regulation, like the proposed one, neither the MSPB administrative judge northe full MSPB may reverse an action of DOD based on the way in which the charge is labeled or theconduct is characterized, provided that the employee is on notice of the facts sufficient to respondto the factual allegations of the charge. Moreover, neither the MSPB administrative judge nor thefull MSPB may reverse the Department's action based on the way that a performance expectation isexpressed, provided that the expectation would be clear to a reasonable person. An employee willnot be granted interim relief, nor will an action taken against an employee be stayed, unlessspecifically ordered by the full Board after a final decision by the Department of Defense. Back paymay not be awarded and attorney fees may not be paid before a Board decision becomes final. Generally, an administrative judge of the MSPB may require DOD to pay attorney fees ifthe employee is the prevailing party and the administrative judge determines that such payment iswarranted in the interest of justice, including any case in which the Department was engaged in aprohibited personnel practice or any case in which the agency's action was clearly without merit. Ifthe employee is the prevailing party and the decision is based on a finding of discriminationinvolving a prohibited personnel practice under 5 U.S.C. section 2302(b)(1), however, payment ofreasonable attorney fees must be in accordance with the standards prescribed in section 706(k) ofthe Civil Rights Act of 1964, 42 U.S.C. 2000e-5(k). The final regulation relating to attorney fees is less restrictive than the proposed regulation. Under the proposed regulation, attorney fees were warranted to a prevailing party "in the interest ofjustice," a phrase defined as "only when the Department was engaged in a prohibited personnelpractice or the Department's action was clearly without merit based upon facts known tomanagement when the action was taken." The final regulation, like the proposed regulation, provides that an initial decision of anadministrative judge becomes the Department's final decision 30 days after it is issued unless eitherparty files a request for review with MSPB and the Department concurrently (with service to theother party) within that 30-day period. The final regulation states that the request must be filed "inaccordance. with 5 U.S.C. section 9902(h), MSPB's regulations, and this subpart [Subpart H"Appeals"]." It adds that if a party does not submit a request for review within the time limit, therequest will be dismissed as untimely filed unless a good reason for the delay is shown. The finalregulation deletes language in the proposed regulation which provided that a request for review hadto be served on the other party "as specified by DOD implementing issuances." Moreover, languagein the final regulation regarding dismissing a request for review as untimely if it was not submittedwithin the 30 day period did not appear in the proposed regulation. Under the final regulation, thirty days after the timely filing of a request for review, the initial decision of the MSPB administrative judge becomes the Department's final, nonprecedentialdecision, unless notice is served on the parties and MSPB within that period that the Department willact on the request. When no such notice is served, MSPB must docket and process a party's requestas a petition for full Board review in accordance with 5 U.S.C. section 9902(h), MSPB's regulations,and this subpart. Timeframes will be established in implementing issuances for those instanceswhere action is taken on a request for review. If DOD decides to act on the request for review, the other party to the case is given 15 daysto respond to the request. An extension to the filing period may be granted for good cause. Afterreceiving a timely response to the request for review, the Department may (1) remand the matter tothe assigned administrative judge for further adjudication or issue a final DOD decision modifyingor reversing that initial decision or decision after remand; (2) issue a final DOD decision modifyingor reversing the initial decision; or (3) issue a final DOD decision affirming that initial decision. Anadministrative judge must make a decision after remand under (1) no later than 30 days afterreceiving a remand notice, unless the remand order requires that a hearing must be held, in whichcase the decision of the administrative judge must be made no later than 45 days after receiving theremand order. Decisions on remand are treated as initial decisions for the purpose of further review. Any decision issued by the Department after reviewing an initial decision of anadministrative judge is precedential unless the Secretary determines that the DOD decision is notprecedential or the final DOD decision is reversed or modified by the full Merit Systems ProtectionBoard. Precedential decisions must be published according to details provided in implementingissuances. The proposed regulation did not require publishing precedential decisions. Under the final regulation, any decision following the period for DOD review is final unlessa party to the appeal or the Director of the Office of Personnel Management petitions the full MSPBfor review within 30 days. The Director, after consulting with the DOD Secretary, may petition thefull Board for review if the Director believes that the decision is erroneous and will have asubstantial effect on a civil service law, rule, regulation, or policy directive. MSPB, for good causeshown, may extend the filing period. Upon receiving a final DOD decision, an employee or the Office of Personnel Managementmay file a petition for review with the full Board within 30 days in accordance with 5 U.S.C. section9902(h), MSPB's regulations, and this subpart. The Board may dismiss any petition that, in itsopinion, does not raise substantial questions of fact or law. The full Board may order correctiveaction only if it determines that the decision was (1) arbitrary, capricious, and an abuse of discretion,or otherwise not in accordance with law; (2) obtained without procedures required by law, rule, orregulation having been followed; or (3) unsupported by substantial evidence. The final regulation sets out these standards which are prescribed in the statute at section 9901(h) of of Title 5 of theUnited States Code. The proposed regulation did not set them out. Under the final regulation, upon receipt of a petition for full MSPB review or a request forreview that becomes a petition for review as a result of expiration of the Department's review periodfollowing an initial decision by an administrative judge, the other party to the case and/or OPM, asapplicable, has 30 days to file a response to the petition. The full Board is required to act on apetition within 90 days after receiving a timely response, or the expiration of the response period,as applicable, in accordance with 5 U.S.C. section 9902(h), MSPB's regulations, and this subpart. Section 9902(h) of Title 5 of the United States Code grants an eligible employee who isremoved, suspended for more than 14 days, furloughed for 30 days or less, reduced in pay, orreduced in a pay band (or comparable reduction) by a final decision under the appeals process theright to petition the full MSPB for review of the decision. This subsection also authorizes the Boardto dismiss any petition that, in the view of the Board, does not raise substantial questions of law orfact. No personnel action can be stayed and no interim relief can be granted during the pendency ofthe Board's review unless specifically ordered by the Board. The Director of the Office of Personnel Management, after consulting with the Secretary ofDefense, may seek reconsideration by MSPB of a final Board decision. Reconsideration must besought within 35 days after the Board's final order is served. If the Director seeks reconsideration,the full Board must render its decision no later than 60 days after receiving a response to OPM'spetition in support of reconsideration and state reasons for its decision. The 35-day deadline torequest reconsideration did not appear in the proposed regulation. Failure of MSPB to meet deadlines imposed by provisions relating to an initial decision byan administrative judge, a decision by the full Board on a petition for review, and Boardreconsideration sought by the Director of OPM does not prejudice any party to the case and does notform the basis for any legal action by any party. If the administrative judge or the full Board failsto meet time limits, the full Board is required to inform the Secretary of Defense in writing of thecause of the delay and recommend future actions to remedy the problem. The Secretary of Defense or an employee adversely affected by a final order or decision ofMSPB may seek judicial review under Section 9002(h) of Title 5 of the United States Code, whichauthorizes an adversely affected employee and the Secretary to obtain judicial review as providedin 5 U.S.C. Section 7703 "Judicial review of decisions of the Merit Systems Protection Board."Language in the proposed regulation that authorized the Secretary of Defense to seek reconsiderationby MSPB of a final MSPB decision before seeking judicial review was deleted because currentMSPB rules authorize such a review. Procedures for appeals of adverse actions to MSPB based on mandatory removal offensesare the same as for other offenses except that if one or more mandatory removal offenses is or aresustained, the MSPB administrative judge may not mitigate the penalty. Only the Secretary ofDefense may mitigate the penalty within the Department. If the administrative judge or full Boardsustains an employee's appeal based on a finding that the employee did not commit a mandatoryremoval offense, a subsequent proposed adverse action (other than a mandatory removal offense)based in whole or in part on the same or similar evidence is not precluded. This final regulation differs from the proposed one in that it precludes only an administrativejudge of the MSPB to mitigate a penalty for a mandatory removal offense; the proposed regulationprecluded not only an administrative judge, but also the full Board from mitigating it. Moreover,the final regulation provides that "only the Secretary may mitigate the penalty within theDepartment"; the proposed regulation did not include the phrase "within the Department." In considering any appeal of an action filed under Section 7702 "Actions involvingdiscrimination" of Title 5 of the United States Code, the Merit Systems Protection Board is requiredto apply the provisions of 5 U.S.C. Section 9902 "Establishment of human resources system" and these DOD regulations. In any appeal of an action filed under 5 U.S.C. Section 7702 that results ina "final Department decision, if no petition for review of the Department's decision is filed with thefull Board, and if requested by the appellant, the Department will refer only the discrimination issueto the full Board for adjudication." All references in 5 U.S.C. Section 7702 to 5 U.S.C. Section 7701"Appellate procedures" are modified to read Part 9901 "Department of Defense National SecurityPersonnel System" of Title 5 of the Code of Federal Regulations. This final regulation changed the proposed regulation by adding "final" to precede"Department decision," and "and if requested by the appellant" after "if no petition for review of theDepartment's decision is filed with the full Board" to the proposed regulation. Subpart H does notapply to adverse actions that were proposed prior to the date of an affected employee's coverageunder this subpart. Congress authorized DOD and OPM to establish an appeals process that provides employeeswith "fair treatment in any appeals that they bring in decisions relating to their employment." Theprocess also must "ensure that employees ... are afforded the protections of due process." OnNovember 7, 2005, following the issuance of final regulations to establish the NSPS, a coalition offederal unions, including the American Federation of Government Employees, filed a lawsuit infederal district court challenging the regulations. On February 27, 2006, the court enjoined the newregulations on the grounds that they failed to ensure collective bargaining rights, did not provide forthe independent third-party review of labor relations decisions, and failed to provide a fair processfor appealing adverse actions. (44) DOD has indicated that it will appeal the decision. (45) The courtheld that theprocess of appealing adverse actions in the final regulations would fail to provide employees with"fair treatment" and, therefore, were contrary to authority that had been granted in the statute. The following regulations were found to be unfair: Regulations that would authorize DOD to reverse a decision of anadministrative judge of the Merit Systems Protection Board if the department determined that therehad been a "material error of fact" or that the decision had a "direct and substantial impact of thedepartment's national security mission." The court said that, "These regulations, in effect, allow oneparty to unilaterally modify or reverse the decision of an independent administrative lawjudge." A regulation that would prohibit an administrative judge from modifying apenalty imposed by the department "unless such penalty is totally unwarranted in light of allcircumstances" and required an administrative judge who did mitigate a penalty to impose themaximum justifiable one. The court quoted from an court decision which held that final regulationsof the Department of Homeland Security exceeded statutory authority to say that this DODregulation, like a similar one for DHS, would "put the thumbs of the agencies down hard on thescales of justice in [the agencies'] favor." A regulation that would permit the Secretary "in his or her sole, exclusive andunreviewable discretion" to place an employee in an alternative position or on an excused absenceif the Secretary determined that the employee's return ordered by the Merit Systems Protection Boardwould be "impracticable or unduly disruptive to the work environment." The court found that therewas no basis in the statute for this authority and conflicted with a statutory requirement that nointerim relief could be granted except by the board. A regulation that would authorize the Secretary "in his sole, exclusive, andunreviewable discretion" to "identify offenses [known as mandatory removal offenses] that have adirect and substantial impact on the department's national security mission." An employee deemedto have committed one of these offenses would be removed from employment. The court said thatalthough the statute granted the department the discretionary authority to establish an appealsprocess, any process that it established had to provide employees with fair treatment and that thisregulation failed to do so. Provisions Related to Separation and RetirementIncentives. Under current law, a federal agency that is restructuring or downsizingcan, with the approval of OPM, offer voluntary early retirement to employees in specificoccupational groups, organizational units, or geographic locations who are age 50 or older and haveat least 20 years of service, or who are any age and have at least 25 years of service. Also with theapproval of OPM, a federal agency may offer voluntary separation incentive payments of up to$25,000 to employees who retire or resign. The full amount must be repaid if individual isre-employed by the federal government within five years. P.L. 108-136 creates a new Section 9902(i) of Title 5 that authorizes the Secretary ofDefense, without review by OPM, to establish a program within DOD under which employees maybe eligible for early retirement, offered separation incentive pay to separate from service voluntarily,or both. The authority may be used to reduce the number of personnel employed by DOD or torestructure the workforce to meet mission objectives without reducing the overall number ofpersonnel. It is in addition to, and notwithstanding, any other authorities established by law orregulation for such programs. The Secretary may not authorize the payment of voluntary separation incentive pay (VSIP)to more than 25,000 employees in any fiscal year, except that employees who receive VSIP as aresult of a closure or realignment of a military installation under the Defense Base Closure andRealignment Act of 1990 (Title XXIX of P.L. 101-510 ) will not be included in that number. TheSecretary must prepare a report each fiscal year setting forth the number of employees who receivedsuch pay as a result of a closure or realignment of a military base and submit it to the SenateCommittees on Armed Services and Governmental Affairs and the House Committees on ArmedServices and Government Reform. "Employee" means a DOD employee serving under an appointment without time limitation. The term does not include (1) a reemployed annuitant under 5 U.S.C. Subchapter III, Chapters 83or 84, or another retirement system for federal employees; (2) an employee having a disability on thebasis of which he or she is or would be eligible for disability retirement; or (3) for purposes ofeligibility for separation incentives, an employee who has received a decision notice of involuntaryseparation for misconduct or unacceptable performance. An employee who is at least 50 years of age and has completed 20 years of service, or hasat least 25 years of service, could, pursuant to regulations promulgated under this section, apply andbe retired from DOD and receive benefits in accordance with Chapters 83 or 84 if he or she has beenemployed continuously within DOD for more than 30 days before the date on which thedetermination to conduct a reduction or restructuring within one or more DOD components isapproved. Separation pay will be paid in a lump sum or in installments and will be equal to the lesserof (1) an amount equal to the amount the employee would be entitled to receive under 5 U.S.C.5595(c), if the employee were entitled to payment; or (2) $25,000. Separation pay is not a basis forpayment, and is not included in the computation, of any other type of government benefit. It will notbe taken into account to determine the amount of any severance pay to which an individual couldbe entitled under 5 U.S.C. 5595, based on any other separation. If paid in installments, separationpay will cease to be paid upon the recipient's acceptance of federal employment, or commencementof work under a personal services contract. An employee who receives separation pay may not be reemployed by DOD for a 12-monthperiod beginning on the effective date of the employee's separation, unless this prohibition is waivedby the Secretary on a case-by-case basis. An employee who receives separation pay on the basis ofa separation occurring on or after the enactment date of the Federal Workforce Restructuring Act of1994 ( P.L. 103-236 ) and accepts employment with the federal government, or who commences workthrough a personal services contract with the United States within five years after the date of theseparation on which payment of the separation pay is based, would be required to repay the entireamount of the separation pay to DOD. If the employment is with an executive agency other thanDOD, the OPM Director could, at the request of the agency head, waive the repayment if theindividual involved possesses unique abilities and is the only qualified applicant available for theposition. If the employment is within DOD, the Secretary could waive the repayment if theindividual involved is the only qualified applicant available for the position. If the employment iswith an entity in the legislative branch, or with the judicial branch, the head of the entity or theappointing official, or the Director of the Administrative Office of the U.S. Courts, could waive therepayment if the individual involved possesses unique abilities and is the only qualified applicantavailable for the position. Under this program, early retirement and separation pay may be offered only pursuant toregulations established by the Secretary, subject to such limitations or conditions as the Secretarymay require. Implementation. The Deputy Under Secretary ofDefense for Civilian Personnel Policy, Ginger Groeber, issued a memorandum to implement thevoluntary separation incentive payments (buyouts) and the voluntary early retirement provisions onDecember 30, 2004. Buyouts are limited to 25,000 employees annually. For FY2004, the Army,Navy, Air Force, and Defense agencies were allocated 7,722; 7,135; 5,873; and 4,270 buyouts,respectively. Voluntary early retirements are not limited. To be eligible for a buyout, an individualmust have been employed by DOD for a continuous period of at least 12 months. According to theDOD guidance, members of the Senior Executive Service and employees above GS-15 are noteligible for buyouts or early retirement unless the Principal Deputy Under Secretary of Defense forPersonnel and Readiness approves the action to avoid a reduction in force or to restructure theworkforce. (46) Provisions Relating to Reemployment. Undercurrent law, a retired federal employee who is re-employed by the federal government may notreceive a federal retirement annuity and a federal salary simultaneously. Sections 8344 (CivilService Retirement System (CSRS)) and 8468 (Federal Employees' Retirement System (FERS)) ofTitle 5 provide that if a retired federal employee who is receiving an annuity from the Civil ServiceRetirement and Disability Fund is re-employed by a federal agency, an amount equal to the annuityshall be deducted from his or her pay. If re-employment lasts more than one year, the individual willbe eligible for a supplemental annuity for the period of re-employment when he or she retires. P.L. 108-136 creates a new Section 9902(j) of Title 5 that provides that if a retired federalemployee who is receiving an annuity from the Civil Service Retirement and Disability Fund wereto be employed by DOD, his or her annuity would continue. The employee would not accrueadditional credit under either CSRS or FERS during this period of re-employment. Implementation. On March 18, 2004, the UnderSecretary of Defense for Personnel and Readiness, David Chu, issued a memorandum to implementthe reemployment provisions. According to Mr. Chu, "This critical hiring flexibility will helpaddress the challenges of 'retirement-driven talent drain' as our current generation of dedicated civilservants become eligible to retire." Under the DOD guidance, annuitants may be reemployed: In positions that are hard-to-fill as evidenced byhistorically high turnover, a severe shortage of candidates or other significant recruiting difficulty;or positions that are critical to the accomplishment of the organization's mission; or to complete aspecific project or initiative; [If they] have unique or specialized skills, or unusualqualifications not generally available; or For not more than 2087 hours (e.g., one year full time,or two years part time) to mentor less experienced employees and/or to provide continuity duringcritical organizational transitions. Extensions beyond 2087 hours are not authorized. (47) The next-level manager or supervisor must certify in writing that one or more of the aboveconditions exists if a retiree seeks to return to the same or a substantially similar position as the onefrom which he or she retired. If less than 90 days has elapsed between the retirement and thereemployment, the certification must indicate that retention options were considered and offered tothe employee before retirement. The DOD guidance covers annuitants who are rehired afterNovember 23, 2004. The Deputy Under Secretary of Defense for Civilian Personnel Policy willmonitor the use of the reemployment authority and may establish reporting requirements. Additional Provisions Relating to PersonnelManagement. Notwithstanding Section 9902(d), the Secretary of Defense, inestablishing and implementing the NSPS, is not limited by any provision of Title 5 or any rule orregulation prescribed under Title 5 in establishing and implementing regulations relating to -- (A) the methods of establishing qualificationrequirements for, recruitment for, and appointments to positions; (B) the methods of assigning, reassigning, detailing,transferring, or promoting employees; and (C) the methods of reducing overall agency staff andgrade levels, except that performance, veterans' preference, tenure of employment, length of service,and such other factors as the Secretary considers necessary and appropriate must be considered indecisions to realign or reorganize the Department's workforce. In implementing this subsection, the Secretary must comply with 5 U.S.C. §2302(b)(11),regarding veterans' preference requirements. Phase-In. The Secretary may apply the NSPS toan organizational or functional unit that includes up to 300,000 civilian DOD employees and to anorganizational or functional unit that includes more than 300,000 civilian DOD employees, if theSecretary determines that the department has in place a performance management system that meetsthe criteria specified. ( S. 1166 included a similar phase-in provision.) The new Section 9903 authorizes the Secretary of Defense to carry out a program in orderto attract highly qualified experts in needed occupations, as determined by him. Under the program,the Secretary may appoint personnel from outside the civil service and uniformed services (as suchterms are defined in 5 U.S.C. §2101) to positions in DOD without regard to any provision of Title5 governing the appointment of employees to positions in DOD. The Secretary also may prescribethe rates of basic pay for positions to which employees are appointed at rates not in excess of themaximum rate of basic pay authorized for senior-level positions under 5 U.S.C. §5376 (ExecutiveSchedule (EX) Level IV, $143,000 as of January 2006), as increased by locality-based comparabilitypayments (total cannot exceed EX level III, $152,000 as of January 2006), notwithstanding anyprovision of Title 5 governing the rates of pay or classification of employees in the executive branch. The Secretary may pay any employee appointed under this section payments in addition to basic paywithin the limits applicable to the employee as discussed below. The service of an employee under an appointment made pursuant to this section may notexceed five years. The Secretary may, however, in the case of a particular employee, extend theperiod to which service is limited by up to one additional year if he determines that such action isnecessary to promote DOD's national security missions. The total amount of the additional payments paid to an employee under this section for any12-month period may not exceed the lesser of $50,000 in FY2004, or an amount equal to 50% ofthe employee's annual rate of basic pay. The $50,000 may be adjusted annually thereafter by theSecretary, with a percentage increase equal to one-half of one percentage points less than thepercentage by which the Employment Cost Index (ECI), published quarterly by the Bureau of LaborStatistics, for the base quarter of the year before the preceding calendar year exceeds the ECI for thebase quarter of the second year before the preceding calendar year. "Base quarter" has the samemeaning given at 5 U.S.C. §5302(3). An employee appointed under this section is not eligible for any bonus, monetary award, orother monetary incentive for service except for payments authorized under this section. Notwithstanding any other provision of this subsection or of 5 U.S.C. §5307, no additional paymentsmay be paid to an employee in any calendar year, if, or to the extent that, the employee's total annualcompensation will exceed the maximum amount of total annual compensation payable to the VicePresident ($212,100, as of January 2006). The number of highly qualified experts appointed and retained by the Secretary may notexceed 2,500 at any time. (Under S. 1166 , the limitation would have been 300.) In the event that the Secretary terminates this program, the following will occur. In the caseof an employee who on the day before the termination of the program is serving in a positionpursuant to an appointment under this section, the termination of the program does not affect theemployee's employment in that position before the expiration of the lesser of the period for whichthe employee was appointed or the period to which the employee's service is limited, including anyextension made under this section before the termination of the program. The rate of basic payprescribed for the position may not be reduced as long as the employee continues to serve in theposition without a break in service. The committee report which accompanied H.R. 1836 stated that "[t]he authority[in this provision] is consistent with that now available to the Defense Advanced Research ProjectsAgency and Military Departments for hiring scientists and engineers." (49) Implementation. DOD issued guidance toimplement the provision on highly qualified experts on February 27, 2004. The guidance identifiessuch an expert as: an individual possessing uncommon, specialknowledges or skills in a particular occupational field beyond the usual range of expertise, who isregarded by others as an authority or practitioner of unusual competence and skill. The expertknowledge or skills are generally not available within the Department and are needed to satisfy anemerging and relatively short-term, non-permanent requirement. (50) The hiring authority cannot be used to provide temporary employment in anticipation ofpermanent employment, to provide services that are readily available with DOD or another federalagency, to perform continuing DOD functions, to bypass or undermine personnel ceilings or paylimitations, to aid in influencing or enacting legislation, to give former federal employees preferentialtreatment, to do work performed by regular employees, or to fill in during staff shortages. (51) Basic pay for experts would be determined according to such factors as: Labor market conditions; Type of position; Location of position; Work schedule; Level of independence in establishing work objectives; Working conditions; Organizational needs; Personal qualifications; Type of degree; Personal recommendations; Experience (recency, relevance); Budget considerations; Organizational equity/pay considerations; and Mission impact of work assignments. (52) An expert's pay may be increased because of an "exceptional level of accomplishment relatedto projects, programs, or tasks that contribute to the Department or Component strategicmission." (53) The Defense Civilian Personnel Data System will be used to record the employment of highlyqualified experts. Written documentation must be maintained and must include the criteria for theappointment and the factors and criteria used to set and increase pay and to provide additionalpayments. The records must be retained for three years after an employee is terminated. (54) The new Section 9904 of P.L. 108-136 authorizes the Secretary of Defense to provideallowances and benefits to certain civilian DOD employees assigned to activities outside the UnitedStates, as determined by the Secretary to be in support of DOD activities abroad hazardous to lifeor health or so specialized because of security requirements as to be clearly distinguishable fromnormal government employment. Such allowances and benefits will be comparable to thoseprovided by the Secretary of State to members of the Foreign Service under Chapter 9 of Title I ofthe Foreign Service Act of 1980 or any other provision of law; or comparable to those provided bythe Director of Central Intelligence to personnel of the Central Intelligence Agency (CIA). Specialretirement accrual benefits and disability that are in the same manner provided for by the CIARetirement Act and in Section 18 of the CIA Act of 1949 also will be provided. Section 1101(b) of P.L. 108-136 provides that any exercise of authority under the proposednew Chapter 99, including under any system established under that chapter, must be in conformancewith the requirements of this subsection. No other provision of this act or of any amendment madeby this act may be construed or applied in a manner so as to limit, supersede, or otherwise affect theprovisions of this section, except to the extent that it does so by specific reference to this section. Section 1113 of P.L. 108-136 amends 5 U.S.C. §6323 to authorize military leave for anindividual who performs full-time military service as a result of a call or order to active duty insupport of a contingency operation. (57) Under military leave, the individual receives leave without lossof, or reduction in, pay, leave to which he or she is otherwise entitled, credit for time or service, orperformance or efficiency rating, for up to 22 workdays in a calendar year. The provision appliesto military service performed on or after the act's enactment date, November 24, 2003. The committee report accompanying H.R. 1836 explained the need for theprovision: This section would help Federal civilian employeeswhose military pay is less than their Federal civilian salary "transition" to military service byallowing them to receive 22 additional workdays of military leave when mobilized. Such leavewould help alleviate the difference in pay for the first month of service by enabling them to receivethe difference between their Federal civilian pay and their military pay. Current law only entitlesReserve component members to the additional military leave. (58) Section 1116 amends Subsection (e)(1) of Section 1101 of the Strom Thurmond NationalDefense Authorization Act for FY1999 ( P.L. 105-261 ; 112 Stat. 2139; 5 U.S.C. §3104 note) toextend the experimental personnel program for scientific and technical personnel until September30, 2008 (the annual report will be required in 2009). Subtitle B of Title XI of P.L. 108-136 also includes provisions on an automated personnelmanagement program, the demonstration project relating to certain acquisition personnelmanagement, restoration of annual leave to certain DOD employees affected by base closings, andemployment of certain civilian faculty members at a Defense institution, which are beyond thepurview of this report. The provisions at Subtitle C of Title XI of P.L. 108-136 apply to federal civilian employeesgovernment-wide. Section 1121 amends 5 U.S.C. §5542(a)(2) which covers the computation of overtime ratesof pay. It provides that such an employee will receive overtime at a rate which will be the greaterof one and one-half times the hourly rate for GS-10, step 1, or his or her hourly rate of basic pay. The law previously in effect provided that an employee whose basic pay rate exceeded GS-10, step1 (including any locality pay or special pay rate) received overtime at a rate of one and one-half timesthe hourly rate for GS-10, step 1 (150% of GS-10, step 1). For employees whose regular pay is greater than the 150% of GS-10, step 1 cap, the lawpreviously in effect resulted in overtime pay at a rate less than their regular hourly rate. P.L. 108-136 addresses this circumstance and the situation in which managers and supervisors, whose overtimerate is capped at 150% of GS-10, step 1, receive less compensation for overtime work thanemployees who are subordinate to them. The Congressional Budget Office (CBO) determined thatthe provision would affect employees above GS-12, step 5. (61) Implementation. OPM advised agencies to ensurethat proper overtime payments were being made as of November 24, 2003, the law's enactment date. Final regulations to implement the provision were published by OPM in the Federal Register onMay 13, 2004, and became effective on the same day. (62) Section 1122 amends 5 U.S.C. §5343(c)(4), which authorizes blue-collar employees toreceive pay differentials for unusually severe working conditions or unusually severe hazards, and5 U.S.C. §5545(d), which authorizes pay differentials for unusual physical hardship or hazard forGeneral Schedule (GS) employees. The amendment provides that pay differentials for any hardshipor hazard related to asbestos will be determined by applying occupational safety and health standardsconsistent with the permissible exposure limit promulgated by the Secretary of Labor under theOccupational Safety and Health Act of 1970. Subject to any vested constitutional property rights,any administrative or judicial determination after the act's enactment date concerning backpay fora differential under 5 U.S.C. §5343(c)(4) or 5545(d) will be based on occupational safety and healthstandards under the Occupational Safety and Health Act of 1970. The Congressional Budget Office (CBO) explained the provision in its cost estimate for H.R. 1836 . According to CBO, the provision provides that federal wage-grade employees would be subject to thesame standards as general schedule employees when determining eligibility for environmentaldifferential pay (EDF) due to exposure to asbestos. Under current law, general schedule employeesare entitled to 8 percent hazard differential pay [HDP] if they are exposed to asbestos that exceedsthe permissible exposure limits established by OSHA. The current EDP standard for wage-gradeemployees entitles them to the same 8 percent of pay but does not set an objective measure fordetermining the level of asbestos exposure necessary to qualify for EDP. In several instances whenwage-grade employees have sought back pay for EDP, arbitrators have found in favor of theemployees when asbestos levels were below those consistent with OSHA standards. (64) Implementation. According to OPM,administrative or judicial determinations concerning EDP or HDP for asbestos exposure must bebased on the OSHA permissible exposure limits for asbestos as of November 24, 2003. OPMregulations on HDP for GS employees include this requirement. The personnel agency will updatethe EDP regulations for wage employees to include the requirement. Section 1123 amends 5 U.S.C. §5379(b)(2)(A) to provide that student loan repayments to anemployee may not exceed $10,000 in any calendar year, replacing the up to $6,000 per calendar yearthat the current law allows. The provision became effective on January 1, 2004. Given the increasingly larger burdens of debt that graduates are assuming, this provisioncould provide additional flexibility to managers and agencies wanting to offer student loanrepayments to their employees. Federal agencies have said that they would need additionalappropriations to fund such incentives as student loan repayments. Implementation. OPM issued regulations toimplement the program on April 20, 2004. (66) Section 1124 "allow[s] cabinet secretaries, secretaries of military departments and heads ofexecutive agencies to be paid bi-weekly like most Federal employees. This proposal save[s] timeand cost resources by relieving civilian pay and disbursing operations from having to utilize specialmanual procedures to accommodate these personnel." (68) Section 5504 of Title 5 is modified by consolidating the definition of employee for thepurpose of the section so that the same groups are covered by the requirement for a bi-weekly payperiod and by the methods for converting annual rates of pay into hourly, daily, weekly, or biweeklyrates. Currently "employee" is defined under each of these provisions and both exclude groups ofpeople excluded from the definitions of employees in 5 U.S.C. §5541 on premium pay. P.L. 108-136 continues that exclusion, but adds a provision that an agency could elect to have excluded employeesbe paid on the bi-weekly basis. It should be noted that under the current provisions, employees inthe judicial branch are covered under the conversion language, but are not included in the languageof this provision. It is not known if that omission was by intent or if the latitude for discretionaryinclusion was assumed to apply to that class of employee. Implementation. The provision became effectiveon the first day of the first applicable pay period beginning on or after November 24, 2003, whichwas November 30, 2003, for most officials and employees. OPM published proposed regulationsto implement the provision in the Federal Register on October 7, 2004. (69) Section 1125(a), which amended portions of 5 U.S.C. §§ 5304, 5382, and 5383, effectedchanges to basic pay and locality pay for members of the Senior Executive Service (SES), andindividuals in certain other positions. OPM issued the final rule to establish the new pay system, andto implement a higher cap on aggregate compensation for senior executives, in December 2004. (71) Significant changes forthe SES included the replacement of six pay rates or levels (ES-1 through ES-6) with one broad payrange; an increase in the cap on base pay from Executive Schedule level IV (EX-IV) to EX-III; theaddition of a second, higher cap on base pay, EX-II, for agencies whose SES performance appraisalsystems have been certified by the OPM, with the concurrence of OMB; and the elimination oflocality pay. (72) Eachsenior executive is to be paid at one of the rates within the broad pay range based on individualperformance, contribution to the agency's performance, or both. Previously, 5 U.S.C. § 5382 requiredthe establishment of at least five rates of basic pay, and each senior executive was paid at one of therates. For agencies whose appraisal systems have not been certified, the cap on SES base pay in2006 is $152,000 (EX-III). (Previously, the cap would have been $143,000 (EX-IV).) For agencieswho have received certification, the cap on base pay in 2006 is $165,200 (EX-II). Demonstratingthat the design and implementation of its performance appraisal systems make "meaningfuldistinctions based on relative performance" is crucial to an agency's application forcertification. (73) (Anagency may have more than one performance appraisal system for senior employees.) Instituting a pay band and shifting the cap on basic pay from level IV to level III (or level IIfor agencies with certified appraisal systems) will help to ease pay compression, at least temporarily,within the SES. Many believe this provision has the potential for interjecting more accountabilityinto the SES. Others are concerned that in an effort to develop and apply a performance appraisalsystem that is based on meaningful distinctions, agencies might create and impose a forceddistribution of performance ratings. In addition to positions in the SES, positions in the Federal Bureau of Investigation (FBI) andDrug Enforcement Administration (DEA) SES, and positions in a system equivalent to the SES, asdetermined by the President's Pay Agent, are no longer eligible for locality pay. Considering thechanges made to the caps on basic pay, which resulted in the establishment of caps at levels II andIII of the Executive Schedule, the elimination of locality pay might be viewed as a practical matter. However, senior executives employed by an agency whose performance appraisal system is notcertified could be adversely affected by the loss of locality pay. Total Compensation. The performance appraisalcertification process was established by another statute, the Homeland Security Act of 2002 ( P.L.107-296 ; 116 Stat. 2135, at 2297), which also shifted the cap on total compensation. For seniorexecutives subject to a performance appraisal system that has not been certified by OPM, the cap ontotal compensation remains EX-I ($183,500 in 2006). For individuals subject to a certified appraisalsystem, the cap has shifted upward to the Vice President's salary, which is $212,100 in 2006. Thesignificance of this change has to do with timing. For senior executives with certified appraisalsystems, they are more likely to receive all of their compensation in one year instead of having somepayments deferred to the following year (which is what occurs when an individual's totalcompensation exceeds the applicable cap). Under Section 1125(c), the amendments made by this section took effect on the first date ofthe first pay period that began on or after January 1, 2004 (which was January 11 for most seniorexecutives). (74) Section1125(c) also ensures that a senior executive's basic rate of pay will not be reduced, as a result ofchanges effected by Section 1125(a), during the first year after enactment. For the purpose ofensuring that an individual's rate of basic pay is not reduced, a senior executive's rate of basic paywill equal the rate of basic pay and the locality pay he or she was being paid on the date of enactmentof this legislation. Section 1125(c) noted that any reference in law to a rate of basic pay above theminimum level and below the maximum level payable to senior executives will be considered areference to the rate of pay for Executive Schedule level IV. (75) Section 1125(b) applies the post-employment conflict of interest provision commonly knownas the one-year "cooling off" period (18 U.S.C. §207(c)(1)) to (in addition to those paid on theExecutive Schedule) those not paid on the Executive Schedule but who are compensated at a rateof pay equal to, or greater than, 86.5% of the rate of basic pay for level II of the Executive Schedule($165,200 in 2006, so $142,898), or, for two years after the enactment of this act, those persons whowould have been covered by the restriction the day before the act was passed (those compensatedat a base rate of pay equal to or greater than a level 5 for the SES). The provision amends 18 U.S.C.§207(c)(2)(A)(ii). (77) The post-employment restrictions, according to OPM, require that for one year after service in a coveredposition ends, no former employee may knowingly make, with the intent to influence, anycommunication to or appearance before an employee of a department or agency in which he or sheserved in any capacity during the one-year period prior to ending service in that position, if thatcommunication or appearance is made on behalf of any other person (except the United States) inconnection with any matter concerning which he or she seeks official action by that employee. Employees ... also are subject to 18 U.S.C. §207(f), which imposes additional restrictions onrepresenting, aiding, or advising certain foreign entities with the intent to influence any officer oremployee of any department or agency of the United States. (78) Implementation. OPM published interimregulations to implement the provision in the Federal Register on October 15, 2004. (79) The regulations becameeffective on the first day of the first applicable pay period beginning on or after October 15, 2004. According to OPM, with the January 2004 implementation of the new Senior Executive Service(SES) performance-based pay system "the vast majority of SES members are now subject to thepost-employment restrictions." (80) Section 1126 amends 5 U.S.C. Chapter 47 which covers the conduct of personnel researchprograms and demonstration projects. The provision specifies certain elements that must be presentin a demonstration project's pay-for-performance system. The eight elements are as follows: adherence to merit system principles under 5 U.S.C.§2301; a fair, credible, and transparent employee performance appraisalsystem; a link between elements of the pay-for-performance system, the employeeperformance appraisal system, and the agency's strategic plan; a means for ensuring employee involvement in the design and implementationof the system; adequate training and retraining for supervisors, managers, and employees inthe implementation and operation of the pay-for-performance system; a process for ensuring ongoing performance feedback and dialogue betweensupervisors, managers, and employees throughout the appraisal period, and setting timetables forreview; effective safeguards to ensure that the management of the system is fair andequitable and based on employee performance; and a means for ensuring that adequate agency resources are allocated for thedesign, implementation, and administration of the pay-for-performancesystem. These eight elements address longstanding concerns expressed by employees, their unions,and representatives about the pay-for-performance component of demonstration projects. Implementation. In its semiannual regulatoryagenda published in the Federal Register on December 13, 2004, OPM states that it will issue"proposed regulations to position agencies to operate pay-for-performance by having in placeperformance appraisal systems for covered employees that are capable of making performancedistinctions to support these pay systems." (82) The agenda anticipates final action by June 2005. Section 1127 prohibits federal agencies that offer flexible spending accounts (FSAs) fromimposing fees on employees to defray their administrative costs. It also requires agencies to forwardto OPM (or an entity it designates) amounts to offset these costs. OPM is required to submit to theHouse Committee on Government Reform and the Senate Committee on Governmental Affairs, nolater than March 31, 2004, reports on the administrative costs associated with the government-wideFSA program for FY2003 and the projected administrative costs for each of the five fiscal yearsthereafter. At the end of each of the first three calendar years in which an agency offers FSAs, theagency will be required to submit a report to the Office of Management and Budget (OMB) on theemployment tax savings from the accounts (i.e., the Social Security and Medicare taxes theyotherwise would have had to pay), net of administrative fees paid. Employees in most federal agencies were given an FSA option starting in July 2003. Thenew benefit allows employees to put pretax money aside for unreimbursed health care or dependentcare expenses in exchange for receiving lower pay. (Section 5525 of Title 5 provides that agencyheads may establish procedures under which employees are permitted to make allotments andassignments out of their pay for such purposes as the agency head considers appropriate.) Forexample, employees might elect to reduce their pay by $50 each pay period in exchange for having$1,300 (i.e., $50 x 26 pay periods in a year) placed in their health care FSA. When they incurunreimbursed health care expenses (e.g., copayments and deductibles, or dental expenditures notcovered by insurance) they would be reimbursed from their account. FSA reimbursements areexempt from federal income and employment taxes as well as state income taxes; thus, employeeselecting to participate can save on taxes they otherwise would have incurred had they instead usedtake-home pay for the expenses. Information about the federal FSAs can be found at https://www.fsafeds.com/fsafeds/index.asp . FSAs involve administrative costs, particularly for determining the eligibility of submittedclaims. OPM, which has contracted with SHPS, Inc., to administer the FSAs, originally intendedto have participating employees pay $4 a month for their health care FSA and 1.5% annually of theamount set aside for their dependent care FSA. Shortly before the program started, OPM gaveagencies the option of absorbing administrative expenses themselves, and most have done so. P.L.108-136 requires participating agencies to pay the administrative costs and prohibits the governmentfrom charging fees to employees. One argument for having employees pay FSA administrative costs is that they are theprincipal beneficiaries; if the government were to pay, the cost might be partially borne by employeeswithout FSAs or by other programs or even taxpayers generally. However, imposing fees onemployees could discourage participation. Few private sector or other employers impose FSA feeson participants; most pay for the administrative costs out of their employment tax savings. Implementation. As directed in P.L. 108-136 ,OPM reported to Congress in April 2004 on "the cost of administrative fees agencies will pay tocover employees enrolled in a flexible spending account." The report showed that 117,950employees opened a health-care FSA and 18,178 employees opened a dependent-care FSA in 2004. OPM projected that more than 283,000 employees would have health-care FSAs and 43,627 wouldhave dependent-care FSAs by 2007. A January 2005 news release by OPM reported that 157,000employees are participating in the FSA program for 2005. (84) In the April 2004 report,administrative fees were projected to be $5.6 million for health-care FSAs and $980,000 fordependent-care FSAs in 2004 and were expected to total nearly $80 million for health-care FSAs,dependent-care FSAs, or both through 2007. According to OPM: "Employees benefit becauseuntaxed contributions from their salaries are deposited into their FSA accounts, and the loweremployee taxable income translates into agencies paying out less in Social Security and Medicaretaxes ... because agencies pay less in taxes, they more than recover the cost of paying FSAadministrative fees." (85) Section 1128 mandates annual surveys of employees by federal executive departments,government corporations, and independent establishments. OPM will issue regulations prescribingsurvey questions that will appear on all agency surveys so as to allow a comparison of results acrossagencies. Questions unique to an agency also may be included on the survey. The surveys willaddress leadership and management practices that contribute to agency performance. Employeesatisfaction with leadership policies and practices, work environment, rewards and recognition forprofessional accomplishment and personal contributions to achieving organizational mission,opportunity for professional development and growth, and opportunity to contribute to achievingorganizational mission also will be surveyed. Agency results will be available to the public. Theyalso will be posted on the respective agency's website unless the agency head determines that doingso would jeopardize or negatively affect national security. From time to time, OPM has conducted surveys of federal employees, but the surveysauthorized by this provision would be conducted by agencies and particularly focus on theirleadership and performance and employee contribution to agency mission. The provision does notmandate any remedial actions that an agency might want to take once the survey results are known. As to not posting survey results for reasons of national security, the term "national security" is notdefined. OPM could address this issue in its regulations to implement the program which areanticipated in 2004. Implementation. OPM's semiannual regulatoryagenda published in the Federal Register on December 13, 2004, indicates that the regulations onemployee surveys were withdrawn as an agenda item on November 5, 2004. (87) No further informationwas provided. Section 1129 amends Part III, Subpart D of Title 5 United States Code by adding a newChapter 54 entitled Human Capital Performance Fund. The legislation states that the purpose of theprovision is to promote greater performance in the federal government. According to the law, thefund will reward the highest performing and most valuable employees in an agency and offer federalmanagers a new tool for recognizing employee performance that is critical to an agency achievingits mission. Organizations eligible for consideration to participate in the fund are executive departments,government corporations, and independent agencies. The Government Accountability Office is notcovered by the chapter. The fund may be used to reward General Schedule, Foreign Service, andVeterans Health Administration employees; prevailing rate employees; and employees included byOPM following review of plans submitted by agencies seeking to participate in the fund. ExecutiveSchedule (or comparable rate) employees; SES members; administrative law judges; contract appealsboard members; administrative appeals judges; and individuals in positions which are excepted fromthe competitive service because of their confidential, policy-determining, policy-making, orpolicy-advocating character are not eligible to receive payments from the fund. OPM will administer the fund which is authorized a $500,000,000 appropriation forFY2004. (89) Such sumsas may be necessary to carry out the provision are authorized for each subsequent fiscal year. In thefirst year of implementation, up to 10% of any appropriation will be available to participatingagencies to train supervisors, managers, and other individuals involved in the appraisal process onusing performance management systems to make meaningful distinctions in employee performanceand on using the fund. Agencies seeking to participate in the fund will submit plans to OPM for approval. The plansmust incorporate the following elements: adherence to merit principles under 5 U.S.C. §2301; a fair, credible, and transparent performance appraisalsystem; a link between the pay-for-performance system, the employee performanceappraisal system, and the agency's strategic plan; a means for ensuring employee involvement in the design and implementationof the system; adequate training and retraining for supervisors, managers, and employees inthe implementation and operation of the pay-for-performance system; a process for ensuring ongoing performance feedback and dialogue betweensupervisors, managers, and employees throughout the appraisal period, and setting timetables forreview; effective safeguards to ensure that the management of the system is fair andequitable and based on employee performance; and a means for ensuring that adequate agency resources are allocated for thedesign, implementation, and administration of the pay-for-performancesystem. An agency will receive an allocation of monies from the fund once OPM, in consultation withthe Chief Human Capital Officers Council, reviews and approves its plan. (90) After the reduction fortraining (discussed above), 90% of the remaining amount of any appropriation to the fund may beallocated to the agencies. An agency's prorated distribution may not exceed its prorated share ofexecutive branch payroll. (Agencies will provide OPM with necessary payroll information.) If OPMwere not to allocate an agency's full prorated share, the remaining amount will be available fordistribution to other agencies. After the reduction for training, 10% of the remaining amount of any appropriation to thefund as well as the amount of an agency's prorated share not distributed because of the agency'sfailure to submit a satisfactory plan, will be allocated among agencies with exceptionallyhigh-quality plans. Such agencies will be eligible to receive a distribution in addition to their fullprorated distribution. Agencies, in accordance with their approved plans, may make human capital performancepayments to employees based on exceptional performance contributing to the achievement of theagency mission. In any year, the number of employees in an agency receiving payments may not bemore than the number equal to 15% of the agency's average total civilian full-time and part-timepermanent employment for the previous fiscal year. A payment may not exceed 10% of theemployee's basic pay rate. The employee's aggregate pay (basic, locality pay, human capitalperformance pay) may not exceed Executive Level IV ($143,000 in 2006). A human capital performance payment will be in addition to annual pay adjustments andlocality-based comparability payments. Such payments will be considered basic pay for purposesof Civil Service Retirement System, Federal Employees' Retirement System, life insurance, and forsuch other purposes (other than adverse actions) which OPM determines by regulation. Informationon payments made and the use of monies from the fund will be provided by the agencies to OPMas specified. Initially, agencies will use monies from the fund to make the human capital performancepayments. In subsequent years, continued financing of previously awarded payments will be derivedfrom other agency funds available for salaries and expenses. Under current law (5 U.S.C. §5335)agencies pay periodic within-grade increases to employees performing at an acceptable level ofcompetence. Presumably, funds for such within-grade increases could be used to pay human capitalperformance payments. Monies from the fund may not be used for new positions, for otherperformance-related payments, or for recruitment or retention incentives. OPM will issue regulations to implement the new Chapter 54 provisions. Those regulationsmust include criteria governing the following: an agency's plan; allocation of monies from the fund to the agencies; the nature, extent, duration, and adjustment of, and approval processes for,payments to employees; the relationship of agency performance management systems to the HumanCapital Performance Fund; training of supervisors, managers, and other individuals involved in the processof making performance distinctions; and the circumstances under which funds could be allocated by OPM to an agencyin amounts below or in excess of the agency's pro rated share. The Human Capital Performance Fund was proposed by President George Bush in hisFY2004 budget. According to the budget, the fund "is designed to create performance-driven paysystems for employees and reinforce the value of employee performance management systems." (91) The effectiveness ofagency performance management systems and whether the performance ratings would be determinedaccording to preconceived ideas of how the ratings would be arrayed across the particular ratingcategories are among the concerns expressed by federal employees and their unions andrepresentatives. Other concerns are that the fund could take monies away from the already reducedlocality-based comparability payments and that the performance award amounts would be so smallas to not serve as an incentive. Implementation. OPM's semiannual regulatoryagenda published in the Federal Register on December 13, 2004, indicates that the agency plans toissue an interim final rule implementing the Human Capital Performance Fund, but also indicatesthat the timetable for publishing the rule is yet to be determined. (92) The ConsolidatedAppropriations Act for FY2005, P.L. 108-447 , does not provide an appropriation for the fund. (93) Title VIII, Subtitle D, Section 841, of P.L. 108-136 amends 10 U.S.C. §129(b) by adding anew subsection that authorizes the Secretary to enter into personal services contracts if the personalservices (1) are to be provided by individuals outside the United States, regardless of theirnationality, and are determined by the Secretary to be necessary and appropriate for supporting theactivities and programs of DOD outside the United States; (2) directly support the mission of adefense intelligence component or counterintelligence organization of DOD; or (3) directly supportthe mission of the special operations command of DOD. The contracting officer for a personalservices contract under this subsection is responsible for insuring that (1) the services to be procuredare urgent or unique; and (2) it would be impracticable for DOD to obtain such services by othermeans. The requirements of 5 U.S.C. 3109 will not apply to a contract entered into under thissubsection. (94) Title IX, Section 906, of P.L. 108-136 authorized the transfer of the personnel securityinvestigations functions and associated personnel from the Department of Defense Security Service(DSS) to the Office of Personnel Management (OPM). (95) OPM now has responsibility for approximately 90% of allpersonnel security investigations (PSIs). This development has also been affected by the subsequentIntelligence Reform and Terrorism Prevention Act of 2004 (Title III, P.L. 108-458 ), which calledfor a consolidated and improved personnel investigative system. The functional transfer from DOD had to be accepted by both the Secretary of Defense andthe Director of OPM, as the law required. In addition, the move of DSS investigative personnel toOPM was mandatory, while the transfer of support personnel remained at the discretion of theSecretary and the Director. The transfer was also made contingent on the Director, in coordinationwith the Secretary, to review all functions performed at the time of the transfer by DSS and makea "written determination regarding whether each such function is inherently governmental or isotherwise inappropriate for performance by contractor personnel." Such functions may not becontracted to private contractors unless and until the Director makes a written determination thatthese are not inherently governmental or otherwise not inappropriate for contractor performance. If so decided, the contracting is governed by the requirements of OMB Circular A-76. On November22, 2004, the DOD and OPM announced the transfer of the function, along with 1,850 staff, fromDSS to OPM. On February 15, 2005, OPM announced the selection of 12 managers for keyleadership positions in the personnel security investigations program. According to OPM,"Beginning February 20, the transfer [of DSS' personnel security investigations program to OPM]will establish OPM as the single source for federal national security background and suitabilityinvestigative services for more than 90 percent of the federal government." (96) The Intelligence Reform Act added several new requirements to the clearance process, whichaffected OPM. Designed to expedite, simplify, and standardize the process, the Intelligence ReformAct also called upon the President to designate a single executive branch agency to be responsiblefor security clearance investigations and directed the head of OPM to establish and operate anintegrated, secure database on security clearances. In response, the Office of Management andBudget, along with OPM, developed a plan to accomplish these goals, in part by setting prioritiesamong requests and emphasizing reciprocity among federal agencies in accepting previous PSIresults. (97) The plan alsoconsolidated responsibility for operating the investigative process system in OPM. | Title XI of the National Defense Authorization Act for FY2004, P.L. 108-136 , includesprovisions on a National Security Personnel System (NSPS) for the Department of Defense (DOD)and provisions on personnel management that are applicable government-wide. The law was enactedon November 24, 2003. Title XI, Subtitle A, of the law authorizes the Secretary of Defense and the Director of theOffice of Personnel Management (OPM) to establish a new human resources management (HRM)system for DOD's civilian employees and to jointly prescribe regulations for the system. TheSecretary and the Director are authorized to establish and adjust a labor relations system and arerequired to provide a written description of the proposed personnel system or any adjustments tosuch system to the labor organizations representing DOD employees. A collaboration proceduremust be followed by the Secretary, Director, and employee representatives. The Secretary isauthorized to engage in any collaboration activities and collective bargaining at an organizationallevel above the level of exclusive recognition. The Secretary also is authorized to establish anappeals process that provides fair treatment for DOD employees covered by the NSPS. Regulationsapplicable to employee misconduct or performance that fails to meet expectations may not beprescribed until after the Secretary consults with the Merit Systems Protections Board (MSPB) andmust afford due process protections and conform to public employment principles of merit andfitness at 5 U.S.C. §3201. A qualifying employee subject to some severe disciplinary actions maypetition the MSPB for review of the department's decision. The board could dismiss any petition thatdoes not raise a substantial question of fact or law and order corrective action only if the board findsthat the department's personnel decision did not meet some prescribed standards. An employeeadversely affected by a final decision or order of the board could obtain judicial review. Subtitle Cof Title XI includes amendments to the government-wide policies for the federal employee overtimepay cap, military leave, and Senior Executive Service pay, and creates a Human Capital PerformanceFund to reward the highest-performing and most valuable employees in an agency. DOD and OPM jointly published final regulations for the NSPS in the Federal Register onNovember 1, 2005. The regulations state that "issuances" to implement the regulations will beprepared by DOD. Draft versions of the "issuances" are currently under discussion by thedepartment and labor organizations. A coalition of federal unions, including the AmericanFederation of Government Employees, filed a lawsuit in federal district court challenging the finalregulations. On February 27, 2006, the court enjoined the regulations because they failed to ensurecollective bargaining rights, did not provide for independent third-party review of labor relationsdecisions, and failed to provide a fair process for appealing adverse actions. DOD said that it willappeal the decision. In early March 2006, DOD stated that the phased implementation of the newsystem and its classification, performance management, compensation, staffing, and workforceshaping components would begin in April 2006, with some 11,000 employees. This report will beupdated to reflect changes in the status of implementation. |
Since 1971, the U.S. Postal Service (USPS) has been a self-supporting, wholly governmental entity. Prior to that time, the federal government provided postal services via the U.S. Post Office Department (USPOD), a federal agency that received annual appropriations from Congress. Members of Congress were involved in many aspects of the USPOD's operations, including the selection of managers (e.g., postmasters) and the pricing of postal services. In 1971, Congress enacted the Postal Reorganization Act (PRA; P.L. 91-375; 84 Stat. 725), which replaced USPOD with the USPS—an "independent establishment of the executive branch" (39 U.S.C. §201). The PRA designed the USPS to be a marketized government agency, which is an agency that would cover its operating costs with revenues generated through the sales of postage and related products and services. Although the USPS does receive an annual appropriation, the agency does not rely on appropriations. Its appropriation is approximately $90 million per year, about 0.1% of the USPS's $65 billion operating revenue. Congress provides this appropriation to compensate the USPS for the revenue it forgoes in providing, at congressional direction, free mailing privileges to blind persons and overseas voters. The Postal Service Fund, which the USPS uses for most of its financial transactions, is off-budget, and therefore not subject to the congressional controls of the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ; 88 Stat. 297; 2 U.S.C. §621). The USPS also has two other accounts: the Postal Service Retiree Health Benefits Fund (RHBF), which is on-budget, and the Competitive Products Fund (CPF), which is off-budget. These accounts were established by the Postal Accountability and Enhancement Act of 2006 (PAEA). The RHBF is an account into which the USPS must deposit annual prepayments towards current employees' future retirement benefits. The CPF was established to hold the revenues derived from the sale of competitive products and services and any returns earned on the investment of these funds in U.S. Treasury securities. Unlike private companies, the USPS does not have the authority to borrow money from private lenders. Rather, the USPS may borrow money from the U.S. Treasury's Federal Financing Bank. Federal statute limits the USPS's debt increases to $3 billion per year, and the USPS's total debt to $15 billion. A variety of approaches may be used to consider the financial condition of a firm. Here, the USPS's financial condition is examined by the metrics of profitability, revenues, expenses, and debt and liquidity. The USPS issues both quarterly (10-Qs) and annual financial statements (10-Ks and annual reports). The data below were drawn exclusively from these USPS sources. The financial figures have not been adjusted to reflect inflation. Profitability here is defined as operating revenues less operating expenses . Operating revenues (hereinafter, revenues ) include funds received by the USPS for the provision of products and services. Operating expenses (hereinafter, expenses ) include all costs incurred by the USPS in the provision of products and services. The USPS booked $5.4 billion in operational losses during FY2014. These losses were driven by a $5.7 billion charge for the RHBF. Between FY2005 and FY2014, the USPS had two profitable years followed by eight unprofitable years ( Figure 1 ). The USPS's deficits during those eight years amount to $51.0 billion. The USPS's losses began in FY2007, the same year the USPS began making payments into the RHBF. Between FY2006 and FY2007, the USPS's revenue rose $2.1 billion, from $72.7 billion to $74.8 billion. The agency's expenses increased $8.4 billion during this same period, from $71.7 billion to $80.1 billion. Of the $8.4 billion expense increase, nearly all of it resulted from the PAEA's RHBF funding requirements. In FY2007, the USPS had a $5.4 billion outlay to the RHBF, and an almost $3 billion one-time charge for transferring funds from a USPS escrow fund to the RHBF per P.L. 109-435 . While RHBF payments have affected the USPS's profitability, the USPS would have run deficits from FY2009 through FY2012 even if the agency did not have to make RHBF payments ( Figure 2 ). If RHBF payments are excluded, the USPS would have run modest surpluses of $800 million in FY2013 and $300 million in FY2014. The non-RHBF deficits since FY2009 total $13.6 billion, an amount nearly equal to the USPS's total borrowing authority. As Figure 3 and Figure 4 below illustrate, these cumulative deficits were produced by a sharp drop in revenues that was only partially recovered in FY2013 and FY2014. (Expenses did not fall equivalently.) Pursuant to federal statute, the USPS earns revenues through the provision of postal products and services. The PAEA separated USPS products and services into two categories—"market-dominant" (or monopoly) and "competitive." Market-dominant products include those products and services that the USPS need not compete with the private sector to provide (e.g., first-class letters). Competitive products and services are those for which a competitive market exists (e.g., overnight parcel delivery). The USPS may annually raise the rates of products in the market-dominant class by no more than the Consumer Price Index for All Urban Consumers (CPI-U). The USPS has greater freedom to price competitive products. In January 2014, the USPS raised rates by 1.7% on market-dominant products and services, and an average of 2.4% for competitive products. In addition, the Postal Regulatory Commission approved a 4.3% temporary surcharge on market-dominant products for a limited amount of time. This increase is currently being litigated in federal court following an appeal by the USPS, which believes the increase should not be limited for a specific amount of time. As a result, any rate increases for 2015 are being delayed until a decision is reached. Of the USPS's $67.8 billion in revenues in FY2014, more than $47 billion (69%) came from the sale of first-class mail, standard mail, and periodicals, which are classified as market-dominant products and services. USPS's revenues totaled $67.8 billion for FY2014. This amount is slightly higher ($500 million) than the USPS's revenues for FY2013 ($67.3 billion). Between FY2005 and FY2008, the USPS's revenue grew in each consecutive year to a high of $74.9 billion. A rapid decrease in mail volume began shortly after the US economy had officially entered a deep recession, leading to four consecutive years of revenue decline between FY2009 and FY2012. Revenue then increased again in FY2013 and FY2014 ( Figure 3 ). The USPS's FY2014 operating revenue of $67.8 billion is $2.1 billion, or 3.0%, lower than its FY2005 revenues ($69.9 billion). The USPS's revenues are derived almost entirely from postage paid for the delivery of mail. Hence, when mail volumes rise, the USPS's revenues tend to rise. Between FY2003 and FY2006, mail volume increased from 202.2 billion to 213.1 billion mail pieces. Since then, mail volume has dropped sharply—to 155.4 billion pieces in FY2014. Mail volume was 23.2% lower in FY2014 than in FY2003, and 27.1% below its FY2006 peak. Additionally, during the past decade the "mail mix" has shifted. An increasing portion of the mail handled by the USPS is advertising mail, which yields low profits. Concurrently, the annual volume of first-class mail, which is highly profitable, has been dropping steadily, at least in part because mailers are shifting to electronic communications (e.g., online bill remittances and payment). The USPS's expenses totaled $73.2 billion for FY2014. This amount is $1.1 billion, or 1.5%, higher than the USPS's expenses for FY2013 ($72.1 billion). Were the RHBF expenses removed from consideration, the USPS's FY2014 expenses would have been $950 million, or 1.3%, higher than FY2013 expenses ( Table 1 ). Despite this increase, USPS expenses (including the RHBF accrual) fell in the fourth quarter of FY2014 and were more than $300 million below the fourth quarter of FY2013. The USPS's operating expenses have increased from $68.3 billion to $73.2 billion (9.4%) in the past 10 years. Were the RHBF portion of the expenses removed, the USPS's annual expenses have decreased over the decade. Figure 4 shows that in the years prior to PAEA's establishment of the RHBF in 2007, expenses grew from $68.3 billion to $71.7 billion. Much of this increase was attributable to rising costs for compensation and benefits. After the enactment of the PAEA, the USPS's expenses (minus the RHBF, as indicated by the dotted line) declined from $74.7 billion in FY2007 to $67.5 billion in FY2014, a reduction of 9.6%. The USPS reached its $15 billion debt cap in late FY2012 and continues to have no remaining borrowing authority through the end of FY2014. The USPS was debt-free in FY2005, then began increasing debt from FY2006 until the limit was reached in FY2012 ( Figure 5 ). Factors contributing to the USPS's growing debt include falling annual revenues from FY2008 through FY2012 and the agency's $17.9 billion in payments into the RHBF. Figure 3 above shows the USPS's revenues were $7.1 billion higher in FY2007 and FY2008 than in FY2014. P ostal Service Fund balance: At the end of FY2014, the USPS had $4.9 billion in cash, which only provides enough cash to maintain operations for less than four weeks at current operating costs. This is an increase over the $2.3 billion in cash available at the end of FY2013. The USPS has stated that the increased cash balance is "largely attributable to the temporary exigent price increase on Market-Dominant services implemented in January of 2014." In addition, the agency's limited liquidity and lack of borrowing authority is constraining the USPS's ability to make capital and operational upgrades (e.g., replace its aging fleet of delivery vehicles) and would be insufficient in the event of another downturn to the U.S. economy. C ompetitive Products Fund balance: The entire balance of the CPF was transferred to the Postal Service Fund to address liquidity concerns at the conclusion of FY2012. Since that time, the U.S. Treasury's "Monthly Statement of the Public Debt" has not included an entry for the CPF. This is indicative of the CPF not having a current balance. The status of the CPF was the subject of a 2013 Commission Information Request (CIR) from the Postal Regulatory Commission. R etiree Health Benefits Fund balance: The RHBF had $48.8 billion as of November 2014. As currently calculated, the USPS's total RHBF obligation is approximately $97.7 billion. Federal law prohibits the USPS from drawing any funds from the RHBF before FY2017. The USPS's lack of borrowing authority has contributed to its self-reported "lack of liquidity." The USPS did not make its FY2011, FY2012, FY2013, or FY2014 RHBF benefit payments, leaving it $22.4 billion in default. The agency reports it does not anticipate having sufficient liquidity to make the remaining payments for FY2015 and FY2016. The USPS is scheduled to report its year-end FY2015 financial results in November 2015. Congress designed the USPS to be financially self-supporting. The agency's ability to remain financially self-sustaining over the long term is questionable. In FY2013, the USPS's revenues began to rise after falling for four consecutive years ( Figure 3 ). However, expenses have not fallen quickly enough to allow the Postal Service to meet its statutory prefunding commitments to the RHBF and place the agency on a more sustainable financial course ( Figure 5 ). Despite the revenue growth in FY2013 and FY2014, the USPS's annual revenue remained lower than its revenue 10 years earlier. Additionally, the revenue trend depicted in Figure 3 may indicate a long-term weakening of the demand for the USPS's current products and services. The weak cash position of the USPS has led the agency to take a number of actions to address their financial position. These include changes to both operations and personnel. In 2013, the Postal Service implemented a realignment of its operations to further reduce costs and strengthen its finances. These operational realignments included reductions in the number of mail processing operations, realignment of retail office hours to match demand, reductions in the number of delivery routes and consolidations of delivery offices. In June 2014, the Postal Service announced that a second phase of mail processing realignments would begin in January 2015, culminating in a consolidation impacting up to 82 more processing operations. Additionally, the Postal Service continues to leverage employee attrition, Voluntary Early Retirement (VER) and utilization of non-career employees to the maximum extent permitted by its labor contracts. In July 2014, the Postal Service offered a VER to approximately 3,000 postmasters who were impacted by reductions in retail hours at certain postal facilities which was accepted by 1,380 postmasters. Despite these organizational actions and the increase in revenue for the USPS in FY2013, the Postal Service projects that legislative change will be necessary to improve liquidity moving forward. With no further borrowing authority the USPS could find itself with insufficient funds to continue operations, leading to a need for payment prioritization and the continued deferral of capital and infrastructure expenditures. It goes beyond the scope of this report to assess which operational or policy changes could improve the USPS's financial condition sufficiently to enable it to continue as a self-funding government agency. The above financial data, however, suggest that for any reforms to be successful they would need to contend with the USPS's short-term liquidity problem; be of sufficient magnitude to make appreciable changes to the USPS's annual operating revenue (currently $67 billion) or operating costs (currently $70+ billion); enable the USPS to sufficiently fund its retiree health benefits; help the USPS reduce its debt (currently $15 billion); and place the USPS on a long-term trajectory where the agency's revenues could be expected to meet or exceed expenses. | Since 1971, the U.S. Postal Service (USPS) has been a self-supporting government agency that covers its operating costs with revenues generated through the sales of postage and related products and services. The USPS is experiencing significant financial challenges. After running modest profits from FY2003 through FY2006, the USPS lost $45.6 billion between FY2007 and FY2013. Since FY2011, the USPS has defaulted on $22.4 billion in payments to its Retiree Health Benefits Fund (RHBF). The agency reached its $15 billion borrowing limit in FY2012 and has not reduced total debt since that time. In October 2012, the USPS bolstered its liquidity by withdrawing all of the cash from its competitive products fund. This fund has not been replenished. While the revenues for the USPS increased in FY2014, expenses have also risen. Compared with FY2013, expenses for FY2014 were $1.1 billion higher while revenues have increased by $500 million. The USPS's recent financial difficulties are partially the product of reduced demand. The agency has experienced a 36.3% drop in mail volume during the past 10 years. Additionally, during the past decade the "mail mix" has shifted. A growing portion of the mail is advertising mail, which yields low profits. Concurrently, the annual volume of first-class letters, which are highly profitable, has been dropping steadily, at least in part due to mailers shifting to electronic communications. As a result, the Postal Service's revenues in FY2014 were lower than they were in FY2005. Additionally, the Postal Service's liquidity has decreased and its debt has increased since FY2006, partially as a result of the statutorily mandated payments to the RHBF that were made between FY2007 and FY2010. The USPS has not had sufficient liquidity to make the payments since FY2011. This report discusses these issues in more detail, and includes financial results through the end of FY2014. This report will be updated in the event of any significant developments. |
The term "conflict minerals" is used to describe metal ores that, when mined, sold, or traded, are widely reported to play key roles in fueling armed conflict and human rights abuses in several far eastern provinces of the Democratic Republic of the Congo (DRC, formerly Zaire). The main minerals at issue are columbite-tantalite (coltan, a source of tantalum and niobium), cassiterite (tin ore), wolframite (tungsten ore), and gold—and their derivatives. The first three minerals are dubbed the 3Ts. When gold is also considered, they are known as the 3TGs. Links between conflict, human rights abuses, and the mining of and trade in these minerals have been the subject of numerous investigations, research studies, and policy papers, as well as policy advocacy campaigns focused on a need to respond to the persistence of conflict and its large toll in lives and human rights abuses. Such efforts have prompted policy makers, industry groups, and others, both in the United States and abroad, to craft measures aimed at cutting links between the minerals trade and those involved in or abetting armed conflict in eastern DRC. Continuing political instability in Congo has been the focus of congressional attention since the overthrow in 1997 of the regime of Mobutu Sese Seko, who had led DRC (known during his rule as Zaire) since 1965. Multiple congressional hearings have investigated various aspects of the DRC's conflicts, and multiple resolutions and bills have been introduced to help end them or mitigate their effects. Several have become law. The most extensive U.S. law aimed at halting the trade in conflict minerals, specifically the 3TGs, is Section 1502 of Title XV of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ). It is the subject of an ongoing Securities and Exchange Commission (SEC) rule-making process that is expected to lead to adoption of "final" Section 1502 implementing rules. This process, which has faced delays, is discussed further below. These congressional efforts have dovetailed with executive branch activities aimed at curtailing conflict in DRC, especially in the east. For nearly two decades, State Department and U.S. Agency for International Development (USAID) officials have monitored the dynamics of instability in eastern DRC and the surrounding sub-region, including linkages between conflict, human rights abuses, and minerals. They have also implemented multiple humanitarian and technical aid, policy-focused, and public-private partnership programs to break such links, in some cases as mandated by Congress. Multiple international public and private initiatives have sought to accomplish similar goals. The United Nations (U.N.) Security Council (UNSC) has, for instance, imposed DRC-focused sanctions aimed, in part, at curtailing the conflict minerals trade. It has also mandated that the U.N. peacekeeping mission in the DRC help the national government to achieve that end. Donor governments have also supported initiatives by states and intergovernmental entities in central Africa to design and implement transparent, accountable, and conflict-free national and regional mineral purchasing and trade certification regimes. Other donor-backed mining sector reform efforts also seek to reduce links between mining and conflict and boost legitimate trade. Industry groups are also piloting several similar certification schemes in central Africa that seek to verifiably track supply chains of minerals sourced in the region to ensure that buying and trade activities do not fund armed actors or otherwise abet conflict. These schemes are designed to complement government certification efforts in the region (see Appendix B ) and in some cases are an inherent part of these efforts. A key component of most of these public and private sector efforts is a process of due diligence that was developed by the Organization for Economic Co-operation and Development (OECD) with input from a broad array of stakeholders. The areas in eastern DRC that have been negatively affected most persistently by conflict lie in the border regions adjacent to Uganda, Rwanda, and Burundi, and include the provinces of North and South Kivu (known jointly as the Kivus). Armed groups and illegal mineral sector actors also operate in the district of Ituri, just north of the Kivus, the locale of an ethnically and resource-focused conflict in the mid-2000s. It has been relatively quiescent in recent years. More than a decade and a half of conflict has also resulted in a breakdown of law and order and caused socioeconomic devastation for many in eastern DRC, an area which had already suffered decades of state neglect and depredation under Mobutu's rule. Conflicts in eastern DRC have spawned a large number of armed militias, motivated by a mix of political aims and communal or ethnic self-defense, criminal, and other goals. Multiple, often inter-related factors have underpinned these conflicts, which have consistently been characterized by numerous, extreme human rights abuses. Such factors have included inter-ethnic political and economic competition, in some instances associated with the 1994 Rwandan genocide or Congolese state and societal discrimination against ethnic minorities. Diverse political grievances against and competition for control over the state have also played a role. Integration of various non-state armed groups into the national military and other military reform processes; lack of military training and discipline; and contested command and control and corruption within the military are also contributing factors. Widespread poverty and unequal patterns of resource distribution have also helped spur and prolong conflict, as have criminal opportunism, pillage, and predation of civilian populations, often by elements of state security forces. Such catalysts of conflict have not only motivated Congolese armed actors' actions; they also spurred several foreign state military interventions in Congo in the early 2000s. For more on the dynamics of conflict in eastern DR and actors involved, see Appendix A . These drivers of conflict have been aggravated by competition and conflict over various resources, including land rights; tropical timber and agricultural commodities, such as coffee, palm oil, and charcoal; illicit drug cultivation and trade; and fishing rights—but more notably over mineral reserves, mining, and trade. Ores that have been the focus of such dynamics have earned the moniker "conflict minerals" because they are found in all of the provinces of eastern DRC that have experienced lengthy periods of war and insecurity, and have often provided an incentive for acts of coercion and armed clashes; are mined under very poor, often dangerous labor conditions due to the use of manual modes of production and human rights abuses by armed groups, including state security force elements, who often directly or indirectly coercively control mining operations; provide armed groups profit derived from direct participation in, control of, or extortion from mineral mining and commerce; and underpin an extensive black-market cross-border trade that is proscribed under UNSC sanctions pertaining to the DRC and which benefits armed groups, among other actors, many illicit, such as black market traders and smugglers. The main conflict minerals at issue are the 3TGs and their derivatives, which Section 1502 explicitly and formally defines as "conflict minerals." The reason that these minerals have both played such a prominent role in conflict in the sub-region and drawn extensive international attention is that they help supply a high-value, global commodities trade that provides crucial inputs to a wide variety of industries and manufacturers. They include: Columbite-tantalite , a composite mineral ore known in Central Africa as coltan. Columbite is the ore of columbium, also known as niobium. Tantalite is the source of the metal tantalum. Tantalum is a highly malleable and corrosion-resistant metal conductor of heat and electricity. It is a key component in electronics goods, especially capacitors (devices that store and regulate, or buffer, electrical charges) used in cell phones and auto electronics, computers, digital cameras, and other electronics. It is also used to create carbide alloys in hard metals for use in cutting tools, jet parts, and other applications. In the early 2000s, after a spike in tantalum prices, production and sales of coltan in the eastern DRC rose sharply—prompting increased concern over conflict minerals, as armed groups became involved in the trade—but later dropped as global prices decreased. Niobium is also highly malleable and heat resistant, and is used in alloys for jet and rocket engines, medical and optical technology, electronics, jewelry, and other applications. The DRC is a marginal source of niobium, supplying well under an estimated 1% of world supplies between 2006 and 2010, but it is a significant, though highly variable global source of tantalite. During the same period, its estimated share of world tantalite supplies rose from 1.6% to 20.5%, and it supplied an annual average of 11.4% of the global supply. Cassiterite (tin oxide) is the main ore source of tin, a highly corrosion-resistant metal often used in solders, tin plating, chemicals, and alloys, notably bronze. Often found co-located with coltan in the DRC, tin is increasingly being used in electric circuits. Laws requiring a phase-out of lead in such applications in Europe and Japan reportedly contributed to a spike in tin prices in 2007 and 2008. Asian industrial growth has also contributed to a gradual increase in demand for tin. Cassiterite is widely seen as the most important ore from eastern DRC, which has contributed between 2% and 5% of global supplies in recent years. Wolframite is the ore of tungsten. The latter is used as a source for cemented carbide, especially in the manufacture of mining, metal, construction, oil sector, and cutting tools and other machine parts; as an alloy for hard, high-density, high-melting point metal products; and in varied electrical applications, including semi-conductors and cell phone vibrators. The DRC is a marginal source of wolframite, supplying between .5% and nearly 1% of world supplies between 2006 and 2010. Gold , a precious metal, has many ornamental, coinage, electronics, and industrial applications. DRC is a relatively minor global gold supplier, contributing a reported average, based on official or documented trade flows, of 0.2% of annual world gold supplies from 2006 to 2010. Its actual contribution to world supplies may be far higher, however—as much as 2% annually during those years; as much as 90% or more of much artisanal production from the key gold production zones in Ituri, north of the Kivus, and in South Kivu may reportedly be smuggled out of the DRC. There have been numerous U.N., governmental, academic, and non-governmental investigations and studies of the role of the minerals sector within the war economy of eastern DRC. These have examined the full range of factors associated with conflict mineral dynamics: the production, commercial, and profit structure of the trade; patterns of untaxed, fraudulent, and otherwise illicit cross-border mineral shipments; trade routes within and out of the region; ties between regional and international mineral markets; the sources, types, and levels of various armed groups' estimated earnings; and human and labor abuses associated with mineral mining and commerce in the region. Such reports have generally provided policy recommendations aimed at halting the trade in conflict minerals. Some have focused on possible military and/or politically negotiated ends to the conflicts that would lead to a normalization of economic processes generally, including in the mining sector. Others lay out various technical or regulatory reforms aimed at severing linkages between conflict and the mineral trade and/or expanding legal mineral trading. Some proposals seek to compel actors involved in the trade to act peacefully and legally, through the use of armed force or such tools as targeted financial, travel, or trade sanctions, or the threat of international criminal prosecution. Other policy proposals seek to streamline the DRC's mineral export sector by reducing red tape and increasing regulatory effectiveness of state agencies (e.g., customs, mine regulators, business licensing, safety inspections, etc) through institutional capacity-building and reform. The creation of varying types of certified production and trading partnerships has also been proposed as a means of supporting legitimate mineral commerce. Under some such proposals, an independent monitoring system would be put in place at mines that are determined to be in compliance with national laws and labor standards, free of armed groups, providing minimum wages to miners, or meeting various related criteria. Ore certified as originating at these sites could then be issued a certificate of legitimacy and legal origin. This model is aimed at creating positive incentives for good behavior and bolstering closed supply pipelines that can be monitored. A second model involves the creation of general, mandatory regulatory schemes, in which all actors must comply with certain specified criteria or standards (e.g., conflict-free mineral purchasing), for which a certificate is issued, with punitive sanctions imposed on those actors who do not obtain certificates or comply with regulatory mandates. Certificate systems typically incorporate company due diligence efforts, and may also employ forensic technologies that support scientific vetting of source supply origins, purity, or the like. It is difficult to assess the relative viability of these proposals, as most are theoretical; have been attempted only episodically, on a small scale, or unsuccessfully; or are at early stages of development or implementation. While some approaches may well have the potential to succeed, most face a range of challenges related to cost, technical complexity, interest group opposition or dissensus, lack of national or international political will, and similar factors. The most immediate and profound challenge to all of these proposals, however, is the depth, complexity, and extensiveness of eastern DRC's conflicts, which to date have prevented any military, political, or policy-based interventions from durably or comprehensively succeeding. Among the approaches to breaking mineral-conflict linkages that have attracted the broadest support from policy-makers, business interests, and non-governmental advocates are so-called mineral supply chain of custody controls and other proactive monitoring efforts, collectively dubbed "due diligence." Most of a handful of initiatives that are being established or piloted (see Appendix B ) use as an operational standard a detailed set of conflict-free mineral sourcing due diligence guidelines crafted by the Organization for Economic Co-operation and Development (OECD). This guidance (the OECD Guidance hereainfter) is also the primary due diligence standard that a wide array of interests groups has proposed the SEC incorporate into its Section 1502 rules. The OECD Guidance , adopted by the OECD Council in May 2011, was developed with input from various stakeholders and interests, and garnered broad international support, including from the State Department. The Guidance , which is not legally binding, is part of a larger set of OECD efforts to promote legal and ethical business conduct in areas where the rule of law is weak. The OECD Guidance is the main standard for several regional, state-sponsored, and private-sector national chain of custody tracking and certified trading chain systems, which many expect will provide the framework for a Section 1502-compliant due diligence system. These systems are discussed in Appendix B of this report. Section 1502 of P.L. 111-203 , passed as H.R. 4173 , is the culmination of several prior congressional efforts to help break links between mineral trade and conflict in eastern DRC. At its core is a requirement that SEC-regulated firms that use the 3TGs in their products publicly report whether or not they obtain their supplies of these minerals from the DRC, and if so, what due diligence they exercise to ensure that these purchases do not benefit armed groups. For supporters of the measure, part of the rationale for including the provision in a financial reform law was the assertion that if a firm were to be tied to conflict minerals and associated human rights abuses, such linkages would constitute an investment risk. Proponents successfully argued for inclusion of the measure, which, from their point of view, provides a way for firms to offer investors material assurances that they are not subject to reputational or other risks—potentially including legal liabilities—arising from their sourcing or use of conflict minerals. Some critics of Section 1502, on the other hand, view it as a non-germane use of SEC regulatory authority. They argue that it falls outside the intended scope of the Dodd-Frank Wall Street Reform and Consumer Protection Act, that is, to reform the U.S. financial system in order to address the causes of the post-2007 U.S. financial crisis. Many assert it imposed inordinate, potentially large financial and regulatory burdens on a large, broad class of U.S. and international firms in order to attempt to address a discrete problem in a single region of a foreign country. Some Members also question the legislative process that led to the enactment of Section 1502. Section 1502 states that the exploitation and trade of conflict minerals from the DRC help to finance violent armed conflict in eastern DRC, particularly sexual- and gender-based violence, thereby contributing to an emergency humanitarian situation. As previously stated, it defines conflict minerals as "columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or [...] any other mineral or its derivatives determined by the Secretary of State to be financing conflict" in the DRC or an adjoining country. Other minerals are found in eastern DRC (e.g., bauxite, uranium, rhenium, cobalt, manganese, tourmaline, and pyrochlor), and some of these have periodically been implicated in conflict-related trade. They could, therefore, potentially be designated as conflict minerals, including under Section 1502. To date, however, they have garnered little attention from policy-makers or global markets. Section 1502 amends the Securities Exchange Act of 1934 by requiring the SEC to issue rules requiring selected SEC-regulated "persons" (essentially business entities) to publicly report certain information about their activities to the SEC. Affected businesses are those that engage in commercial activities involving products for which "conflict minerals are necessary to the functionality or production of a product." Such disclosures must include information on whether designated minerals used by the firm originated in the DRC or an adjoining country. When this occurs, affected firms must submit to the SEC and publicly release a report containing a description of the measures that the person (i.e., business) has taken "to exercise due diligence on the source and chain of custody" of any conflict minerals used, to be accompanied by a certified, independent, SEC-compliant audit of the information being reported; and descriptions of the products manufactured or contracted to be manufactured that are not DRC "conflict free." Section 1502 does not explicitly ban use of minerals linked to conflict, but firms must be transparent about their use of such minerals, in order to enable investors, businesses, and consumers to make informed choices about dealing with firms that do not meet "conflict-free" criteria. The report must also describe the entity that audited the due diligence efforts of an affected firm; the country of origin of the minerals used; the facilities used to process the minerals; and "efforts to determine the mine or location of origin with the greatest possible specificity." Penalties for non-compliance with Section 1502 are standard penalties, such as fines and other SEC enforcement actions, to which firms that violate SEC regulations may be subject. Public comments on Section 1502 rule-making have been submitted to the SEC by diverse politically or economically influential actors—notably firms and industry associations, human rights and good governance advocacy groups, and Members of Congress—with both overlapping and divergent equities in the outcome. International responses to Section 1502 by concerned foreign governments, non-governmental advocacy groups, and some industry groups and firms have been positive, although some have voiced concern over whether Section 1502 will comport with existing voluntary international due diligence systems (see Appendix B ). Reaction to Section 1502 among many affected U.S.-listed firms and industry groups has been mixed. Most U.S. business interests that have publicly commented on Section 1502 express support for its basic goal of reducing conflict and human rights abuses in eastern DRC. Many firms and trade groups, some Members of Congress, and others, however, question whether the potentially large costs associated with implementing Section 1502 are justifiable. Concern has been expressed over whether the potentially complicated logistical and procedural challenges of compliance can practicably be surmounted as rapidly or comprehensively as advocated by the congressional sponsors and other supporters of the law—if at all. Many see the SEC's draft rules as containing multiple onerous, costly provisions that cannot be realistically met, and some have argued for what they would see as more pragmatic rules. Business interests, as well as some academic and non-governmental analysts, have set out suggestions for doing so. Common among these are recommendations that provisions of final rules be phased in. Supporters of a phase-in cite the need for existing mineral certification pilot projects to mature and a need to build understanding of and compliance with traceability schemes among local actors in eastern DRC. Some also contend that existing supply contracts, commodity processing and stock clearance timeframes, and the complexity of product supply chains, especially for large-scale multi-nationals, are incompatible with a single, set deadline. Other key recommendations focus on how compliance standards and reporting burdens will be defined, or request that the rules limit the numbers, types, and sizes of businesses that would be affected. In contrast to the bulk of business interests, many of the strongest U.S. advocates of Section 1502—such as congressional sponsors of the law and non-governmental advocacy groups—support rapid adoption of final rules, although some have suggested amendments to the SEC's proposed rules. Most of the advocacy groups see the costs of implementing Section 1502 as fully justified, cost-effective, and not as prohibitive as business groups have tended to claim, but they differ regarding such issues as proposed phased-in approaches and certain reporting standards. Those arguing for quick rule implementation generally contend that continuing delay undermines various efforts to break the persistent link between conflict and mineral trading; abets continuing human rights abuses associated with the trade; and constitutes a continuing risk to investors. Many also emphasize that the congressional deadline for issuance of the rules has not been met, and the SEC has had more than adequate time to prepare final rules. Another issue spurring some Section 1502 advocates to urge that final rules be adopted rapidly—and some critics to argue that its effects, even prior to implementation, have been destructive and that it should be abandoned—is a de facto buyers' boycott of minerals from eastern DRC. Firms appear to fear that they might procure minerals in a manner that might not comply with "DRC conflict free" Section 1502 provisions—or might otherwise be accused of exercising inadequate due diligence in procuring minerals from the region. Rule issuance delays have therefore spurred them to sharply decrease or stop purchases from eastern DRC. The effects and motivations for this de facto boycott were amplified by a DRC government ban on most mineral mining and trade in eastern DRC between September 2010 and March 2011 imposed, in part, to reassert legal compliance and regulatory oversight over the sector and allow the deployment of newly trained mining police. The ban reportedly had a limited deterrent effect in curbing illegal mining, as had a similar, more limited ban in 2008 in North Kivu's Walikale district; the certification system implementation reportedly remains, at best, embryonic, and police deployments have faced diverse challenges. The de facto boycott was reportedly deepened by a Conflict-Free Smelter (CFS) program announcement requiring smelters to provide documentation "from a credible in-region [DRC and regional] sourcing program verifying their conflict-free sources" as of April 1, 2011. Since separate but related chain of custody certification programs upon which the CFS program relies were not yet operational in eastern DRC (and as of late June 2012 were still not), the notice effectively prevented CFS participants from sourcing from the region. The CFS is a voluntary, industry association-run "conflict free" smelter program designed to ensure that smelter raw material inputs and production outputs are from conflict-free sources; see Appendix B . The April 1 deadline was set in order to "enable the electronics supply chain to be conflict-free by January 1, 2012" and permit implementation of mineral tracking programs. There was a rush to sell stocks of minerals between the lifting of the ban in March and the CFS deadline in early April, but eastern DRC exporters have since been unable to sell to major traditional buyers (i.e., refineries and smelters seeking CFS compliance status or middlemen supplying them). There is debate over the impact of the boycott. According to a late 2011 U.N. Group of Experts report, the boycott has "increased economic hardship, and more smuggling and general criminalisation of the minerals trade. It has also had a severely negative impact on provincial government revenues, weakening governance capacity." Other observers portray the local effects of the embargo in stronger terms, calling them catastrophic and disastrous. They contend that the removal of thousands of miners' incomes is causing local economic collapse and negative multiplier effects, as local businesses' customer base dries up, social service providers are left without paying clientele, and unemployed miners and their dependents are left without the means to supply their basic needs. The Group of Experts also reported that the boycott has caused mineral traders to sell "to smelters, refiners and trading companies in China that do not require tags or evidence of due diligence," often at heavily discounted prices and, in some cases, in a manner that may benefit armed groups, including DRC military criminal networks. In general, the boycott has undermined short-term incentives of local, mostly small-scale actors in eastern DRC's mining sector to begin instituting due diligence efforts, as they have had few buyers at all, and even fewer concerned about due diligence. While the boycott represents a widely recognized negative unforeseen consequence of Section 1502, the law is also viewed by some as already—even prior to final rules adoption—having had salutary effects. Anticipation of the rules' issuance, for instance, has spurred changes in the way firms source their mineral supplies, along with growing efforts to operationalize or expand various due diligence systems described in Appendix B . These emergent schemes are beginning to show some positive results—including lessons on which approaches tend to work and which are less promising. They are thus functioning as applied models illustrating how potential Section 1502-compliant, OECD Guidance- based due diligence processes can work in practice—albeit, to date, only in locales where there is not conflict, such as in Rwanda and Katanga, in southern DRC. In October 2011, the U.N. Group of Experts reported that such efforts are "reducing conflict financing, promoting good governance in the DRC mining sector, and preserving access to international markets for impoverished artisanal miners, [... who are] are among the prime sources of recruitment for armed groups in the DRC." The group also reported that "since the signing into law of the Dodd Frank Act, a higher proportion than before of tin, tungsten and tantalum mined in the DRC is not funding conflict." It attributed these outcomes to an emergent shift in the mining of these minerals to less conflict-prone provinces near the Kivus (the two main conflict-affected provinces in eastern DRC); the loss of control over mines by certain armed groups; and a decline in purchaser demand for 3T production from the most conflict-prone areas. It concluded that Section 1502 has had a massive and welcome impact so far, requiring chain participants all over the world to take due diligence and conflict financing seriously. This should not and must not be thrown away or weakened. […] Retreat now will confuse all players in the market, unfairly and unwisely diminishing the efforts of those who are implementing due diligence, and playing into the hands of the cynical and those with other agendas who have thus far refused to implement due diligence in the hope that it will simply go away. Despite such assertions, it is crucial to note that private or public sector certification systems are not currently operational in the Kivus—which are the crux of the conflict minerals problem and the primary initial motive for establishing these systems. The large volume of comments submitted to the SEC on Section 1502 and the complex prospective rule implementation issues that these comments have raised pose substantial challenges for the SEC, as do possible court suits. These factors appear to be the main determinants of the SEC's repeated extensions of the commentary period on the rules, thereby delaying final adoption. While these delays have been criticized by Section 1502 supporters on a number of grounds, including with respect to spurring the de facto mineral buyers' boycott discussed above, the extended commentary period has spurred constructive debate on rule-making. It has provided parties with potentially opposed interests in the law opportunities to respond to one another, to craft solutions to problems raised by their peers, and to build consensus around some issues (e.g., rules phase-in). While there is some contention over phase-in, it is likely that a phased-in approach will ultimately be incorporated into the SEC rules—as SEC Chairman Mary Schapiro stated during a March 2012 congressional hearing—albeit potentially with a firmly scheduled set of benchmarks compliant with congressional intent. Another key proposal around which consensus has grown is a need for Section 1502 rule complementarity with the OECD Guidance . A large range of legal, technical, logistical, and other types of issues is in play under the Section 1502 rule-making process, as are diverse human rights, transparency, political, corporate financial, and reputational (e.g., public relations and consumer perceptions) interests. Apart from debate over rule phase-in and due diligence standards, key legal and technical questions focus on such issues as how final Section 1502 rules will define, operationalize, or treat Product "functionality" (a concept at the core of Section 1502), given that a product may include a conflict mineral but arguably be able to function without it (e.g., a use might be ornamental, say, or occur in a car radio that is not essential to functionality as a transport vehicle). A related subject of debate is the extent to which tools used in manufacturing that may contain a conflict mineral—or tools used to produce other specialized tools necessary to the manufacture of a product—are covered under the law. The SEC has proposed that such tools would likely not be affected, but has solicited feedback on this issue. A similar set of issues focuses on components necessary for the functionality or manufacture of other production components. Product "manufacture," given that while the Section 1502 "functionality requirement" only applies to those who use conflict minerals in their products, the reporting requirement that applies to such persons refers to "a description of the products … contracted to be manufactured" [emphasis added]. This disparity may raise questions over who is required to report under the law, as may varied interpretation of the term "manufacture." The SEC had proposed not to offer a definition. Various commentators, however, have suggested that one should be included, but have proposed disparate definitions, some broadly inclusive and others quite narrow. There has also been debate over whether mining operators are to be defined as "manufacturers" bound by the law. Reporting thresholds, if any, in cases where a firm does not control all facets of production of its products (e.g., parts are manufactured by chains of discrete subcontractors who are contractually unrelated to the final buyer) or has a role limited to product branding and sale (e.g., of generics that may be sourced from multiple vendors). Various derivatives of the minerals and their recombination with other elements to create new substances. Ornamental and other "de minimis" uses of the minerals, or instances in which a product unintentionally includes naturally occurring trace occurrences of a conflict mineral. Recycled supplies with essentially untraceable origins. "Reasonable" credibility standards for mineral country-of-origin inquiries. "Armed groups." It is unclear, for instance, how firms would differentiate between state military or police forces at large and those elements of these forces which—based on allegations of human rights abuses or other criminal acts, including illicit involvement in the conflict minerals trade—would be considered armed groups under the law. Indirect "finance or benefit" to armed groups arising from association with a conflict mineral. The threshold or definition for "indirectly finance or benefit" is not defined in Section 1502. The burden of proving an absence of indirect financing or benefit could potentially be large. Firms bound by long-term contracts that precede or may conflict with or otherwise not reflect the requirements of Section 1502 (such as rules that might require immediate implementation and compliance). The status of stocks of materials that are already in processing and supply pipelines prior to the adoption of the rules. Firms covered, as some interpretations of the definition of ''person described" in the law, as written, could arguably be applied to "persons" who are not SEC issuers. The standards and responsibilities that accountants and auditors will need to comply with to provide required due diligence auditing to firms subject to Section 1502. The technical modalities of reporting language and standards, types of documentation and forms to be employed, and other technical and legal process questions. The basis for determining whether compliance costs may be too great for small manufacturers to bear and, in general, for determining what the costs will be for the full range of affected firms, persons, and industries. As required under Section 1502, the Department of State transmitted a conflict minerals strategy to Congress in mid-2011. It identifies multiple "strategic objectives and current, planned, or possible U.S. actions" to achieve the aims of the strategy, which is entitled a "U.S. Strategy to Address the Linkages between Human Rights Abuses, Armed Groups, Mining of conflict minerals, and Commercial Products." These actions center on security force reforms; support for DRC government mineral trade regulatory systems; small-scale miner and local community protection and related capacity building; support for international and regional efforts to curtail illicit minerals trading; and promotion of due diligence and responsible trade through public outreach. The strategy also provides State Department views on "punitive measures against commercial activities that support armed groups and human rights violations." The State Department also published an initial Section 1502-mandated conflict minerals map, although it is heavily caveated. It states that the map "does not provide sufficient information to serve as a substitute for information gathered by companies in order to exercise effective due diligence on their supply chains." An updated map was published in late May 2012. Several programs designed to implement the U.S. conflict minerals strategy and the objectives of Section 1502 are under way. USAID's efforts are being undertaken primarily under the Responsible Minerals Trade (RMT) program, an inter-agency effort. It is primarily funded with $10 million from FY2010 Section 1207 appropriations and $4.78 million from FY2011 Complex Crises Fund (CCF) appropriations. The USAID DRC country mission directly implements a three-part RMT component program with $8 million of this funding, which also funds an initiative called the Public-Private Alliance for Responsible Minerals Trade. The first component supports various field-level infrastructure and training efforts to help the DRC government to implement its pilot national conflict-free mineral supply certification system. Key activities include the rehabilitation or completion of two trading centers (Centres de Négoce, or CdN), an administrative building in South Kivu, and transport infrastructure linking the centers to export points. It also supports piloting of DRC's certified mineral chain tracking and export systems through CdNs in the Kivus in 2012. A second component focuses on reducing child labor in mining through various educational activities, skills training for children leaving mining, and support for DRC government efforts to integrate a child labor-free criterion into its national certification process. A third component provides technical support to the DRC Mines Ministry and other national and local mining authorities to help them implement conflict-free minerals supply chain initiatives and provide capacity-building to help the artisanal mining sector to move toward a legally based, semi-industrialized, formal production model. In late January 2012, USAID also announced an obligation of $4.78 million in FY2011 CCF appropriations to support an initiative to "mitigate the unanticipated consequences of the de facto embargo by end-user companies on the mineral trade, support the mining sector reform agenda, and reduce existing tensions." The funding will, in part, support operationalization of the International Conference on the Great Lakes Region (ICGLR) independent Minerals Chain Auditor—a key component of the ICGLR's regional certification mechanism (see Appendix B ). Programs will seek to rapidly scale up implementation of validation and traceability systems in conflict zones and areas affected by social and economic vulnerability in order to induce economic recovery and job creation. USAID's Office of Conflict Management and Mitigation "is providing an additional $1.2 million for community mediation, alternative livelihoods and civil society engagement in the areas around the pilot conflict-free supply chains" implemented by a project implementing partner, a non-profit organization called Pact. USAID's programs are closely coordinated with programs sponsored by the State Department and the Department of Defense (DOD). One is a set of Democracy, Human Rights and Labor Bureau (DRL) two-year, $1.4 million program supported by Democracy Fund/Human Rights Democracy Fund FY2010 appropriations implemented by the non-profit Pact. It seeks to break links between illegal mineral exploitation, conflict, and serious human rights abuses by supporting DRC certification implementation and "a realistic oversight mechanism for the ... vast network of remote militarized mines" in eastern DRC through local capacity building. It also has three components, which complement and overlap with some RMT activities: The first focuses on building local security, human rights abuse, corruption, and mineral traceability public education, monitoring, and reporting capacities, in order to protect mining communities and help implement traceability and certification systems at the local level. The second supports efforts to operationalize the CdN mineral trading posts and related efforts to improve traceability and certified trade in minerals; introduce mineral certification systems; bolster security and human rights abuse and corruption prevention; and create local grievance and conflict resolution mechanisms. The third centers on public education in eastern DRC and Rwanda regarding minerals sector governance and reforms, links between the minerals trade, conflict, and human rights abuses, and the implementation of mineral traceability and certification systems. USAID and DRL programs are coordinated with a $2 million State Department International Narcotics and Law Enforcement Bureau effort, drawn from the $10 million allocation of Section 1207 funds that also support USAID's RMT program, to train and equip DRC mining police. These efforts are complemented by other State Department, USAID, and DOD programs in eastern DRC focused on various rule of law, workers' rights, human rights, and/or justice goals. How effective international and regional conflict mineral trade abatement efforts may be at curtailing or ending conflict and human rights abuses in eastern DRC—even in the minerals sector alone—is open to debate on multiple grounds. In the long run, efforts focused on ending the conflict mineral trade have the potential to play a crucial role in helping to reduce human rights violations and other crimes by reducing armed groups' access to mineral revenues. They are unlikely to succeed on their own, however. Instead, their success will almost certainly depend on diverse other efforts to achieve security and demobilization of armed groups; accountability for and prevention of human rights abuses; politically and administratively feasible resolutions to diverse local grievances; and enhanced mineral sector production and regulatory capacity-building. For instance, it is not clear that credible, consistent, and effective due diligence efforts to prevent the conflict minerals trade can be undertaken while widespread insecurity and periodic military clashes in eastern DRC persist. It is also not certain how durable or substantial an effect on conflict reduction the removal of armed actors' access to mineral revenues through conflict-free trading schemes might have, given the availability of alternate sources of conflict financing and the multiplicity of factors that stoke conflict. Another major challenge is the technical complexity associated with due diligence and mineral certification initiatives. Without substantial, continuing external assistance to help small-scale mining sector actors in eastern DRC with these efforts, and much greater local buy-in and participation, there is no guarantee that such efforts will be credible and sustainable. The potential for such schemes may also be poor if the state military elements that have so often abetted the eastern DRC trade in conflict minerals are not substantially reformed or cut off from interaction within the mineral sector. Prospects for such an outcome are decidedly mixed. Elements of the national military and other state security forces—sometimes in league with armed non-state groups—have for years been involved in various exploitative, often coercive, illicit profit-making mining and mineral trade activities. Some have also actively hampered state attempts to better regulate the trade and impose sanctions on their criminal acts, or have stymied security sector reforms (SSR) that threaten their ability to operate autonomously and to engage in income-earning activities, despite limited progress in addressing these problems. Thus far, emergent mineral certification and due diligence schemes have demonstrated how such systems can operate in practice in central Africa, but critically, have not yet advanced beyond nascent, in some cases abortive pilot programs in conflict-affected eastern DRC—the ultimate target of these efforts. Ultimately, however, their potential for sustained success is likely to depend on efforts to ensure overall security and stability, to end impunity for human rights abuses and illicit activities, and to undertake reforms and related actions, such as Military and police training and broader security sector reform; Use of armed force by the state to seize and maintain control of mining sites and wider areas controlled by armed groups and, ultimately, neutralize these groups, including rogue elements of the national military; Political agreements and compromise over control of mining sites, and assured scope for civil society actors in the mineral sector to freely advocate reform policies and undertake investigations; National and international criminal prosecution for human rights violators and imposition of targeted international sanctions, in addition to U.N. sanctions already in place, possibly specifically directed at those who engage in conflict-related mineral transactions; Institutional capacity building for trade regulation, mining, and border control and related agencies in the DRC and neighboring countries; Targeted sustainable employment and working condition-focused assistance for artisanal miners and mining communities affected by externally driven due diligence initiatives and outcomes such as the de facto boycott; Reform of DRC mineral tax rates and revenue sharing formulas; Increased state and third party mineral sector and trade data reporting, as well as public and private sector adherence to international extractive sector transparency initiatives, such as the Extractive Industries Transparency Initiative (EITI); and Reform of mining contracts and laws, taking into consideration multiple interest groups, including the state, large-scale mining concerns, and artisanal miners. There is widespread recognition by regional and donor governments and various international organizations that such multi-faceted approaches are essential, and diverse efforts to pursue them are underway, in addition to efforts spurred by Section 1502 and the OECD Guidance . In the short to medium term, interested Members of Congress are likely to closely monitor Section 1502 rule-making and the effectiveness of any eventual rule and other conflict mineral-focused programs as they are implemented. Both SEC rule-making and prospective rule implementation are likely to continue to pose complex challenges, and may spur Congress, ultimately, to revisit the approach taken in the Section 1502 rule. If the SEC issues Section 1502 rules at a scheduled August 22, 2012, meeting—which is not a given, as the SEC has stated that this meeting will be held on " whether to adopt rules regarding … Section 1502 [emphasis added]," rather than that it, in fact, intends to adopt final rules—reactions are likely to be complex. Given substantial opposition to the anticipated rule by some industry actors and Members of Congress—as described previously in this report—political and possibly legal action to amend or overturn the rules may ensue. On the other hand, given that a substantial number of Members of Congress and non-governmental organizations support the law, opposition to such efforts might be expected to be stiff, and—if rules implementation is not timely and effective—may generate a separate set of political or legal actions to make it so. Quite apart from debate within the United States over Section 1502 and the procedural, technical, and legal aspects its implementation, application of the law's provisions and other U.S. and international conflict mineral abatement efforts in the region are also likely to be complex, and to draw congressional attention. While substantial financial and applied efforts are being invested in such activities, conflict in eastern DRC has long posed a complex set of intractable security, governance, and human rights challenges, which trade-focused efforts alone are unlikely to overcome. To the extent that this proves the case and conflict persists, notwithstanding enactment of Section 1502, some Members of Congress may see a need to pursue a more comprehensive approach to ending conflict and building peace in the DRC and the surrounding sub-region. Appendix A. Background on Conflict and Armed Actors in Eastern DRC Armed conflict has plagued eastern DRC since the mid-1990s, notably in the border region adjacent to Uganda, Rwanda, and Burundi—primarily the provinces of North Kivu, South Kivu, and eastern Orientale. This conflict has spawned a large number of armed militias, some politically oriented and some primarily criminal. Conflict in the area has varied roots and causes, but is, in large part, an artifact of two wars that began in the east. The first followed the mid-1994 takeover of state power in Rwanda by the ethnic Tutsi-led Rwandan Patriotic Front (RPF), which ended the Rwandan genocide. In the wake of the genocide, Rwandan ethnic Hutu militia forces and elements of the rump ousted Hutu-led government fled Rwanda into eastern Zaire, along with large numbers of Hutu refugees, and settled in border camps. This influx fueled pre-existing local ethnic tensions, sometimes violent, and competition over land and resources, trends which were aggravated by persistent predation by various Zairian state security forces. The exiled Hutu militia forces controlled and used the refugee camps as a rear base for cross-border attacks into Rwanda. These forces, sometimes together with other local ethnic militias and the Zairian Armed Forces (FAZ), also launched attacks on Zairian Tutsis, the Banyamulenge. In response, in 1996, an RPF-backed, largely Banyamulenge force broke up the camps and forced a mass repatriation of the bulk of refugees to Rwanda. Recalcitrant militant Hutu elements and large numbers of accompanying refugees fled deeper into Zaire, pursued by the RPF-backed force, which also skirmished with FAZ elements. Simultaneously, leaders of the RPF-allied force joined with several obscure or defunct Zairian rebel groups and other restive elements to form the Alliance of Democratic Forces for the Liberation of Congo-Zaire (AFDL) in October 1996. Led by Laurent-Désiré Kabila and backed by several neighboring governments, the AFDL marched across Zaire and ousted the regime of Mobutu Sese Seko, Zaire's leader since 1965. After seizing the capital, Kinshasa, in May 1997, they assumed state power. A second civil war began in August 1998. It was sparked by a military rebellion in the east that was ostensibly motivated by concerns over corruption and poor governance under Kabila, but was underpinned by ethnic divisions within the AFDL. In subsequent months, the war burgeoned, spawning the creation of numerous new Congolese armed factions and prompting extensive intervention by the militaries of neighboring states opposed to or supportive of the Kabila government. Kabila was assassinated in early 2001 and succeeded by his son, Joseph Kabila, DRC's recently re-elected president. Beginning in 1999, a series of peace accords was signed. They eventually led to the deployment of a U.N. peacekeeping mission and the creation of an interim Congolese government, based on a 2002 peace accord. It provided for a transition process leading to national elections in 2006. This peace process nominally ended the second war, but the armed groups that had emerged during the first two wars continued to be active in eastern DRC. In subsequent years these groups, some of which have enjoyed foreign backing, continued to evolve into distinct new groups and alliances. On-going conflicts in the provinces of North and South Kivu have involved armed Congolese Tutsi factions, in some cases drawn from mutinous elements of the national military. Other actors have included armed, largely Hutu refugee groups, some closely linked or led by accused Rwandan genocidaires or their associates; and elements of the Congolese military, the FARDC. Other actors have included local communal, often ethnically based defense militias known collectively as the Mai-Mai, and other small armed groups, including some rebel elements from neighboring countries. The situation has been complicated by the integration into the FARDC of multiple former non-state rebel groups, some of whom maintain command and control capabilities that are outside the control of national military authorities. Most of the smaller militias, notably Mai-Mai groups, have links to the larger armed groups. Neighboring countries, notably Rwanda, have also periodically militarily intervened in the region, often covertly but in some cases openly, including, on occasion in joint operations with DRC government forces, as in early 2009. In the district of Ituri, just north of the Kivus, there was a period of frequent conflict from 1999 to 2003 followed by a period of low-intensity conflict until 2007. Conflicts there involved ethnic factions; FARDC troops; international peacekeepers; and criminal gangs, some with linkages to ethnic political factions. South of the Kivus, in Maniema, Tanganyika, and Haut-Katanga provinces, Mai-Mai and FARDC elements—some party to delayed disarmament processes—have periodically fought one another and attacked civilian settlements, often out of criminal motivations. Appendix B. Regional and Industry Supply Certification and Due Diligence Initiatives International Conference on the Great Lakes Region Certification The Mineral Tracking and Certification Scheme of the International Conference on the Great Lakes Region (ICGLR), also known as the Regional Certification Mechanism (RCM), is designed to act as a regional mineral certification coordinating mechanism. It provides standards that national certification systems must meet or exceed and independent monitoring of those national systems. The RCM is part of a broader ICGLR effort, the Regional Initiative against the Illegal Exploitation of Natural Resources (RINR). RINR is aimed at supporting a legal, transparent, and conflict-free intra-regional and international exports minerals trade and ensuring that the mining sector contributes to sound socioeconomic development and economic growth. The RCM, which is at an early stage of implementation, is expected to provide a mechanism that downstream buyers (e.g., smelters, industrial producers, and manufacturers) can rely on to ensure conflict-free mineral purchases from the region and to supplement their own due diligence. The RCM is also designed to act as an early warning system, providing monitoring of mineral mining, trading, and financing-linked conflict risks in the region. The system allows for ongoing private sector initiatives, such as International Tin Research Institute's (ITRI's) Tin Supply Chain Initiative (iTSCi, see below), to be used as implementing mechanisms, as long as they comply with all RCM standards and processes. The United States, among other donors, is supporting the RCM. DRC Mining Legal Reforms and Minerals Certification Efforts Inter-agency DRC government working groups, with technical assistance from donors, are helping to promote DRC mining sector legal reforms and developing an ICGLR-compliant national traceability and certified trading chain (CTC) system known as the Certification National (CN). In addition to supporting traceability, the CN supports guarantees of "legal title, work site safety, environmental practices which include and exceed the standards of the ICGLR, Dodd-Frank, UN GoE [Group of Experts] and OECD guidance." Top priorities have been additions to the national mining code consisting of traceability, certification, and due diligence legal requirements, manuals, and procedures. Key reforms include a June 2010 accord providing a legal basis for iTSCi operation under the DRC's CN. DRC government decrees have also mandated the public disclosure of mineral contracts (May 2011); mandatory 3T and gold CN certification (June 2011); and compliance with the OECD Guidance (September 2011). Another proposed reform is the creation of a legal role for artisanal miners in eastern DRC. Most mine titles are held by formal sector firms that do not operate in the region due to insecurity and other factors, and artisanal extraction almost completely dominates mining in eastern DRC but, in many cases, is technically illegal. Concordance between provincial laws and regulations, which can vary by region, and national ones, is another possible area of reform. In addition, in early 2011 governmental agencies, civil society, and commercial mining sector actors from the provinces of North and South Kivu and Maniema signed a multi-stakeholder agreement in which they pledged to implement the DRC and ICGLR certification systems. Under the agreement, a prerequisite to the lifting in March 2011 of the DRC mining ban in the provinces, signatories also agreed to participate in Mine Monitoring Commissions that are intended to implement these systems locally. Implementation of the CN, which had been slated to be operational by late 2011, was delayed for a year due to the 2010-2011 mining ban, but is now underway. A DRC Mines Ministry working group is working on the establishment of a national mineral database. A national third party audit system under the CN was field tested in September 2011 at Nyabibwe, a cassiterite mine in South Kivu, and vetting of several other mine sites followed. Efforts are underway to assess and categorize these sites as green-, yellow-, or red-flagged, in accordance with ICGLR and OECD due diligence guidelines. In addition to Nyabibwe, at least 8 sites in South Kivu and 11 sites in North Kivu have been given green designations. The government, in collaboration with donors, has also produced several detailed maps of mining sites in the east showing which armed or other actors control them. Further mapping and related technical capacity building is ongoing, as is general CN outreach, training, and mining sector-focused public education. Another major facet of DRC's CN system is the establishment of mineral trading centers (Centres de Négoce, or CdN) under a project initiated by the DRC government and the United Nations Stabilization Mission in the DRC (MONUSCO) in 2009. CdNs are designed to act as trading posts where legal minerals can be reliably traded under national and regional CTC/certification systems, and are linked by fixed air or land transport routes to regional border trading hubs (e.g., Bukavu or Goma). The initial goal is to establish five CdNs in the Kivus, with an eventual 16-17 in each of the Kivus, and 72 nationwide. Four CdNs have been completed to date. A fifth is expected to be completed soon. MONUSCO, with USAID assistance, is in the process of rehabilitating roads to the centers. There are also efforts to engage and train local comptoirs (mineral traders) and their associations in the Kivus and Maniema (see a multi-stakeholder agreement, above). Many local actors in the east, however, are reportedly not undertaking CN-required supply chain and risk assessments—in part due to the de facto buyers' boycott discussed in the body of this report—posing a serious threat to prospective CN success. In addition, limited state institutional capacity, funding, a history of state corruption, and varying levels of political will in various government agencies and jurisdictions may pose challenges to CN implementation and effectiveness, but many key local actors are undergoing CN training and appear to support the system. Furthermore, in contrast to eastern DRC, certified trading is reportedly working effectively in the southern province of Katanga, largely due to the greater formalization and structure of the 3Ts industry in the province, as well as stable security conditions; see text box. Industry Pilot Certification Systems ITRI Tin Supply Chain Initiative iTSCi (ITRI Tin Supply Chain Initiative), initially developed for the tin industry, and more recently for tantalum and tungsten, is the sole traceability system currently being used by most upstream actors in the DRC and Rwanda. The U.S. technical assistance non-profit Pact, a key USAID DRC minerals project implementer, helps local organizations in the DRC and Rwanda to run the scheme in collaboration with government officials and local stakeholder groups. Only large-scale mineral traders and other mineral chain actors may undergo a risk assessment and become iTSCi members, although the scheme incorporates data from smaller-scale actors in the mineral chain. iTSCi is designed to help upstream businesses—notably including small and medium-size enterprises, co-operatives, and artisanal miners—to comply with and implement the OECD Guidance , the ICGLR RCM, and national mineral certification system requirements. It is designed to comply with the Conflict-Free Smelter (CFS) program (see below). The two programs are expected to provide a joint mechanism enabling Section 1502 compliance, although there are some incompatibilities (primarily technical and definitional) between the systems. iTSCi has been in development since 2008. Since 2011, iTSCi has been implemented in Rwanda and the southern DRC province of Katanga, but is currently not in operation elsewhere in the DRC. iTSCi was piloted at Kalimbi mining area in South Kivu in 2010, but the 2010-2011 mining ban prompted suspension of the project. A pilot project in the Kivus, initially at one mine, is planned, but depends on several outcomes. These include the availability of funding, assurance of operational security, and the confirmation that prospective Dodd-Frank compliant buyers will re-enter the market. Rwanda's iTSCi program runs under the aegis of its broader national mineral CTC system. iTSCi may be extended to Burundi and Uganda and eventually to the entire Great Lakes Region. iTSCi, funded through industry levies, employs an OECD Guidance /ICGLR RCM-compliant mineral tagging and source monitoring chain of custody and database tracking system. In addition to shipment tracking, it emphasizes tax and border fee payment verification. This requirement can reportedly slow and otherwise hinder trading, as collections officials are often absent from their posts, and the reduction in earnings, for some, may be high enough to prompt abandonment of iTSCi participation. Two other key components are independent third party audits of iTSCi members, small-scale upstream actors in the mineral supply chain, and iTSCi data; and independent third party conflict risk assessments of vetted mines and transport routes, and conflict risks in the larger regional environment. In both DRC and Rwanda, government entities are responsible for affixing iTSCi tags to mineral bags. The role of state agencies has reportedly induced a few instances of illicit iTSCi tag sales by corrupt officials. There have also been reports that the iTSCi tags have been stolen, and that some independent traders accept stolen Rwandan ore and ore from the DRC that enters Rwanda through various means, including through the use of falsified iTSCi tags, without paperwork, or through smuggling. This ore may illicitly either transit Rwanda or be integrated into its trade stream through various means, leading the Group of Experts to conclude that "fraudulent tagging and the transit of untagged minerals through the country are threatening the credibility of Rwanda's certification system," although they also report that Rwandan border officials regularly seize illicit imports, as do DRC authorities, albeit to a lesser extent. The standard iTSCi model employs a tagged consignment logbook recording system that is reportedly somewhat cumbersome and expensive to implement. It is manually intensive at the field level—although a paper-based system is arguably a technically sustainable, user-friendly format for use in underdeveloped eastern DRC—and these data must then be transferred into a computer database overseas. Its cost is reportedly high enough to act as a disincentive for participation by some smaller commercial actors. In late 2011, the iTSCi cost in Katanga and Rwanda was $500 per tonne of minerals. The price is fixed, regardless of commodity price changes, which could reportedly hurt artisanal miners' already thin profit margin. By contrast, the CTC system in Rwanda reportedly costs $200 per tonne of minerals. Several firms working under the iTSCi system or the Rwandan national ICGLR-compliant CTC system have developed a computer-based system that uses iTSCi tags (which have a barcode) or radio-frequency identification (RFID) chip tags. These are placed on consignments and scanned on site, and the resulting data can immediately be uploaded to a server. The model is reportedly less costly and as technically robust as other traceability systems, but in some cases lacks market recognition. Conflict-Free Smelter (CFS) Program The Electronic Industry Citizenship Coalition (EICC) and Global e-Sustainability Initiative (GeSI) Conflict-Free Smelter (CFS) Assessment Program, initiated in 2009, supports conflict-free mineral sourcing through evaluation of the origin and status of smelter mineral input under an independent, CFS-vetted third party system. It allows a smelter to verify to buyers that it produces "conflict-free" metals. The main CFS elements are a review of an applicant firm's policies and practices on conflict minerals. The second is an assessment of smelter input materials to verify that they are conflict-free via vetting of mineral source locations; and, if the input material is not raw ore, vetting of compliance with CFS "recycled" materials standards. CFS, a voluntary program, currently covers tantalum and gold, but is slated to also cover tin and tungsten. EICC/GeSI assert that the CFS protocol is OECD Guidance -compliant. It is not publicly available, however; it is accessible only to select actors (certain NGOs, governments, and the OECD). It will again be reviewed and updated once Section 1502 rules are issued. Its sponsors seek to create a single, cross-industry, vetted conflict-free supply process. There are currently 17 CFS compliant smelters, owned by 11 firms. A CFS-vetted smelter can remain compliant for a year at a time before having to be vetted anew. The CFS incorporates a tiered country categorization system, but makes a major distinction between smelters that source from the DRC or adjoining countries and those that do not. The latter are immediately eligible to participate in a CFS assessment. To become CFS-eligible, the former must provide verified CFS-compliant/conflict-free custody/traceability documentation of the entire upstream (mine to smelter) supply chain. To a large extent, the CFS program is dependent on upstream due diligence schemes. In practice, it is aligned and works almost exclusively with iTSCi, with which it is largely congruent, despite some technical incompatibilities between the two systems. The CFS is complemented by a standard reporting and data analysis platform, the Conflict Minerals Reporting Template and Dashboard , which allows smelters and suppliers and buyers with whom they or their clients do business to prepare and share consolidated data on their mineral supply chains. Gold Industry Due Diligence Initiatives In June 2011, the World Gold Council released a draft chain of custody and conflict-free gold standards designed to ensure that gold purchases do not enable, fuel, or finance armed conflict. Compared to 3T-related industries, the gold industry appears to be at an earlier stage of developing conflict mineral-related due diligence. There are no clear indications that any applied, field-based pilot or other due diligence gold programs are yet being implemented. In March 2012, the Responsible Jewellery Council (RJC) also launched a voluntary Chain-of-Custody (CoC) Certification for gold and other precious metals aimed at helping firms support responsible sourcing and conflict-free due diligence in supply chains. The CoC lays out an independent, third party audit-based certification process and is aimed at enabling certified compliance with the OECD Guidance and Section 1502. Another reported gold industry due diligence effort is a London Bullion Market Association (LBMA) system "requiring third-party audit of all accredited refiners of gold bullion who are on the London Good Delivery list." Related Initiatives There are a variety of other standards of practice focused on human rights, social development, good governance, natural resource transparency, corporate operations, fair trade, labor rights, environment, corporate activities in unstable or conflict-prone zones, and other issues that firms can adapt to help ensure due diligence on the sourcing of minerals. These are sponsored by various industry and non-governmental coalitions. The collective goals of such initiatives are reflected in the work of the Global Reporting Initiative (GRI), an organization that produces a comprehensive "sustainability reporting" framework for application globally. Its core goals include the mainstreaming of disclosure on environmental, social, and governance performance. | "Conflict minerals" are ores that, when sold or traded, have played key roles in helping to fuel conflict and extensive human rights abuses, since the late 1990s, in far eastern Democratic Republic of the Congo (DRC). The main conflict minerals are the so-called the "3TGs": ores of tantalum and niobium, tin, tungsten, and gold, and their derivatives. Diverse international efforts to break the link between mineral commerce and conflict in central Africa have been proposed or are under way. Key initiatives include government and industry-led mineral tracking and certification schemes. These are designed to monitor trade in minerals to keep armed groups from financially benefitting from this commerce, in compliance with firm-level and/or industry due diligence policies that prohibit transactions with armed groups. Congress has long been concerned about conflicts and human rights abuses in the DRC. Hearings during successive Congresses have focused on ways to help end or mitigate their effects, and multiple resolutions and bills seeking the same goals have been introduced. Several have become law. The most extensive U.S. law aimed at halting the trade in conflict minerals, specifically the 3TGs, is Section 1502 of Title XV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203). Among other ends, Section 1502 requires the Securities and Exchange Commission (SEC) to issue rules mandating that SEC-regulated businesses that use conflict minerals in their products report if they obtained their mineral supplies from the DRC or nearby countries; be permitted to label as "DRC conflict free" products that they can credibly demonstrate do not incorporate minerals sourced in a manner that directly or indirectly finances or benefits armed groups in DRC or adjoining countries; and publicly report to the SEC on those of their products which do incorporate minerals that are not "DRC conflict free"—and which may not be labeled as such—and on diligence measures used to obtain these minerals. Section 1502 raises complex rule design, compliance, cost estimate, and implementation questions, and Section 1502 advocates and critics—many politically influential—have been urging the SEC to issue rules favorable to their respective views and interests. The complexity of the matters at issue and diversity of interests affected have prompted the SEC to repeatedly delay issuance of a final rule, although it is expected to act on the matter in mid-August 2012. Key rule-making issues under debate include timing and a possible phase-in of rule implementation; and what due diligence standards are to be used. There is widespread support for use of due diligence guidelines developed by the Organization for Economic Co-operation and Development (OECD) in eventual Section 1502 rules, both to ensure complementarity between U.S. and international conflict mineral trade abatement efforts, most of which employ the OECD guidelines, and to enable these schemes to mature. The State Department has provided to Congress a strategy aimed at breaking the link between mineral trade and conflict and, together with the U.S. Agency for International Development, is implementing programs in central Africa to support tracking and certification schemes; local small-scale mining communities; anti-mining labor abuse efforts; and related ends. In the short to medium term, Congress is likely to closely monitor Section 1502 rule-making and the effectiveness of any eventual rule and other conflict mineral-focused programs as they are implemented. Implementation is likely to be complex. While substantial financial and applied efforts are being invested in such efforts, conflict in eastern DRC has long posed a complex set of intractable security, governance, and human rights challenges, which such efforts alone are unlikely to overcome—and may complicate. An example of a possible unintended consequence of Section 1502 is a de facto buyers' boycott of minerals from eastern DRC attributed to the delayed rule-making process and to other factors. It has generated a local economic crisis and increased smuggling of minerals, but also reportedly reduced conflict funding and spurred conflict mineral trade control efforts. |
On April 24, 2013, Rana Plaza, an eight-story building, in Dhaka, Bangladesh, collapsed, killing more than 1,100 garment workers. It brought international focus on portions of the global supply chain. It also raised the issue of what might be done to improve working conditions, especially for lower-wage workers in developing countries around the world. According to press reports, the day of the building collapse workers arrived and saw cracks in the outside of the building where five manufacturing operations were trying to meet production deadlines on apparel products for the U.S. and European Union (EU) markets. Reportedly, management assured them that the building was safe, and told workers that they would not be paid if they did not work. An hour later, the building collapsed. It has been labeled the deadliest disaster in the history of the garment industry. The Rana Plaza collapse took place five months after a December 17, 2012, fire at another Bangladesh apparel factory, Tazreen Fashions Limited; the Tazreen fire killed 112 workers. Survivors reportedly stated that their managers locked one exit route and told workers that the fire alarms were false, thereby delaying timely evacuation. The combined tragedies brought the six-month total loss of life in Bangladesh in the garment sector to at least 1,200. After the building collapse, reportedly, thousands of workers took to the streets and vandalized vehicles and shops before being dispersed by police. Soon after that, the government shut down a number of apparel factories, for safety reasons, as concerns about industrial safety across the country continued to grow. Bangladesh's major export is apparel, which, along with a small amount of textiles, accounts for more than 80% of the country's $24 billion in exports to the world in 2012, or nearly $20 billion. (See the Text Box , "Bangladesh in Brief.") As a result of the Rana Plaza building collapse, some firms, such as Disney, have indicated they may no longer source production from Bangladesh, largely due to concerns over their brand reputation. If this becomes a major trend, one consequence could be that many women, who constitute 80% of the workers in the apparel sector, could lose their jobs. These women, mostly Muslim, have found new independence and an increased standard of living for their families, and have, in many cases, become primary breadwinners. The effect on the economic structure of Bangladesh could be compounded by an ongoing struggle between a secular Bangladeshi identity and a more fundamental/religious Islamic identity. A number of factors may have led to the recent building collapse. Bangladesh's economy is labor-intensive, which attracts lower-wage and lower-skilled industries such as apparel. Bangladesh is a densely populated country, where a population half the size of the United States is crowded into a geographic area the size of Iowa. To meet increasing global demand for apparel production, primarily by the United States and Europe, certain buildings may have been converted to multi-story manufacturing operations. In many countries, apparel production is generally carried out in one- or two-story buildings because of the inherent fire hazards associated with this production. Three additional floors that reportedly were illegally constructed were added to the Rana Plaza. According to press reports, working conditions in Bangladesh were theoretically addressed, at least in part, by Bangladesh labor laws and building codes, International Labor Organization (ILO) commitments, codes of conduct held by multinational corporations, and GSP trade preferences. Since 1972, Bangladesh has been a member of the International Labor Organization (ILO). The ILO originated in 1919 as a tripartite organization comprised of workers, employers, and governments, to promote "decent work" around the world. Under the 1998 ILO Declaration on Fundamental Principles and Rights at Work , Bangladesh and all ILO members have an obligation to uphold ILO core labor principles, simply by reason of their status as ILO members, even if they have not ratified the conventions behind the principles. Bangladesh has, however, ratified seven of the eight ILO conventions backing and defining the five core labor principles. These principles are very similar to the U.S. list of internationally recognized worker rights. These rights are the following: 1. freedom of association and the effective recognition of the right to collective bargaining; 2. the elimination of all forms of forced or compulsory labor; 3. the effective abolition of child labor, including the worst forms of child labor; and 4. the elimination of discrimination in respect of employment and occupation. Whether countries do or do not uphold ILO core labor principles, the ILO has no real enforcement powers other than technical assistance, reporting requirements, publication of information, and moral suasion. An example of ILO activities to enhance worker rights is the Better Work Program, a technical support program which recently went into effect in Bangladesh. It is a joint program with the World Bank that works with government officials, factory owners, and labor groups to ensure safe and decent workplace conditions, and is discussed further below. Figure 2 , below, shows that most of the concepts of the ILO core labor principles plus the ILO occupational safety and health principle, are included in many U.S. trade and investment laws and programs, including the Generalized System of Preferences program, mentioned below, and some private sector codes of conduct. Thus, Figure 2 shows graphically the extent to which similar sets of rights extend through all three parts of the international worker rights support system. One area of congressional focus in supporting internationally recognized worker rights has been through provisions in U.S. trade preference programs. These were first introduced in the Generalized System of Preferences (GSP) program in 1985. GSP provides unilateral U.S. tariff preferences for certain products exported by developing countries, to support their economic development. Under GSP, and later introduced in other trade preference programs, the President or his designee is prohibited from designating certain countries as eligible for GSP benefits, based on different criteria, including that a country "has not taken or is not taking steps to afford internationally recognized worker rights." These worker rights are defined as 1. the right of association; 2. the right to organize and bargain collectively; 3. a prohibition on the use of any form of forced or compulsory labor; 4. a minimum wage for the employment of children; and protection against the worst forms of child labor; and 5. acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health. On the basis of these criteria, effective September 3, 2013, the Obama Administration suspended GSP status for Bangladesh, with no timeline for its possible reinstatement. However, that decision was followed by the USTR release of a "Bangladesh Action Plan 2013," outlining a basis for the eventual reinstatement of GSP status for Bangladesh. (For further discussion of the GSP suspension, and Action Plan, see the following section on "U.S. and International Responses to the Bangladesh Tragedy," under "Executive Branch.") Since the 1980s and 1990s, when globalization accelerated and various interest groups began to publicize "bad actors" on worker rights conditions in factories, corporations have increasingly adopted and publicized corporate codes of conduct. Most, if not all, large multinational corporations sourcing apparel from Bangladesh have posted such codes on their websites. These codes may describe the standards to which the business holds its employees, its suppliers under contract, and sometimes its subcontractors. These codes specify worker rights protections and structural and fire hazard standards to varying degrees. A concern raised by some groups is that corporations may contract directly with suppliers, yet have limited knowledge of the conditions under which the products are produced by subcontractors. Corporate codes of conduct are voluntary on the part of corporations. The Rana Plaza collapse has focused greater attention on the worker conditions and laws in Bangladesh, and may impact Bangladesh's continued role as a major supplier of apparel, due to corporate buyer concerns over branding and reputation. Key issues may include whether firms will continue to source apparel from Bangladesh, or whether firms will engage more proactively to improve conditions there, as well as the extent to which corporate codes of conduct have been helpful. A number of interested parties, including parties in Europe and the United States, among them President Obama, and a number of Members of Congress, are calling for U.S. and European companies and other stakeholders to work together to solve the problems. (See section below.) Response to the Bangladesh tragedy has come from Congress, the Administration, the Bangladesh government, the ILO, and the private sector, and continues to evolve. This section briefly describes recent, somewhat overlapping, developments. Congressional interest in the Rana Plaza factory collapse stems from its legislative and oversight responsibilities over trade, and key business and labor constituencies. These concerns intersect with private sector interests, including the viability of their international supply chains, and brand reputation. Soon after the Rana Plaza collapse, some Members of Congress encouraged businesses and other stakeholders to work together to improve conditions for workers in Bangladesh. On May 1, 2013, for example, Representatives Sander Levin, ranking Member of the House Ways and Means Trade Subcommittee, and George Miller, ranking Member of the House Education and the Workforce Committee, sent a letter to President Obama, urging the Administration to convene representatives of European and American retailers, the Bangladesh garment industry (including their workers and unions), the Bangladeshi government, the ILO, and nongovernmental organizations, to facilitate development of a "concrete action plan" to address the range of issues relating to working conditions and worker rights in the garment sector. In addition, a group of 8 U.S. Senators, led by Senators Harry Reid and Sherrod Brown, and a group of 10 Representatives, led by House Minority Leader Nancy Pelosi and House Minority Whip Steny Hoyer, wrote letters to major retailers encouraging them to join efforts to improve fire and building safety in Bangladesh apparel factories. Two major stakeholder efforts have resulted: the "Accord on Fire and building Safety in Bangladesh," signed predominantly by European, plus a few U.S. retailers and brands; and the "Alliance for Bangladesh Worker Safety," signed predominantly by large North American retailers and brands. (See further discussion below under " Private Sector ".) U.S. government interests in the Bangladesh tragedy relate to its oversight of trade and investment, its administration of trade agreements and trade preference programs, and a number of efforts to strengthen the capacity of Bangladesh to promote worker protections. For example, the United States has had a bilateral investment treaty with Bangladesh in place since 1989. After the Rana Plaza tragedy, it signed an additional "Trade and Investment Cooperation Forum Agreement" (TICFA), pledging closer cooperation to prevent more tragedies in the ready-made garment sector. State Department, USTR, and Labor Department Response. After the Rana Plaza collapse, on May 8, 2013, the State Department, Department of Labor, and USTR convened a conference call with U.S. corporate "buyers" (retailers and brands sourcing in Bangladesh's garment industry). In that call, they "strongly urged" these major corporations to coordinate efforts with each other, and with the government of Bangladesh, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), civil society, and labor groups to (a) help pay for independent safety and fire inspectors; (b) communicate to the Bangladeshi government their concerns about labor conditions; and (c) urge immediate passage of labor law amendments to lay the basis for the establishment of an ILO/World Bank Better Work Program for Bangladesh. On June 13, 2013, the Department of Labor's Bureau of International Labor Affairs (ILAB) announced that a competitive grant of $2.5 million would be awarded to recipient(s) who would work to (1) strengthen the Bangladesh government's ability to improve and enforce fire and building safety standards; and (2) build the capacity of worker organizations to effectively monitor violations of such standards and abate hazards in the ready-made garment sector. GSP S uspension for Bangladesh. The decision to suspend GSP status for Bangladesh, effective September 3, 2013, with no timeline for restoring, it was made after the GSP Trade Policy Staff Committee held hearings in March of 2013, in response to an AFL-CIO petition first submitted in 2007 and updated in 2012, after the Tazreen fire. Implications from the GSP suspension are yet to be determined. The GSP program excludes from eligibility most apparel and textile articles (and other import sensitive products), which constitute 92% of Bangladesh's exports to the United States. Therefore, the decision has little effect on U.S. tariffs on apparel imports, which reportedly average about 16%. On the other hand, some businesses might decide to pull out of Bangladesh for fear that their reputation could be damaged by association with a country that has lost its GSP status for reasons relating to internationally recognized worker rights. If that were to happen, some argue, it could significantly reduce Bangladesh's apparel-making labor force and adversely impact its economy. The USTR's "Bangladesh Action Plan 2013," released to the public on July 19, 2013, outlined a basis for possible eventual reinstatement of GSP status for Bangladesh. Its directives encompass Bangladesh's own "National Tripartite Plan of Action (NTPA) on Fire Safety and Structural Integrity," for the garment sector of Bangladesh (discussed further below under the "Bangladesh Government.") The USTR Action Plan for Bangladesh, among other things, set forth guidelines for government inspections, labor law reforms, the protection of unions from anti-union discrimination and reprisal, and the extension of freedom of association and collective bargaining rights to export processing zones. The Bangladesh government response after the tragedy was to work with the ILO on identifying changes needed to better protect workers. The NTPA, (mentioned in the above paragraph), is the most recent result. It is a consolidation of two earlier tripartite plans. It focuses on legislation and policy, administration, and practical activities to improve safety in apparel factories. On July 15, 2013, the Bangladesh Parliament approved some changes to its labor laws. These changes were designed to: (1) make it easier for workers to form labor unions; (2) increase severance and retirement payments for workers with longer tenures; and (3) equalize, for all workers, annual payments under a welfare fund. In addition, the government reportedly plans to add 200 factory inspectors within six months, and to complete a comprehensive safety assessment (extending to fire and structural safety) of all export-oriented garment factories. The government has also been negotiating a new minimum wage for garment workers, who have been protesting against low wages in light of recent inflation. The protesters have sought an increase in the minimum wage from the U.S. equivalent of $38 to $104 per month. Effective December 1, 2013, the Bangladeshi government raised the minimum wage for the country's garment workers by 77% to $68 per month. After initial review of the Bangladesh labor law amendments, the ILO stated that the new law "did address some of the ILO's specific concerns, while falling short of several important steps called for by the ILO supervisory system to bring the law into conformity with ratified international labor standards." For example, the ILO noted that major areas remaining to be addressed include (1) a 30% minimum membership requirement to form a union; and (2) the fact that many collective bargaining rights are not extended to workers in export processing zones, which reflect heavy foreign investment. Additionally, the ILO is participating in: (1) a three-year program on "Improving Working Conditions in the Ready-Made Garment Sector" to support implementation of the NTPA; and (2) the 2013 European Union (EU)-Bangladesh-ILO "Sustainability Compact for Continuous Improvements in Labor Rights and Factory Safety in the Ready-Made Garment and Knitwear Industry in Bangladesh." In addition, on October 22, 2013, the ILO and the World Bank's International Finance Corporation (IFC) announced the establishment of a "Better Work Program" in the ready-made garment sector in Bangladesh. The Better Work Program is a partnership with government, employers, workers, international buyers, and other relevant stakeholders to improve working conditions in the industry and support its long-term competitiveness. Private sector responses to the Bangladesh tragedy have varied. According to press reports, retailers and some apparel firms have acknowledged their links to unsafe Bangladesh factories, while others have hedged. Another private sector response has been for businesses to debate whether to leave Bangladesh and relocate to countries with fewer high-visibility labor issues, or stay and help solve them in Bangladesh. Some companies, including Disney, as previously mentioned, are considering not sourcing from Bangladesh for a number of reasons, including concerns about their business reputation. A broader response from many corporations, particularly in Europe, has been to join forces to support change in Bangladesh. After the building collapse, officials from two dozen retailers and apparel companies met with representatives from the German government to try to negotiate a plan to ensure safety at roughly 4,500 garment factories in Bangladesh. On May 13, 2013, several of the world's largest apparel companies agreed to a legally binding "Accord on Fire and Building Safety in Bangladesh" to help pay for fire safety and building improvements there. It requires a five-year commitment from participating retailers to conduct independent safety inspections of factories, and pay up to $500,000 per year toward safety improvements. More than 100 mostly European corporations have signed onto the accord, including Swedish retail giant H&M (the largest producer of apparel in Bangladesh); Inditex, headquartered in Spain; C&A, a Dutch retailer; and Primark and Tesco (British retailers). U.S. signatories include PVH, the parent company of Calvin Klein, Tommy Hilfiger, and Izod, which has signed on to the five-year plan, contributing $2.5 million; and Abercrombie and Fitch. Other U.S. companies that resisted signing, objecting primarily to the agreement's legally binding nature, have formed a separate group, the "Alliance for Bangladesh Worker Safety." The alliance was organized under the Bipartisan Policy Center (BPC), by former Senate Majority Leader George Mitchell and former Senator Olympia Snowe. Corporate members of the Alliance have pledged over $100 million in capital to support remediation of factories. In addition, $42 million raised for the Worker Safety Fund reflects a tiered fee structure for members based on exports of apparel products from Bangladesh. The group was founded by 17 North American apparel retailers and brands, including Gap, J.C. Penney, Jones, Kohl's, L.L. Bean, Macy's Nordstrom, Sears, Target, VF Corporation, and Wal-Mart. (See Appendix Table A-1 for a comparison of the two plans.) Congressional options relating to the Rana Plaza collapse may cover a range of issues, including allowing the situation to resolve itself. Broadly speaking, Congress may wish to conduct oversight and examine a comprehensive effort by the international community to support change in Bangladesh. Key questions for Congress include the following: Is the ILO/World Bank Better Work program an effective approach, and has it been implemented successfully in other countries? How soon should GSP eligibility for Bangladesh be reconsidered? Should tariff benefits for apparel be extended to Bangladesh to support it in improving the safety conditions of its workers? Are there other steps the U.S. government should take? How much progress have the Accord and the Alliance achieved so far in promoting safety workplaces in Bangladesh? Will the ILO be monitoring the implementation of changes to Bangladeshi labor law? What are its current efforts in Bangladesh? What are possible unintended consequences for Bangladeshi apparel workers if action leads to a decline in the apparel industry? Leading up to passage of the 2014 National Defense Authorization Act, the House bill contained a provision (Sec. 634) that would have required the defense commissary system and the exchange store system to: (a) comply with requirements of the Bangladesh Accord; and (b) in its purchases, give preferences to signatories of the Accord. In addition, the Department of Defense would have been required to notify Congress of garments sold in defense commissaries or exchanges that did not comply with these requirements (i.e., were manufactured by nonsignatories). The final agreement did not include these provisions. The House sponsors of the amendment noted in a joint statement that garments and documents with U.S. Marine insignia were found in the rubble in the November 2012 Bangladesh Tazreen Fire. Data indicated that the Army-Air Force Exchange, a military retailer, imported 124,000 pounds of garments from several factories in Bangladesh. The sponsors argued that "as a huge purchaser of garments, the U.S. military should not be complicit" in putting the lives of Bangladesh workers at risk. This appendix compares key provisions of the Bangladesh Accord and the Bangladesh Alliance. Both plans build on Bangladesh's "National Tripartite Action Plan on Fire Safety (NAP) for the Ready-Made Garment Sector in Bangladesh," released in July, 2013. This plan, jointly agreed to by the government of Bangladesh, employer organizations, and worker organizations, with help from the International Labor Organization (ILO), is a consolidation of two earlier tripartite plans. It focuses on legislation and policy, administration, and practical activities to improve safety in apparel factories. The Accord and the Alliance plans are similar in some regards. Both plans require health and safety committees in all Bangladesh factories that supply companies that are signatories. Both plans require inspections and remediation of hazards, and training of management and workers, in accordance with Bangladeshi law. They differ, however, in their approach to worker protections. Under the Accord, signatories are obligated to require suppliers to extend certain rights to workers, including the right to refuse work they justifiably believe to be unsafe, and the right to a continued employment relationship and income, while the factory is undergoing required safety improvements. Under the Alliance, workers are not given these rights directly. Rather, they are "empowered" to report safety hazards; and 10% of a fund contributed to by the signatories is reserved to support workers temporarily displaced because of factory remediation. Because the programs are still in their early stages of implementation, no reports have yet been issued estimating the effects of either plan. Stakeholders for the Alliance typically emphasize the similarities between the plans and emphasize their rapid development of protocols. Many stakeholders for the Accord argue that the Accord is a legally binding agreement between companies and trade unions, and includes a central role for workers and worker representatives, including direct trade union participation in factory training. They argue that the Alliance is not legally binding and has no role for trade unions, workers, and worker representatives. | The April 24, 2013, collapse of an eight-story garment factory, called Rana Plaza, in Dhaka, Bangladesh, resulted in the deaths of more than 1,100 workers. It is reportedly now considered the deadliest accident in the history of the apparel industry. Congress has had a long-standing interest in supporting internationally recognized worker rights in developing countries, and the building collapse has raised concerns about worker conditions in Bangladesh. Rana Plaza was allegedly structurally unsound and poorly maintained for apparel production. Apparel production is generally known as an industry under threat of fire, and one where workers need easy access to rapid escape routes. Issues relating to workers' inability to effectively exercise their rights to organize, bargain collectively, and work in a safe workplace may have contributed to the tragedy. For example, workers reportedly noticed cracks in the building and resisted entering, and were told that if they did not report to their jobs, they would not be paid. The factory collapse brought international focus to those parts of global supply chains that may not meet basic safety and health standards. The U.S. government supports internationally recognized worker rights through various policies and programs. These include U.S. trade preference programs, free trade agreements, foreign assistance, and Department of Labor initiatives. Congressional and U.S. efforts in this regard are part of an international worker rights support structure in place to offer technical assistance and support to countries—especially developing countries. Other major parts of this structure include international organizations, such as the International Labor Organization (ILO), founded in 1919; and corporate codes of conduct, which have arisen from a broader movement of corporate social responsibility that gained strength in the 1980s and 1990s. Early analysis of the causes of the Bangladesh tragedy raises questions about what went wrong and about what can be done to help Bangladesh to improve working conditions at factories. Efforts to make changes in Bangladesh are already underway, and developments on this issue are evolving. This report provides an overview of the recent tragedy in Bangladesh and the Bangladesh economic environment and culture. It also notes the responses to the tragedy, to date, from Congress, the Administration, the ILO, the Bangladesh government, and the private sector. Finally, it raises some possible issues for Congress. |
The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established a prescription drug benefit for Medicare beneficiaries under Part D, which began on January 1, 2006. The MMA establishes that Medicare beneficiaries will receive the prescription drug benefit through private organizations, typically insurers or similar risk-bearing organizations, that sponsor prescription drug plans (PDPs) or Medicare Advantage managed care plans that offer the prescription drug benefit (MA-PDs). One provision of MMA, the "noninterference" clause, expressly forbids the Secretary of Health and Human Services (HHS) from interfering with drug price negotiation between manufacturers and Medicare drug plan sponsors, and from instituting a formulary or price structure for prescription drugs. The Medicare drug plans (or their agents) negotiate prices with the drug manufacturers. The framework created by the law emphasizes competition among the Medicare drug plans to obtain price discounts. The Medicare drug plans have incentive to provide the drug benefit to beneficiaries as efficiently as possible while simultaneously attracting enrollees through low premiums and cost-sharing requirements. The Democratic party included "Affordable Health Care" as one of the "Six for '06" initiatives. As part of this effort, the House passed H.R. 4 on January 12, 2007, a bill that requires the Secretary of HHS to negotiate prescription drug prices for Medicare beneficiaries. As of this writing, the Senate Finance Committee has not reported a prescription drug negotiation bill in the 110 th Congress. This report discusses what it means for the federal government to "negotiate" drug prices under existing public programs, the arguments for and against such activities, and some implications for the pharmaceutical industry, Medicare beneficiaries, and others if similar federal involvement were to occur on behalf of the Medicare Part D program. There are a number of approaches that the federal government could adopt to affect prescription drug prices and expenditures. A few rely primarily on the power of government to dictate an outcome, such as imposing statutory mandates and setting administered prices. Others emphasize more market-oriented approaches, such as soliciting competitive bids from voluntary participants. A reference pricing approach combines elements of both by dictating some aspects of the price but also allowing market forces to work. Some of these methods are currently employed by federal government programs (see below), while others have been adopted by governments in other countries. Many of the methods are used together. Through statutory mandates, the government could set the reimbursement level or the price that the government would pay for each drug, or require that pharmaceutical manufacturers provide a predetermined discount to government purchasers. The federal ceiling price and federal upper limits under the Medicaid program are examples statutorily mandated discounts. (See discussion below.) The government can set the maximum reimbursement rate for drugs by establishing a price ceiling; drug prices could be less than the ceiling, but not more. The federal ceiling price also falls in this category. Under a reference pricing system, drug reimbursement rates are not directly fixed by the government but are tied through a predetermined manner to another measure that may be dynamic. The reference might be an average price for a group or class of drugs, the average price for a payer or group of payers, or the cost of an alternative treatment. Medicaid's federal upper limit prices and the federal supply schedule both use reference pricing. (See discussion below.) The government can also solicit and receive bids through a competitive acquisition program, where interested parties (pharmaceutical manufacturers) submit confidential bids that include the prices the company is willing to provide for its product(s). The government would then select the winning bid(s) and award contracts. Competitive bidding programs, also known as reverse auctions, are already used as the basis for calculating the national average bid amount for the Part D program and for the setting of payment amounts for durable medical equipment (DME) covered under the Medicare program. In describing the DME competitive acquisition program, the Centers for Medicare and Medicaid Services (CMS) states that "competitive bidding provides a way to harness marketplace dynamics to create incentives for suppliers to provide quality items and services in an efficient manner and at reasonable cost." The MMA also included a provision to establish a competitive bidding demonstration for Medicare managed care beginning in 2010. The typical formulation of a bargaining or negotiation process involves a mutual discussion and arrangement of the terms of a transaction or agreement. In contrast to a competitive acquisition process where most of the power rests with the buyer, bargaining and negotiation can be more dynamic for each party. The outcome of the process will depend in part on the relative strength of each party's position; monopolists (as the sole provider) or monopsonists (as the only buyer) will have more bargaining power when facing providers or buyers who are but one of many. A range of activities that might affect prescription drug prices are currently not available to the Secretary because of the noninterference provision. These include activities that would fall under the scope of explicit and implicit authorities provided in the Medicare statute, but that might face legal challenges if currently attempted by the Secretary, on the basis that they could be construed as "interfer[ing] with the negotiations between drug manufacturers and pharmacies and PDP sponsors," "requir[ing] a particular formulary," or "instituting a price structure." A critical criterion for an efficient market is that buyers and sellers be informed decision-makers. When buyers and sellers have widely disparate levels of information about the market and the transactions, the asymmetry could result in market inefficiency or breakdowns. Through the encouragement, sponsorship, and dissemination of research on the safety and comparative effectiveness of drugs, the Secretary may be able to provide more information about the market that could be used by consumers, health plans, and drug manufacturers in their decisions. However, increased transparency may have the unintended consequence of providing negotiators with the opportunity to collude if too much information is revealed about the results of existing price negotiations. Without the noninterference clause, the Secretary may be able to exert influence over the drug price negotiation process through mass communications or through targeted persuasion. Whether the activity involves the spotlight of the "bully pulpit," "jawboning," or highlighted public scrutiny, the effectiveness of these efforts would depend on the persuasive power of the Secretary or public pressure in addition to the merits of the arguments, combined with the ability or inclination of the organization(s) targeted to resist such pressure or to accede to the influence. The federal government has a track record of active involvement in the determination of drug prices through the experience of the Department of Veterans Affairs in obtaining discounts for VA beneficiaries and through the Medicaid program in obtaining rebates from pharmaceutical manufacturers for states. The VA obtains prescription drugs at discount through several mechanisms, including negotiated contracts and statutory discounts. The Veterans Health Care Act of 1992 ( P.L. 102-585 ) requires the Secretary of Veterans Affairs to enter into Master Agreements, under which manufacturers must offer their covered drugs to the Federal Supply Schedule and also report non-Federal Average Manufacturing Prices (AMP) to the Secretary that are used to establish annual federal ceiling prices. In support of this function, the VA also undertakes many other activities typically associated with pharmacy benefit managers (PBMs) in the private sector, including formulary management. The price the VA pays for a drug is the lowest price as determined through one of four methods, less an additional five percent prime vendor discount. The four approaches available to the VA are: (1) the federal ceiling price, (2) the federal supply schedule, (3) the blanket purchasing agreements/performance-based incentive agreements, or (4) the national standardization contracts. Since pharmaceutical manufacturers have an interest in having their products sold to federal purchasers, almost all FDA approved drugs are included in the list of "covered drugs." Therefore, for these drugs, the VA receives at least a 24% discount off the non-federal average manufacturer price. The FCPs amount to maximum pricing canopies that apply to purchases by the Department of Defense (DOD), the Public Health Service (including the Indian Health Service), and the Coast Guard, in addition to Veterans Affairs. FSS prices are the lowest prices that manufacturers charge their most-favored nonfederal customers under comparable terms and conditions. These prices are sometimes below the Federal Ceiling Price but not always. The FSS is maintained by the VA's National Acquisition Center (NAC) and is available to all federal purchasers. Effective January 1, 2007, all FSS drug prices include a 0.25 percent fee to finance VA's National Acquisition Center. Pharmaceutical manufacturers have a strong incentive to have their products included on the FSS because drug manufacturers can participate in the Medicaid program and receive Medicaid reimbursement for their drugs only if the manufacturers sign a Master Agreement and Pharmaceutical Pricing Agreement with the VA. This requires the manufacturers to offer all their covered drugs to the FSS at prices no higher than FCPs. In practice, almost all FDA-approved drugs are included on the FSS. FSS contracts also include a blanket purchasing agreement that allows the VA to negotiate additional discounts. These contracts can be initiated by either the VA or by pharmaceutical manufacturers and produce an additional 5 to 15% off FSS. Typically, the BPAs include performance thresholds that result in discounts if the VA meets and maintains the threshold of use specified in the BPA for the manufacturer's product(s). These contracts typically produce the greatest discounts (from 10 to 60% off FSS) and are negotiated for individual drugs in closed classes on the VA national formulary. The VA is able to obtain favorable prices for these drugs through competitively bid contracts. Most of VA's contracts are for generic drugs. According to the GAO, generic drugs are easier to contract for because these products are already known to be chemically and therapeutically alike, while there is more difficulty in gaining clinical agreement on the therapeutic equivalence of competing brand name drugs. However, VA has successfully negotiated contracts for non-generic drugs in several drug classes using clinical evidence to outline the requirements of the contract. The VA also obtains an additional discount through its contracts with drug distributors. These organizations, also called wholesalers or prime vendors, purchase the drugs from the manufacturers and deliver them to VA facilities. As of June 2004, the VA contract with the prime vendor provides for an additional 5% discount from the lowest of the four prices described above. There are many practical and legislative steps necessary before federal drug price negotiation for Medicare beneficiaries could take place. Initially, the noninterference clause would need to be repealed. However, repealing the noninterference clause may not, in itself, be sufficient to lead to federally negotiated prices. The current HHS Secretary is reported to have stated that he does not want the power to negotiate and does not believe that he would be able to "do better than an efficient market." In response, some reports suggest that legislative proposals would also include a mandate for the Secretary to actively negotiate drug prices. One option for any forthcoming legislation might be to omit detail or specifics. An aide to the incoming Speaker is reported to have stated that Congress does not need "to hammer out all the details. There are a lot of smart people in the Administration, including the Secretary, who can look at how we're buying drugs ... and figure out the best way of negotiating better prices with drug companies." Should the authority for the Secretary of HHS follow that given to the Secretary of the VA in negotiating drug prices, there is still uncertainty as to whether the activities of HHS will replicate the activities of the VA or whether they would produce similar results. There are substantial differences between Medicare and VA that draw into question whether one experience could be indicative of the other. The VA is a direct provider of care, and has its own health care facilities. As a result, the VA has a national formulary as well as its own warehouses. The VA, through its health care system, is the purchaser of prescription drugs. In contrast, the Medicare program is an insurer that pays for care that is delivered to covered beneficiaries in a myriad of sites. Under the new Part D, which relies on prescription drug plans (PDPs) or Medicare Advantage managed care plans offering a prescription drug benefit (MA-PDs) to provide the drug benefit, Medicare is one step further removed in its relationship with the beneficiary. Cost-sharing is quite different for Medicare beneficiaries compared with VA beneficiaries, with incentives that might lead to corresponding differences in behavior. The VA charges veterans in certain income and eligibility categories an $8 copay for each 30-day-or-less supply of outpatient medication. Also, the VA does not have annual deductible requirements for beneficiaries. As a result, there is no financial incentive for the beneficiary to prefer one drug over another. The Institute of Medicine (IOM) found no adverse health care effects among VA beneficiaries as a result of encouraging providers to use the drugs on the formulary. In contrast, Medicare Part D plans have created more tiers in their Medicare offerings than they have for their non-Medicare business, and instituted varied types of drug utilization management, including step therapy, prior authorization, and quantity limits. These financial incentives are aimed toward influencing the choice of drugs by covered Medicare beneficiaries as well as cost-containment. The VA devotes significant efforts toward the development of its formulary. About 2% of the drug classes on VA's national formulary are designated closed or preferred. For closed classes, VA providers must prescribe and pharmacies must dispense the selected drug, although case-by-case exceptions are allowed. In preferred classes, VA providers and pharmacies are encouraged to prescribe and dispense the preferred drug, but may substitute other drugs in the same class on the formulary without obtaining an exception. These efforts have been successful for the VA, but the implications for Medicare are unclear. Whether CMS would undertake a similar effort and manage the formulary as strictly is uncertain. Finally, the VA relies substantially on dispensing prescription drugs by mail. About three-quarters of the total prescriptions are processed and distributed through the system of seven Consolidated Mail Outpatient Pharmacies (CMOP). Medicare may not be able to achieve a similarly high degree of consolidation through its many private plans. While coverage of outpatient prescription drugs is optional for state Medicaid programs, all states covered outpatient prescription drugs for at least some Medicaid beneficiaries and well over half of the states covered outpatient drugs for all Medicaid beneficiaries in 2006. States have the flexibility to set payment rates for all Medicaid-covered drug products as long as each state's payments for Medicaid prescription drugs do not exceed the lower of (1) its estimated acquisition cost (for the drug itself) plus a dispensing fee (for the professional services in filling and dispensing the prescription), or (2) the provider's usual and customary charge to the public for the drug. In addition, the federal share of payments for those drugs available from multiple sources is subject to a federal upper reimbursement limit (FUL). As a result, the "prices" of prescription drugs as paid by Medicaid programs are determined in a manner different from the price of drugs in most other settings. For most multiple-source drugs (where more than one FDA-approved product is available), the FULs are applied in the aggregate based on a predetermined percentage of a defined reference price. The methodology and basis of the reimbursements changed beginning January 1, 2007, but the underlying concept remains the same. Until January 1, 2007, federal reimbursements for multiple-source drugs were subject to a FUL calculation tied to the average wholesale price (AWP). The FUL is a measure developed by CMS for use by state Medicaid programs in reimbursing drugs that have at least three generic equivalents. The FUL was no more than 150% of the AWP for the least costly therapeutic equivalent. For drugs not subject to a FUL, including most single-source drugs (where there is only one FDA-approved product available for that active ingredient, dosage form, route of administratino, and strength) and drugs for which there are fewer than three equivalents, most states base their calculations for drug reimbursement on the estimated acquisition cost (EAC), typically the AWP less a percentage discount. Beginning January 1, 2007, as a result of the Deficit Reduction Act of 2005 ( P.L. 109-171 ), the AWP will no longer be used as the basis for calculating the FUL. While the AWP is meant to reflect the average price at which wholesalers sell a product to retail pharmacies, the AWP is not defined in law or regulation, and as a result, the OIG found that the AWPs used by states to calculate Medicaid drug reimbursement rates were often higher than the prices retail pharmacies pay to purchase the drugs. Instead, the FUL now will be calculated to equal 250% of the "average manufacturer price" (AMP), the average price at which manufacturers sell a drug product to wholesalers. This data is reported to CMS by manufacturers. In principle, the Medicaid program obtains prescription drugs at the "best price" available from drug manufacturers. As a condition for reimbursement under Medicaid, the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990, P.L. 101-508 ) requires drug manufacturers to enter into agreements with the Secretary of HHS to provide rebates to the states that reflect the lowest price that manufacturers offer to other purchasers for their drugs. The best price calculation is based on discounts provided to any purchaser, excluding the Department of Veterans Affairs (and on behalf of the Department of Defense, the Indian Health Service, and the Public Health Service), state pharmaceutical assistance programs, any depot prices and single award contract prices, as defined by the Secretary, of any agency of the federal government, and Medicare Part D plans. Data on prescription drug prices are reported to the Secretary, and rebates are calculated to ensure that Medicaid pays the lowest price. In return for entering into agreements with the Secretary, state Medicaid programs are required to cover the drugs marketed by those manufacturers. In 2003, there were reported to have been more than 550 manufacturers participating in the Medicaid drug rebate program. In 2004, federal rebates amounted to 22% of total Medicaid spending on prescription drugs before rebates. The cost-saving mechanisms and experiences of the Medicaid program differ significantly from those of the VA, but also hold lessons for the Medicare program. First, the Medicaid program obtains significant discounts through the FUL and rebate programs that are de facto mandatory. Cost savings are obtained through statutory authority with little or no bargaining involved, and minimum percentage discounts are specified in statute. The Medicare Part D program is not currently structured for the federal government to impose similar discounts or to establish administered prices for drugs, nor for price negotiations regarding prescription drugs. The Medicare program does collect information about rebates from Part D plans, but has not used the data for purposes of obtaining lower drug prices from the plans. Second, in contrast to the explicit prohibition in the non-interference provision against federally established formularies for Medicare beneficiaries, states are allowed to establish "open" formularies for beneficiaries not enrolled in Medicaid managed care plans. All drugs offered by manufacturers with a drug rebate agreement must be covered, and all drugs must be available through a review process unless they are on the list of excluded categories. In addition, states are permitted to subject to prior authorization any covered outpatient drug. Using this authority, some states have instituted prior authorization programs using preferred drug lists, requiring that non-preferred drugs be subject to prior authorization. Litigation over states' use of preferred drug lists has occurred; however, courts have rejected arguments that Medicaid preferred drug lists are in essence formularies that do not meet the requirements of the Medicaid statute. In upholding the use of preferred drug lists for prior authorization programs, courts have noted that such lists do not place any drugs in a non-covered category, the essence of a "formulary," and that the Medicaid statute specifically provides that "[a] prior authorization program established by a State under paragraph (5) is not a formulary." If the non-interference provision and formulary and price setting restrictions are repealed, the Secretary must still decide whether or not to adopt a formulary and decide how restrictive it might be. At the national level, these decisions would be much more difficult and problematic. If the formulary prohibition is not repealed and other forms of negotiating leverage are not provided, then the bargaining power of the Secretary would reflect the leverage available to the Secretary through authority granted elsewhere in statute—for instance, his ability to encourage, conduct, and disseminate research on drug prices and their comparative effectiveness, the ability to review and approve plan bids, and the strength of the Secretary's influence through persuasion, as well as other credible threats. If the Secretary were to engage in activities that affect drug prices on behalf of Medicare Part D beneficiaries, the implications could be wide-ranging and potentially quite significant. The direct effects on beneficiaries, drug companies, wholesalers, pharmacy benefit managers are potentially great, but the long-term and secondary effects on the overall population and the industry may also be significant and are important to consider. The main argument advanced by advocates for granting the federal government the power to negotiate is that lower prices for prescription drugs might be obtained from pharmaceutical manufacturers and passed on to Medicare beneficiaries. By using the market power of roughly 43.7 million Medicare beneficiaries, proponents argue that the pharmaceutical companies would provide deep discounts to the federal government in order to prevent the loss of a significant portion of their market. A Government Accountability Office (GAO) study based on data from the mid-1990s found that average VA-negotiated prices are less than 50% of the non-federal average manufacturer's price. In 2000, GAO reported that the prices paid by the Department of Defense (DOD) and VA for 21 brand-name drugs with no generic equivalents were 27% and 30% lower on average than those certified to the Health Care Financing Administration (HCFA, now the Centers for Medicare and Medicaid Services) as "best price." However, there is uncertainty about the potential effectiveness of the federal government in obtaining drug price discounts that are greater than those currently negotiated by private Medicare Part D plans. The first year of experience with the Medicare prescription drug benefit has produced lower-than-expected program expenditures, which supporters of the program attribute to the lower drug prices that drug plans have been able to negotiate in response to strong competition. Critics counter that the lower expenditures are a result of lower-than-expected enrollment and a preference among enrolled beneficiaries for plans with lower premiums and less generous drug coverage. The argument that the size of the Medicare market would provide federal negotiators with an advantage over private plans in obtaining discounts from pharmaceutical manufacturers has been questioned. Large PBMs, such as Advance PCS (75 million covered individuals), Medco Health Solutions (65 million) and Express Scripts (57 million) have significant market power and an established track record in negotiating prescription drug discounts for large populations. The size of the market itself is not as important as the ability to influence and direct the consumption patterns of that market. Much of the PBMs' ability to achieve price concessions from manufacturers reflects their ability to influence drug consumption behavior and to potentially move market share through financial incentives involving varying cost-sharing tiers, formularies that offer the possibility that certain products will be excluded and drug management strategies including step therapy. For these reasons and others, critics claim that PBMs with large numbers of Medicare Part D enrollees would be able to negotiate discounts and produce savings at least as great as anything that the federal government could negotiate. The Congressional Budget Office (CBO), at the request of congressional leaders, examined the effect of striking the "noninterference" provision and estimated that it would have a negligible effect on federal spending. Similarly, the Chief Actuary at CMS concluded that giving the Secretary the ability to directly negotiate prescription drug prices might not produce additional savings over what private plans negotiate. Both CBO and the CMS Chief Actuary determined that the price concessions extracted by the federal government might not exceed those that private plans might achieve. The magnitude of any discounts resulting from federal negotiation on behalf of Medicare beneficiaries would depend critically on a number of variables and would likely vary depending on the drug. As the VA's experience illustrates, larger discounts are more likely to be achieved for drugs in classes in which there are many alternatives. This is where the VA's greatest discounts are achieved. For single-source drugs, the government may still be able to obtain substantial discounts, but it may depend on what specific bargaining power is available to the Secretary. As noted above, all pharmaceutical companies have an incentive to have their products listed on the FSS because participation is tied to eligibility for Medicaid reimbursement. Proponents of a market-based, decentralized approach believe that by having a variety of organizations negotiating different prices, more choices will be available to Medicare beneficiaries and, therefore, better patient outcomes. Instead of being limited to the discounted drugs Medicare negotiates, they say, discounts for the plentitude of organizations offering prescription drug plans will result in a broader range of drugs being discounted. In this view, beneficiaries will then be able to choose the plan that best meets their individual prescription drug needs and acquire them at competitive market prices. One study claims that the number of drugs available under the VA formulary is more restrictive than those available from private Medicare Part D plans. The report also claims that the drugs on the VA formulary are older than drugs on formularies used by private plans. However, these assertions and their underlying logic have been challenged by the VA and others. The VA's formulary is not necessarily more restrictive than those of private insurers and the claim that VA formulary drugs may be older is not necessarily an indication that VA beneficiaries are receiving lower-quality health care. The data also show that there is a sizeable discrepancy in the number of drugs on the formularies of private plans and that the VA offerings are in line with those of many private Part D plans. For FY2006, the VA reports that 1,294 drug entries are listed on the VA national formulary (VANF), encompassing different dosage strengths. In contrast, a survey of national PDPs in 2006 showed that the number of drugs offered ranged from 626 (WellCare) to 2,773 (Aetna MedicareRx Premier). Similarly, older drugs are not necessarily inferior drugs. A recent study based on a randomized controlled trial showed that older, less expensive anti-psychotic drugs were just as effective and safe in treating schizophrenia as newer drugs that were much more expensive. The VA claims that the decisions that go into managing the formulary are based on a careful review of the scientific evidence, and that the choice of drugs is not solely determined by the lowest price. The VA cites its comparative experience with Vioxx as an example of the effectiveness of its process; the VA never included the drug on its national formulary because of concerns about the scientific evidence regarding the drug's safety. The effect of decreased revenues on the short-and long-term development of new drugs is an issue of ongoing debate. Pharmaceutical manufacturers have stated that research and development will suffer if retail prices are diminished and returns from investment are squeezed. While this is undoubtedly true in the extreme, the evidence that quantifies the degree to which reductions in retail prices would lead to fewer new products being introduced is controversial and reflects a wide range of potential responses. Some research claims that the consequence of decreased revenue and profits resulting from low negotiated prices will be reduced investment in research and development, declining innovation, and fewer new drugs brought to market. Other studies indicate that there has not been a strong relationship between the amount of research and development funds expended by the pharmaceutical industry and the introduction of new drug applications to the FDA. One report claims that government-mandated negotiations would reduce the development of new, life-saving drugs by about a dozen annually, and estimates that "federal price negotiations would yield a loss of 5 million life-years annually, an adverse effect that can be valued conservatively at about $500 billion per year." Other research suggests that the relationship between pharmaceutical research and development costs and new drugs is not so sensitive. GAO found that over the last decade, the increase in research and development expenditures as reported by the pharmaceutical industry has not been matched by the growth in the number of new drug applications (NDAs). GAO examined all NDAs submitted to the FDA between 1993 and 2004 and found that "despite increasing expenditures on research and development, new drug development, and in particular, development of new molecular entities (NMEs)—potentially innovative drugs containing ingredients that have never been marketed in the United States—has become stagnant." Another potential consequence of the federal government negotiating drug prices is that prices might become more consistent and less variable across beneficiaries. Medicare Part D beneficiaries who belong to different PDP/MA-PD plans face different prices, depending on what the individual organizations negotiate and pass on to beneficiaries in savings. In response to the panoply of Medicare drug plans available, some observers, including patient advocacy groups, have suggested that that the plethora of choices is not universally viewed by beneficiaries as a positive outcome. A growing body of research suggests that individuals faced with many choices may find that having more alternatives can be counterproductive. One study found that plans that offered more 401(k) options had lower participation rates compared to plans that offered only a handful of choices; "every ten funds added, other things equal, is associated with a 1.5% to 2% drop in [the] participation rate." Another study found that while grocery store consumers were initially more attracted to a booth displaying 24 jam choices, a higher percentage of consumers who saw only six choices subsequently purchased the jam by a factor of 10. Related work also showed that ex post satisfaction was higher among those who had fewer than those who had more choices. As a consequence, some legislators have suggested placing limits on the number of Medicare Part D plans to alleviate the difficulties some beneficiaries have had in choosing from among such a broad set of plans. The effect of lower drug prices on overall health care costs and population health is varied. If lower prices lead to a higher rate of filled prescriptions among beneficiaries who previously under-used needed medications, then the increase in prescription drug use may lead to improved outcomes. There is also the potential savings if the increased drug treatments are substitutes for more expensive and less effective care—for instance, if hypertension can be managed with medicines that obviate the need for surgical interventions. Alternatively, higher out-of-pocket prices for prescription drugs have been found to reduce the use of drugs by patients consistently. Recent research suggests that this effect may also persist over time, with implications for higher overall health care costs. One study found that beneficiaries facing higher out-of-pocket costs for prescription drugs not only use fewer drugs contemporaneously, but the reduction persists and is stronger in the second year. Overall, the expenditure savings on prescription drugs are largely offset by increases in spending for outpatient services, which tend to increase in response. Federal negotiations on drug prices through the VA and the Medicaid programs have had noticeable effects on the industry. The Medicare program, with a similarly large number of beneficiaries who consume more drugs per capita, might have even more dramatic effects. The function of wholesalers is often overlooked in discussions about the pharmaceutical industry, but they play an important role in the experience of the VA. Although the VA solicits bids that have allowed for multiple wholesalers, in recent years the VA has awarded the contract to a single company. Recent estimates place the value of the contract at $3 billion a year for the selected contractor. To illustrate the importance of the VA contract and how significant industry observers consider it to be, the share values of the drug distributor AmerisourceBergen Corporation fell 11.6% and the company lowered its 2004 earnings estimate by almost 10% after losing the contract to the McKesson Corporation. The Medicare market for prescription drugs is significantly larger than the VA market, and if structured similarly, the federal contracts with the Medicare program stand to carry similar or greater impacts for the industry. Because of the complex relationships in drug prices across different types of buyers, the effect of changing one price, such as negotiating a discount for Medicare beneficiaries, may have indirect consequences on other prices. While drug prices paid by Medicare beneficiaries may fall in the short run, overall drug prices may increase in the long run for other consumers, specifically for the under-65 population. Under this argument, pharmaceutical companies might increase the prices they charge to other buyers in response to the lower prices negotiated by the federal government for Medicare beneficiaries. Similarly, as the "best price" increases, the prices for other buyers who calculate reimbursements that are referenced to the "best prices" would also rise, potentially affecting both VA prices and Medicaid prices. Finally, those who oppose government involvement in prescription drug price negotiations claim that the government would be setting prices, not negotiating. They cite the experience in other parts of the Medicare program, where provider reimbursement under Parts A and B are set by the Medicare program, and claim that the federal government would impose a similarly rigid pricing schedule on the prescription drug market. Whether this comes to pass depends on the specifics of how the legislation and subsequent regulations are written, and which approach is chosen to implement any given authority to affect drug prices on behalf or Medicare beneficiaries. On January 12, 2007, the House passed H.R. 4 , the Medicare Prescription Drug Price Negotiation Act of 2007. This bill would amend the Social Security Act by (1) striking section 1860D—11(i) (relating to noninterference), (2) add language that would require the Secretary of HHS to negotiate prescription drug prices, and (3) maintain the prohibition against the establishment of a formulary by the Secretary while (4) allowing prescription drug plans to obtain discounts or price reductions below those negotiated by the Secretary. The bill would also require the Secretary to submit a report "on negotiations conducted by the Secretary to achieve lower prices for Medicare beneficiaries, and the prices and price discounts achieved by the Secretary as a result of such negotiations" to the committees on Ways and Means, Energy and Commerce, and Oversight and Government Reform of the House of Representatives and the Committee on Finance of the Senate beginning no later than June 1, 2007, and every six months thereafter. The bill would take effect on the date of enactment and would first apply to negotiations and prices for plan years beginning on January 1, 2008. CBO has scored the bill as having "a negligible effect on federal spending." CBO anticipates that "the Secretary would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law." Specifically, the absence of the authority to establish a formulary would limit the Secretary's ability to influence the outcome of negotiations, as bargaining leverage would be limited. CMS actuaries have also concluded that H.R. 4 would not produce lower drug prices or any additional savings. On April 11, 2007, the Senate Finance Committee passed an amended version of S. 3 that repeals the noninterference provision but does not mandate that the Secretary negotiate for lower prescription drug prices. The bill also includes additional provisions to increase transparency in the Part D program by making some data available to congressional support agencies and to prioritize comparative effectiveness research on drugs. The bill as passed by the Finance Committee would allow data collected by the Secretary on PDPs and MA-PDs to be used by congressional support agencies (the Congressional Budget Office, or CBO; the Congressional Research Service, or CRS; the Government Accountability Office, or GAO; and the Medicare Payment Advisory Commission, or MedPAC) to fulfill their duties. Upon request, the Secretary would make available to any of the congressional support agencies aggregate data on negotiated prices including discounts, subsidies, and rebates; drug claims data; reinsurance payments paid to plans; and the adjustments of payments to plans as a result of the risk corridors established under MMA. In addition, CBO would be able to obtain non-aggregated information about negotiated rebates, discounts, and other price concessions by drug and by contract or plan. The congressional support agencies would be prohibited from disclosing the information in any manner that would result in the disclosure of trade secrets, and where the disclosure, report, or release of the information would permit the identification of a specific prescription drug plan, MA-PD plan, pharmacy benefit manager, drug manufacturer, drug wholesaler, drug, or individual enrolled in a prescription drug plan or an MA-PD plan. S. 3 would also require the CBO to study the effect of market competition on prices for drugs under Part D. The study would (1) examine the number and extent of discounts and other price concessions received by prescription drug plans and MA-PD plans for covered Part D drugs, (2) examine the relationship between discounts and price concessions and drug utilization, (3) compare the Medicare Part D discounts and price concessions with those obtained under the Medicaid program, and (4) examine the extent to which the efforts of the Secretary of Health and Human Services would have an effect upon payers in non-Medicare markets. A report on this study would be due a year after enactment. The bill would also require the Secretary to make public the data on the prices charged for each covered part D drug under each prescription drug plan and MA-PD plan to individuals enrolled in the plan. The data would reflect actual prices posted on the website of the Centers for Medicare and Medicaid Services, and would be made available in a manner that permits linkage of the data to data contained in other public prescription drug plan and MA-PD plan data files. S. 3 would also instruct the Secretary of HHS to develop a new prioritized list of comparative clinical effectiveness studies on prescription drugs covered under Part D. The list is to reflect studies most critical to advancing value-based purchasing of covered Part D drugs. The bill would also establish an advisory committee to provide advice on setting priorities for comparative clinical effectiveness studies. The committee would include a diverse range of public and private experts, stakeholders, and interests from industry, patients and representatives of patients, researchers, and government with no group having a majority of members. Within one year of the enactment of the act, the Secretary would be required to submit a report to Congress that would include (1) the prioritized list of comparative clinical effectiveness studies and plans for the conduct of the studies; (2) a summary of the four factors the Secretary would be required to take into account in constructing the list; and (3) an explanation of how the Secretary took into account each of the four factors in developing the list and preparing the report. The Secretary would be required to make the report publicly available. Finally, S. 3 would also instruct pharmacy and therapeutic (P&T) committees to consider comparative clinical effectiveness studies in developing and reviewing formularies for Medicare prescription drug plans, if relevant. Currently, guidelines for Medicare Part D formularies require the inclusion of two drugs in each therapeutic class, except if only one drug is available, coverage of "all or substantially all" drugs in six protected classes. Plans can neither change their formularies without CMS approval nor drop coverage for persons currently using the drug, except at the beginning of the calendar year. CBO's evaluation of S. 3 is very similar to its assessment of H.R. 4 . In a letter dated April 10, 2007, CBO wrote that modifying the noninterference provision would have a negligible effect on federal spending because we anticipate that under the bill the Secretary would lack the leverage to negotiate prices across the broad range of covered Part D drugs that are more favorable than those obtained by PDPs under current law. Without the authority to establish a formulary or other tools to reduce drug prices, we believe that the Secretary would not obtain significant discounts from drug manufacturers across a broad range of drugs. CBO's letter also noted that the provisions of the bill that would permit Congressional support agencies access to Part D data and establish a prioritized list of potential studies of the comparative clinical effectiveness of drugs covered under Part D "would have no effect on direct spending." On April 18, 2007, the Senate did not invoke cloture on S. 3 . This report will be updated. | The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established a prescription drug benefit for Medicare beneficiaries under Part D, which began on January 1, 2006. One provision of MMA, the "noninterference" clause, expressly forbids the Secretary of Health and Human Services (HHS) from interfering with drug price negotiation between manufacturers and Medicare drug plan sponsors, and from instituting a formulary or price structure for prescription drugs. The framework created by the law emphasizes competition among the Medicare drug plans to obtain price discounts. Approaches that the federal government could adopt to affect prescription drug prices range from dictating an outcome, such as imposing statutory mandates or establishing price ceilings, to more market-oriented approaches such as soliciting competitive bids from voluntary participants. A reference pricing approach combines elements of both. Some of these methods are currently employed by the Department of Veterans Affairs (VA) and the Medicaid program. The price the VA pays for a drug is the lowest price as determined through one of four methods, less an additional 5% prime vendor discount: (1) the federal ceiling price, (2) federal supply schedule, (3) performance-based incentive agreement, or (4) national standardization contract. Drug reimbursement costs under Medicaid are calculated differently for single-source (only one Food and Drug Administration-approved product) and multiple-source drugs (more than one FDA-approved product). However, for both types of drugs, state reimbursements are determined in aggregate based on either the federal upper limit price (FUL)—a predetermined percentage of a defined reference price—or the estimated acquisition cost. Drug manufacturers also enter into agreements with the Secretary of HHS and provide rebates to the states that reflect the lowest price that manufacturers offer to other purchasers of their drugs. There are many practical and legislative steps necessary before federal drug price negotiation for Medicare beneficiaries could take place. Repealing the noninterference clause is a necessary first step, but may not be sufficient to lead to federally negotiated prices. If the Secretary were to engage in activities that affect drug prices on behalf of Medicare Part D beneficiaries, there might be consequences that affect the price of drugs for Medicare beneficiaries as well as other public and private patients, the number and types of drugs that would be available to Part D beneficiaries, the amount of research and development and innovation by pharmaceutical companies, and other sectors of the industry. Both H.R. 4 and S. 3 would strike the noninterference provision in MMA while maintaining the prohibition against price setting and the establishment of a formulary, but H.R. 4 would also require the Secretary of HHS to negotiate prescription drug prices. Because the absence of a formulary would limit the Secretary's bargaining leverage, CBO has scored each bill as having "a negligible effect on federal spending." On January 12, 2007, the House passed H.R. 4, the Medicare Prescription Drug Price Negotiation Act of 2007, and on April 18, 2007, the Senate did not invoke cloture on S. 3, the Medicare Fair Prescription Drug Price Act of 2007. This report will be updated. |
Hyperlinking, in-line linking, caching, framing, thumbnails. Terms that describe Internet functionality pose interpretative challenges for the courts as they determine how these activities relate to a copyright holder's traditional right to control reproduction, display, and distribution of protected works. At issue is whether basic operation of the Internet, in some cases, constitutes or facilitates copyright infringement. If so, is the activity is a "fair use" protected by the Copyright Act? These issues frequently implicate search engines, which scan the web to allow users to find posted content. Both the posted content and the end-use thereof may be legitimate or infringing. In 2003, the Ninth Circuit Court of Appeals decided Kelly v. Arriba Soft Corp. , which held that a search engine's online display of protected "thumbnail" images was a fair use of copyright protected work. More recently, courts have considered an Internet search engine's caching, linking, and the display of thumbnails in a context other than that approved in Kelly. In Field v. Google , a U.S. district court found that Google's system of displaying cached images did not infringe the content owner's copyright. And in Perfect 10 v. Amazon.com Inc. , the Ninth Circuit reconsidered issues relating to a search engine's practice using thumbnail images, in-line linking, and framing, finding the uses to be noninfringing. They are discussed below. Kelly v. Arriba Soft Corp. is a significant Internet copyright case arising from the Ninth Circuit Court of Appeals. There, the court addressed the interface between the public's fair use rights and two of a copyright holder's exclusive rightsâthose of reproduction and public display. In Kelly , the defendant Arriba operated a "visual search engine" that allowed users to search for and retrieve images from the Internet. To provide this functionality, Arriba developed a computer program that would "crawl" the Internet searching for images to index. It would then download full-sized copies of those images onto Arriba's server and generate lower resolution thumbnails. Once the thumbnails were created, the program deleted the full-sized originals from the server. Arriba altered its display format several times. In response to a search query, the search engine produced a "Results" page, which listed of a number of reduced, "thumbnail" images. When a user would double-click these images, a full-sized version of the image would appear. From January 1999 to June 1999, the full-sized images were produced by "in-line linking," a process that retrieved the full-sized image from the original website and displayed it on the Arriba Web page. From July 1999 until sometime after August 2000, the results page contained thumbnails accompanied by a "Source" link and a "Details" link. The "Details" link produced a separate screen containing the thumbnail image and a link to the originating site. Clicking the "Source" link would produce two new windows on top of the Arriba page. The window in the forefront contained the full-sized image, imported directly from the originating website. Underneath that was another window displaying the originating Web page. This technique is known as framing, where an image from a second website is viewed within a frame that is pulled into the primary site's Web page. Currently, when a user clicks on the thumbnail, the user is sent to the originating site via an "out line" link (a link that directs the user from the linking-site to the linked-to site). Arriba's crawler copied 35 of Kelly's copyrighted photographs into the Arriba database. Kelly sued Arriba for copyright infringement, complaining of Arriba's thumbnails, as well as its in-line and framing links. The district court ruled that Arriba's use of both the thumbnails and the full-sized images was a fair use. Kelly appealed to the Ninth Circuit Court of Appeals. On appeal, the Ninth Circuit affirmed the district court's finding that the reproduction of images to create the thumbnails and their display by Arriba's search engine was a fair use. But it reversed the lower court holding that Arriba's in-line display of the larger image was a fair use as well. Thumbnails . An owner of a copyright has the exclusive right to reproduce copies of the work. To establish a claim of copyright infringement by reproduction, the plaintiff must show ownership of the copyright and copying by the defendant. There was "no dispute that Kelly owned the copyright to the images and that Arriba copied those images. Therefore," the court ruled, "Kelly established a prima facie case of copyright infringement." However, a claim of copyright infringement is subject to certain statutory exceptions, including the fair use exception. This exception "permits courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that statute is designed to foster." To determine whether Arriba's use of Kelly's images was a fair use, the court weighed four statutorily-prescribed factors: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Applying the first factor, the court noted that the "more transformative the new work, the less important the other factors, including commercialism, become" and held that the thumbnails were transformative because they were "much smaller, lower-resolution images that served an entirely different function than Kelly's original images." Furthermore, it would be unlikely "that anyone would use Arriba's thumbnails for illustrative or aesthetic purposes because enlarging them sacrifices their clarity," the court found. Thus, the first fair use factor weighed in favor of Arriba. The court held that the second factor, the nature of the copyrighted work, weighed slightly in favor of Kelly because the photographs were creative in nature. The third factor, the amount and substantiality of the portion used, was deemed not to weigh in either party's favor, even though Arriba copied the entire image. Finally, the court held that the fourth factor, the effect of the use on the potential market for or value of the copyrighted work, weighed in favor of Arriba. The fourth factor required the court to consider "not only the extent of market harm caused by the particular actions of the alleged infringer, but also whether unrestricted and widespread conduct of the sort engaged in by the defendant ... would result in a substantially adverse impact on the potential market for the original." The court found that Arriba's creation and use of the thumbnails would not harm the market for or value of Kelly's images. Accordingly, on balance, the court found that the display of the thumbnails was a fair use. In Field v. Google , a U.S. district court considered a claim for copyright infringement against the Internet search engine, Google. Field sought statutory damages and injunctive relief against Google for permitting Internet users to access copies of images temporarily stored on its online repository, or cache. In the course of granting summary judgment for Google, the court explained the caching process: There are billions of Web pages accessible on the Internet. It would be impossible for Google to locate and index or catalog them manually. Accordingly, Google, like other search engines, uses an automated program (called the "Googlebot") to continuously crawl across the Internet, to locate and analyze available Web pages, and to catalog those Web pages into Google's searchable Web index. As part of this process, Google makes and analyzes a copy of each Web page that it finds, and stores the HTML code from those pages in a temporary repository called a cache. Once Google indexes and stores a Web page in the cache, it can include that page, as appropriate, in the search results it displays to users in response to their queries. When Google displays Web pages in its search results, the first item appearing in each result is the title of a Web page which, if clicked by the user, will take the user to the online location of that page. The title is followed by a short "snippet" from the Web page in smaller font. Following the snippet, Google typically provides the full URL for the page. Then, in the same smaller font, Google often displays another link labeled "Cached." When clicked, the "Cached" link directs an Internet user to the archival copy of a Web page stored in Google's system cache, rather than to the original Web site for that page. By clicking on the "Cached" link for a page, a user can view the "snapshot" of that page, as it appeared the last time the site was visited and analyzed by the Googlebot. The court emphasized that there are numerous, industry-wide mechanisms, such as "meta-tags," for website owners to use communicate with Internet search engines. Owners can instruct crawlers, or robots, not to analyze or display a site in its web index. Owners posting on the Internet can use a Google-specific "no-archive" meta-tag to instruct the search engine not to provide cached links to a website. In view of these well-established means for communicating with Internet search engines, the court concluded that the plaintiff "decided to manufacture a claim for copyright infringement against Google in the hopes of making money from Google's standard practice." Despite its acknowledgment of the plaintiff's rather dubious motives, the court nevertheless discussed the merits of the copyright infringement claims. Specifically, the plaintiff did not claim that Google committed infringement when the Googlebot made initial copies of Field's copyrighted Web pages and stored them in its cache. Rather, the alleged infringing activity occurred when a Google user clicked on a cached link to the Web page and downloaded a copy of those pages from Google's computers. Assuming, for the purposes of summary judgment, that Google's display of cached links to Field's work did constitute direct copyright infringement, the court considered four defenses raised by Google, and found in its favor on all counts. Implied License. First, the court found that the plaintiff had granted Google an implied, nonexclusive license to display the work because "[c]onsent to use the copyrighted work need not be manifested verbally and may be inferred based on silence where the copyright holder knows of the use and encourages it." Field's failure to use meta-tags to instruct the search engine not to cache could reasonably be interpreted as a grant of a license for that use. Estoppel. The court invoked the facts supporting its finding of an implied license to support the equitable argument that Field was precluded from asserting a copyright claim. The court reiterated that Field could have prevented the caching, did not do so, and allowed Google to detrimentally rely on the absence of meta-tags. Had Google known the defendant's objection to displaying cached versions of its website, it would not have done so. Fair Use. In a detailed analysis, the court concluded that Google's cache satisfies the statutory criteria for a fair use: Purpose and character of use. The search engine's use of the protected material is transformative. Rather than serving an artistic function, its display of the images served an archival function, allowing users to access content when the original page is inaccessible. Nature of the copyrighted works . Even assuming the copyrighted images are creative, Field published his works on the Internet, making them available to world for free; he added code to his site to ensure that all search engines would include his website in their search listings. Amount and substantiality of the use. The court found that Google's display of entire Web pages in its cached links serves multiple transformative and socially valuable purposes. It cited the U.S. Supreme Court's decision in Sony Corp. v. Universal Studios, Inc. and Kelly , supra , as examples where copying of an entire work is a fair use. The effect of the use upon the potential market for or value of the copyrighted work. Although the plaintiff distributed his images on the Internet for free, he argued that Google's activity undercut licensing fees that he could potentially develop by selling access to cached links to his website. The court found that there was no evidence of an existing or developing market for licensing search engines the right to allow access to Web pages through cached links. Good Faith . In addition to the statutory criteria of 17 U.S.C. § 107, the court considered equitable factors and found the Google operates in good faith because it honors industry-wide protocols to refrain from caching where so instructed. Conversely, the plaintiff deliberately ignored the protocols available to him in order to establish a claim for copyright infringement. The Digital Millennium Copyright Act (DMCA). Finally, the court held that Google is protected by the safe harbor provision of the DMCA, which states that "[a] service provider shall not be liable for monetary relief ... for infringement of copyright by reason of the intermediate and temporary storage of material on a system or network controlled or operated by or for the service provider[.]" Procedural Background. More recently, in Perfect 10 v. Amazon.com , the Ninth Circuit revisited and expanded upon several of the issues that it had considered earlier in Kelly . Perfect 10, a company that markets and sells copyrighted images of nude models, filed actions to enjoin Google and Amazon.com from infringing its copyrighted photographs. Specifically, it sought to prevent Google's display of thumbnail images on its Image Search function, and to prevent both Google and Amazon from linking to third-party websites that provided full-sized, infringing versions of the images. The district court found that in-line linking and framing were permissible, non-infringing uses of protected content. Therefore, it did not enjoin Google from linking to third-party websites that display full-sized infringing versions of the images, holding that Perfect 10 was not likely to prevail on its claim that Google violated its display or distribution rights by linking to these images. But the district court did enter a preliminary injunction against Google for its creation and public display of the thumbnail versions of Perfect 10's images. In a separate action, the court declined to preliminarily enjoin Amazon.com from giving users access to similar information provided to Amazon.com by Google. The court of appeals affirmed the district court's holding with respect to the permissibility of in-line linking and framing. But it reversed the holding with respect to the use of thumbnail images, finding the use to be fair despite the potential of the thumbnails to encroach upon a potential commercial market for their use. It left open the questions of possible liability for contributory copyright infringement and/or immunity therefor under the DMCA, remanding the case to the district court for appropriate findings. These decisions are examined below. In Perfect 10 v. Google , a U.S. district court considered the issue of thumbnails in a different context from that of Kelly . Perfect 10 (P10) publishes an adult magazine and operates a subscription website that features copyrighted photographs of nude models. Its proprietary website is not available to public search. Other websites, however, display, without permission, images and content from P10. Google, in response to image search inquiries, displayed thumbnail copies of P10's photos and linked to the third-party websites, which hosted and served the full-sized, infringing images. P10 filed suit against Google, claiming, among other things, direct, contributory, and vicarious copyright infringement. As framed by the district court, the issues before it pitted IP rights against "the dazzling capacity of internet technology to assemble, organize, store, access, and display intellectual property 'content'[.] ...[The] issue, in a nutshell, is: does a search engine infringe copyrighted images when it displays them on an 'image search' function in the form of 'thumbnails' but not infringe when, through in-line linking, it displays copyrighted images served by another website?" For the reasons discussed below, the district court found that Google's in-line linking to and framing of infringing full-size images posted on third-party websites was not infringing, but that its display of thumbnail images was likely to be considered infringing. Linking and Framing. With respect to in-line linking and framing of full-size images from third-party websites, the court considered, not whether the activity was infringing, but a more preliminary question. Is linking or framing a "display" for copyright purposes? If it does not come within the ambit of the copyright holder's exclusive rights, it is not necessary to reach the question of copyright infringement. Linking is a basic function of the Internet. The term "hyperlinking" is used to describe text or images, that when clicked by a user, transport him to a different webpage. "In-line linking" is somewhat different. It refers to the process whereby a webpage incorporates by reference content stored on and served by another website. The parties before the court offered two theories for considering whether in-line linking is a display: the "server" test advocated by Google and the "incorporation" test advocated by P10. The server test defines a display as the "act of serving content over the webâ i.e., physically sending ones and zeroes over the internet to the user's browser." The "incorporation" test would adopt a visual perspective wherein a display occurs from the act of incorporating content into a webpage that is pulled up by the browser. P10 argued that the webpage that incorporates the content through in-line linking causes the "appearance" of copyrighted content and is therefore "displaying" it for copyright purposes, regardless of where it is stored. Reviewing precedent, the court acknowledged that there is substantial authority to the effect that traditional hyperlinking does not support claims of direct copyright infringement because there is no copying or display involved. But there is little discussion of in-line linking. The court adopted the "server" test and held that a site that in-line links to another does not itself "display" the content for copyright purposes. Among the reasons given for its determination is that the server test is more technologically appropriate and better reflects the reality of how content travels over the Internet. Further it viewed the server test as liability "neutral." Application of the test doesn't invite infringing activities by search engines, nor does it preclude all liability. It would, more narrowly, "preclude search engines from being held directly liable for in-line linking and/or framing infringing content stored on third-party websites." The direct infringers were the websites that "stole" P10's full-size images and posted them on the Internet. Finally, the court reasoned, that [T]he server test maintains, however uneasily, the delicate balance for which copyright law strivesâ i.e. , between encouraging the creation of creative works and encouraging the dissemination of information. Merely to index the web so that users can more readily find the information they seek should not constitute direct infringement, but to host and serve infringing content may directly violate the rights of copyright holders." Thumbnail Images. Applying the server test to the thumbnail images, it was clear that Google did display them. Google acknowledged that it copied and stored them on its own servers. The issue then became, like that in Kelly , whether Google's use of P10's images as thumbnails was a fair use. Analyzing statutory fair use criteria, the court concluded that Google's use of the thumbnails was not a fair use: Purpose and character of use . Google's use of the thumbnails was a commercial use; it derived commercial benefit in the form of increased user traffic and advertising revenue. In Kelly , the court of appeals acknowledged that Arriba's use of thumbnails was commercial, yet concluded that search results were more "incidental and less exploitative" than other traditional commercial uses. Here, the commercial nature of Google's use was distinguishable because Google derived specific revenue from an ad sharing program with the third-party websites that hosted the infringing images. P10 had entered into a licensing agreement with others for the sale and distribution of its reduced-size images for download to and use on cell phones. A significant factor supporting a finding of fair use is a court's determination that the use is transformative, discussed supra . Although the court found that Google's use of thumbnails to simplify and expedite access to information was transformative, it found it to be "consumptive" as well, i.e., the use merely supersedes the object of the original instead of adding a further purpose or different character. Google's thumbnails superceded, or usurped, the market for the sale of reduced-size images, because cell phone users could download and save the images directly from Google. Nature of the copyrighted works. Use of published works, including images, are more likely to qualify as a fair use because the first appearance of the creative expression has already occurred. Amount and substantiality of the use . As in Kelly , the court found that Google used no more of the image than necessary to achieve the objective of providing effective image-search capability. The effect of the use upon the potential market for or value of the copyrighted work . While Google's use of thumbnails did not harm the market for copyrighted full-size images, it did cause harm to the potential market for sales of P10's reduced-size images to cell phone users. The court also considered and rejected P10's allegation that Google was guilty of contributory and vicarious copyright infringement liability. Linking and Framing. In tacitly adopting the "server" test and affirming the district court's finding that linking and framing did not violate the copyright holder's rights of display and reproduction, the court of appeals made several observations. It considered P10's contention that when Google frames a full-size image, it gives the "impression" that it is showing the image. The court acknowledged that linking and framing may cause some computer users to believe they are viewing a Google Web page when, in fact, Google, through HTML instructions, has directed the user's browser to the website publisher's computer that stores the image. But the Copyright Act, unlike the Trademark Act, does not protect a copyright holder against acts that may cause consumer confusion. The same logic obtains with respect to the display of cached webpages. Even if the cache copies are no longer available on the third-party's website, it is the website publisher's computer, not Google's, that stores and displays the infringing cached image. Burden of Proof in Establishing the Fair Use Defense . Before reviewing the district court's conclusion regarding Google's fair use defense, the appellate court first dealt with the question of which party bears the burden of proving an affirmative defense, such as fair use, on a motion for a preliminary injunction in a copyright infringement case. The Ninth Circuit Court of Appeals had not previously, conclusively ruled on this issue. The appellate court disagreed with the district court's holding that P10 had the burden of demonstrating its likely success in overcoming the fair use defense raised by Google. The court of appeals ruled that "[a]t trial, the defendant in an infringement action bears the burden of proving fair use." Thus, once Perfect 10 had shown a likelihood of success on the merits, the burden should have shifted to Google to show that its affirmative defense of fair use will succeed. The appellate court explained that the district court was in error for placing the burden, with respect to the fair use defense, on the party seeking a preliminary injunction in a copyright infringement case. Thumbnail Images. The district court was also in error regarding its determination that Google's display of thumbnail images was not a fair use. In reversing the lower court's decision on fair use, the court of appeals reconsidered the weight to be accorded to the statutory factors. It differed with the district court's analysis regarding character of use and market impact. Purpose and character of use . The court laid major emphasis, and weight, on the transformative nature of a search engine's display as an electronic reference tool: Although an image may have been created originally to serve an entertainment, aesthetic, or informative function, a search engine transforms the image into a pointer directing a user to a source of information. ... [A] search engine provides social benefit by incorporating an original work into a new work, namely, an electronic reference tool.... In other words, a search engine puts images "in a different context" so that they are "transformed into a new creation." The court considered the judicial rule that "parody" is a fair use, and concluded that "[i]ndeed, a search engine may be more transformative than a parody because a search engine provides an entirely new use for the original work, while a parody typically has the same entertainment purpose as the original work." The fact that Google profited from its AdSense advertising program and that P10's market for the sale of thumbnail images could be superceded by the Google display did not outweigh the public interest value of the transformative use, in the court's opinion. It noted the absence of evidence that downloads of thumbnails for mobile phone use actually occurred. Hence, the court's analysis of thumbnails from Kelly was controlling: Accordingly, we disagree with the district court's conclusion that because Google's use of the thumbnails could supersede Perfect 10's cell phone download use and because the use was more commercial than Arriba's, this fair use factor weighed "slightly" in favor of Perfect 10. Instead, we conclude that the transformative nature of Google's use is more significant than any incidental superseding use or the minor commercial aspects of Google's search engine and website. Therefore, the district court erred in determining this factor weighed in favor of Perfect 10. Effect of use on the market. Similarly, with respect to P10's market for the sale of its full-sized images, the court rejected the argument that market harm may be presumed if the intended use of an image is for commercial gain. Market harm to a copyright holder will not be "readily inferred" when an arguably infringing use is otherwise transformative. And, since the "potential harm" to the market for the sale of thumbnails was hypothetical, the court concluded that the significant transformative use outweighed the unproven use of Google's thumbnails for cell phone downloads. It vacated the district court's preliminary injunction regarding Google's use of thumbnails. Likewise, the copying function related to caching of full-sized images performed automatically is a transformative, and, ultimately, a fair use, so long as the cache copies no more than necessary to assist the Internet user and the copying has no more than a minimal effect on the owner's right, while having a considerable public benefit. Secondary Liability. The court of appeals opinion devotes considerable attention to the question of Google's possible liability for secondary copyright infringement, that is, contributory and/or vicarious infringement. It was uncontested that third-party websites were posting infringing copies of P10's images. The court rejected the assertion that Google's automatic caching of copies of full-sized images from third-party sites was direct infringement. But it reversed the district court's determination that P10 was not likely to succeed with a claim for secondary liability against Google, and remanded the case for reconsideration in light of its opinion. As defined by the Supreme Court, "[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it." As applied by the Ninth Circuit, "a computer system operator can be held contributorily liable if it 'has actual knowledge that specific infringing material is available using its system,' and can 'take simple measures to prevent further damage' to copyrighted works, yet continues to provide access to infringing works." The court of appeals first considered whether Google intentionally encouraged infringement. The district court held that Google did not materially contribute to infringing conduct because it did not undertake any substantial promotional or advertising efforts to encourage visits to infringing websites, nor provide significant revenues to the infringing websites. But the court of appeals disagreed, reasoning: There is no dispute that Google substantially assists websites to distribute their infringing copies to a worldwide market and assists a worldwide audience of users to access infringing materials. We cannot discount the effect of such a service on copyright owners, even though Google's assistance is available to all websites, not just infringing ones. Applying our test, Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10's copyrighted works, and failed to take such steps. With respect to vicarious infringement, a plaintiff must establish that the defendant "exercises the requisite control over the direct infringer and that the defendant derives a direct financial benefit from the direct infringement." The court found that P10 did not demonstrate that Google has the legal right to stop or limit direct infringement by third-party websites. Because the district court determined that P10 was unlikely to succeed on its contributory and vicarious liability claims, it did not reach Google's arguments that it qualified for immunity from liability under the DMCA, 17 U.S.C. § 512. The district court was directed to consider whether Google was entitled to the limitations on liability provided by title II of the DMCA on remand. It is no coincidence that search engines are frequently-named defendants in online copyright infringement litigation. Their role in Internet connectivity is vital. The infringement liability implications of that role are arguably more complex than a preliminary determination whether an individual website is posting infringing content. In the DMCA, Congress amended the Copyright Act to create a safe harbor for the Internet service provider that operates as a "passive conduit" for transmission and exchange of third-party offerings. As the sophistication of Internet mass-offerings grow, from text and images to broader audiovisual formats, the function of the search engines is likely to increase in scope and sophistication as well. A valuable component is the actual search and indexing function which enables Internet users to post and find content. Most prominent search engines are, however, commercial, profit-making entities who benefit from traffic generated by their search capabilities. Providing search capability creates and satisfies an important market, but what impact does it have on emerging ones? As the courts apply traditional copyright principles to the Internet, they must factor in its functionality and architecture. In Kelly , the Ninth Circuit grappled with the concept of displaying thumbnail images as a search tool. It found the use to be highly transformative, socially valuable, and "fair," but reserved judgment on the questions of in-line linking and framing. In Field, the district court considered caching, finding it to be fair as well. Of great significance to the court was the fact that content owners can control the ability of search engines to search and/or cache their websites. In Perfect 10 , the Ninth Circuit considered thumbnail displays in a different context: namely, where a search engine displays thumbnails of infringing images and derives advertising revenue that is more closely linked to the posting. Although plaintiff had persuaded the lower court that the thumbnails, though transformative of the full-size images, could or would undermine a developing market for reduced-size images, the court of appeals reaffirmed the fair use analysis derived from Kelly. And, it took up where Kelly left off, holding that in-line linking and framing were not displays for copyright purposes. But the court left open the possibility that a search engine's actual conduct with respect to infringing content could be proven to be contributory infringement. Taken together, these cases indicate a willingness by the courts to acknowledge the social utility of online indexing, and factor it into fair use analysis; to adapt copyright law to the core functionality and purpose of Internet, even when that means requiring content owners to act affirmatively, such as by the use of meta-tags; and to weigh and balance conflicts between useful functions, such as online indexing and caching, against emerging, viable new markets for content owners. | Hyperlinking, in-line linking, caching, framing, thumbnails. Terms that describe Internet functionality pose interpretative challenges for the courts as they determine how these activities relate to a copyright holder's traditional right to control reproduction, display, and distribution of protected works. At issue is whether basic operation of the Internet, in some cases, constitutes or facilitates copyright infringement. If so, is the activity a "fair use" protected by the Copyright Act? These issues frequently implicate search engines, which scan the web to allow users to find content for uses, both legitimate and illegitimate. In 2003, the Ninth Circuit Court of Appeals decided Kelly v. Arriba Soft Corp. , holding that a search engine's online display of "thumbnail" images was a fair use of copyright protected work. More recently, a U.S. district court considered an Internet search engine's caching, linking, and the display of thumbnails in a context other than that approved in Kelly. In Field v. Google , the district court found that Google's system of displaying cached images did not infringe the content owner's copyright. And in Perfect 10 v. Amazon.com Inc. , the Ninth Circuit revisited and expanded upon its holding in Kelly , finding that a search engine's use of thumbnail images and practice of in-line linking, framing, and caching were not infringing. But it left open the question of possible secondary liability for contributory copyright infringement and possible immunity under the Digital Millennium Copyright Act. Taken together, these cases indicate a willingness by the courts to acknowledge the social utility of online indexing, and factor it into fair use analysis; to adapt copyright law to the core functionality and purpose of Internet, even when that means requiring content owners to affirmatively act, such as by the use of meta-tags; and to consider and balance conflicts between useful functions, such as online indexing and caching, against emerging, viable new markets for content owners. |
Table 1. Estimates of Children in Economic Activity, Child Labor, and Hazardous Work, 2000 (in thousands) Source: ILO, Every Child Counts: New Global Estimates on Child Labor Table 2. Estimated Number of Children in Worst Forms of ChildLabor, 2000 (in thousands) Source: ILO, Every Child Counts: New Global Estimates on Child Labor According to ILO estimates, the largest number of child workers under 14 years old are in theAsia-Pacific region. However, Sub-Saharan Africa is estimated to have the highest proportion ofworking children, with nearly 30% of its children engaged in some form of economic activity. Aboutone in three children below the age of 15 is economically active in the region. (6) The child work ratiosin other major world regions are all projected to be below 20 percent. (7) Furthermore, every fourthchild in sub-Saharan Africa appears to start work before the age of 10. (8) Africa's relatively highpoverty rate, as well as its relatively high proportion of individuals both residing and employed inrural areas, may contribute to the large number of children at work. According to a World Bankreport, child labor participation rates are much higher in rural than in urban areas, and three-quartersof working children work in family enterprises. (9) Thereport further emphasizes that child labor is,and will continue to be, common in a large number of countries until poverty is substantiallyreduced. The ILO estimates that nearly half (48.5%) of all economically active children were engaged in hazardous work, which it defines as "any activity or occupation which, by its nature or type has, orleads to adverse effects on the child's safety, health and moral development". (10) Much agriculturalwork is included in this category because it may involve the use of heavy machinery or exposure topesticides. An ILO report concluded that 55% of children below 12 years of age were working ina hazardous occupation or situation in 2000. Children between 12 years old and 14 years old werethe largest age group working in a hazardous occupation or situation. Sixty-six percent of all childlaborers aged 12 through 14 were reported to be engaged in hazardous work. (11) The ILO chart below delineates the activity of those engaged in child labor, who comprise nearly 70% of all economically active children. An overwhelming majority (69.5%) of these child laborersis engaged in hazardous work. The deceptively small percentage of child laborers (3.4%) engagedin the "worst forms of child labor" represents 8.4 million children. The remaining 27% of the childlaborers were not working in either hazardous conditions or the worst forms of child labor, but theywere still engaged in forms of child labor which, according to the ILO, "must be abolished." (12) Source: ILO, Every Child Counts: New Global Estimates on Child Labor. A significant number of children (8.4 million) were estimated to be involved in the "unconditional worst forms of child labor," which includes prostitution and pornography, trafficking,forced and bonded labor, armed conflict, and other illicit activities. (13) Of the 8.4 million ensnaredin the worst forms of child labor a great majority (5.7 million) were either in forced or bonded labor,with another 1.8 million engaged in prostitution or pornography. The ILO estimates that some 1.2million children were trafficked in 2000, while 600,000 were engaged in illicit activities and 300,000participated in armed conflict. Most child soldiers were found in Africa and the Asia-Pacificregion. (14) The chart below shows the distributionof children engaged in the worst forms of childlabor. Source: Every Child Counts: New Global Estimates on ChildLabor Global efforts to eliminate child labor have been complicated by a range of factors, including poverty, lack of access to education, soaring HIV/AIDS rates, and the ability to conceal the use ofchild labor. Historically, poverty and child labor are inextricably linked. Families in many countriesrely on the income from children to cover basic needs. A World Bank report found that countrieswith per capita income of $500 or less (at 1987 prices) have labor force participation rates of30%-60% for children aged 10-14 years. In contrast, wealthier developing countries, with incomesbetween $500 and $1,000, have lower child labor participation rates at 10%-30% for the same agegroup. (15) As children work to contribute to their families' short-term needs the cycle of poverty continues. Child labor hinders economic development and perpetuates poverty by keeping the children of thepoor out of school, limiting their prospects for upward social mobility, and preventing them fromgaining the education and skills that would enable them as adults to increase their contributions toeconomic growth and prosperity. (16) Some havesuggested that child labor suppresses wages, becauseit increases the total labor supply. A recent article from the Journal of International Affairs arguesthat if child labor is left to proliferate, adult labor could be threatened. "[I]n the same measure asfemales replaced men as factory workers, so child labor, if not restricted, will crowd a proportionatenumber of adults out of employment." (17) Children working in export industries (such as textiles, clothing, carpets and footwear) have been featured on news stories causing international uproar. An NBC Dateline report recently highlightedthe grim side of child labor in a story aired on June 23, 2002. The news story entitled, Slaves toFashion; Child labor and abuse in Indian silk factories , showed children working in dirty,sweltering factories with blaring music (to fight fatigue), no running water, no toilets, and no placeto rest. It reported that these children lived and worked in factories whose internal temperature oftenexceeded 100 degrees, and which remained locked with armed guards barring entrance or exit. Manyof the factories were in back alleys, accessible only to those that worked in them. Hidden camerasshowed children picking silk out of boiling pots with their bare hands, standing at machinespurposely built for them, and cowering as abusive employers liberally hit or threatened them. Research has indicated that children more often work in small subcontracting shops, like these, orhomework situations rather than in large-scale, formal factories. (18) An important part of the story was a segment that showed the difficulty in monitoring and tracking goods produced with child labor. An undercover news reporter held an extensive interviewwith a silk exporter who admitted that her company routinely sends its silk to Italy to receive anItalian label, minimizing the likelihood that her company would be scrutinized for child laborpractices, and guaranteeing a higher price for the goods. (19) This practice reveals the difficulty in abolishing child labor as companies continue to discover ways to circumvent monitoring systems. The Dateline story raised awareness about some aspects of child labor. However, the ILO has found that child workers in export industries are relatively few compared to those employed inactivities geared to domestic consumption. It is estimated that fewer than 5% of child laborers areemployed in the export manufacturing or mining sectors, and only 1-2% are employed inexport-oriented agriculture. (20) This reinforces theargument that child labor needs to be addressed atthe national and local levels. Surveys have revealed that the majority of children who work (70%) are engaged in agriculture, with less than 9% involved in manufacturing, trade and restaurant work. Only 6.5% were found tobe engaged in social and personal services, including domestic work. Some 4% worked in transport,storage and communications, and 3% were found to be involved in construction, mining andquarrying. (21) Not only were most children foundto be engaged in agricultural work, but most childrenwere also found in the informal sector. This means that children will be less likely found in highlyorganized commercial plantations. Nonetheless, children are still a significant portion of thecommercial agricultural workforce, because the large plantations often subcontract to small-scalefamily farms that may use child labor. Studies in Brazil, Kenya and Mexico have shown thatchildren under 15 make up between 25% and 30% of the total labor force in production of variouscommodities. (22) The common practice ofsubcontracting is mirrored in manufacturing and a host ofother industries, underscoring the importance of developing national programs that address poverty,access to basic education, and include child labor initiatives in national labor legislation. Child labor has become even more difficult to eliminate with the rapid spread of HIV/AIDS. HIV/AIDS increases the number of child orphans and street children, inhibits children's ability toregularly attend school, makes children more vulnerable to sexual abuse and prostitution, andultimately elevates the demand for child labor. HIV/AIDS has already increased the number of child orphans. Before HIV/AIDS, about 2% of children in the developing world were orphans; by the end of the 1990s about 10% of children wereorphans in some countries. An estimated 13 million children have lost their mothers or both parentsto HIV/AIDS; and 27 million children are expected to be affected by HIV/AIDS by 2010. If childrenup to 18 years are considered (children up to 15 years old are traditionally considered orphans), 50million children will be affected by HIV/AIDS by 2010. Globally, at least 90% of those orphanedthrough HIV/AIDS live in sub-Saharan Africa. (23) Children orphaned by HIV/AIDS often have less access to education. Research has shown that children orphaned by HIV/AIDS are more likely to be out of school than those orphaned for otherreasons. (24) Once a parent becomes infected withHIV the child is often withdrawn from school eitherto care for the ill parent(s) and siblings, or to find work to substitute for the income of the sick ordeceased parent. Even if they remain in school, children raised in households with a parent livingwith HIV/AIDS usually only attend school sporadically. Once the parent(s) die(s) the child may find refuge in the streets or with an extended family member. The extended family network has traditionally been very strong in many developingcountries. However, HIV/AIDS is undermining it. Older family members, already struggling tomake a living, rarely have enough money to sufficiently care for additional children. These childrenare less likely to receive an education, are more likely to be malnourished, and are more easilyexploited. Extended families are turning away children at rising rates, resulting in a significantincrease in "street children" and working children. Children on the street in need of money, food,shelter and guidance are more likely to be drawn into causal sexual relationships or to be exploitedfor commercial sexual practices. Consequently, these children become more likely to contractHIV/AIDS themselves. The United Nations estimates that up to 48% of street children have beensexually abused in return for food and shelter. (25) As working adults continue to die at rapid rates, the demand for child labor increases. In areas severely affected by HIV/AIDS, employers have begun to seek out children to fill in the labor gaps. In Zimbabwe, the HIV induced loss of adult labor on commercial agricultural estates has increasedthe demand for child labor both in fields and in households. In South Africa, children are expectedto work on the estate if they live with their parents on the compound. (26) A lack of access to education is yet another contributor to the persistence of child labor. Education is critical in both preventing child labor and in removing children from hazardous formsof work. An estimated 113 million children do not have access to primary education around theworld. (27) Some do not have access to educationbecause the school fees, uniforms and other relatedexpenses are out of reach. Others either do not have access to a school or do not find the educationoffered to be relevant to their needs. While child labor may supplement the household income in theshort-term, in the long-term it can plunge the family deeper into poverty as it both increases thelikelihood that the child will receive meager wages for his/her lifetime and suppresses adult wages. There are a number of other international organizations and international non-governmentalorganizations (NGOs) that address child labor, but this report focuses on the international effortsof the International Labor Organization. (28) Since1919 the International Labor Organization (ILO)has adopted some 20 Conventions and Recommendations that seek to set minimum labor standardsfor children. (29) The Conventions are treaties andare binding on countries that have ratified them. TheILO offers countries technical assistance in implementing and ratifying Convention 138: MinimumAge for Employment , and Convention 182: Elimination of the Worst Forms of Child Labor (30) throughthe Declaration on Fundamental Principles and Rights at Work and its Follow-Up. Established in1998, the Declaration commits all ILO members to respect, promote and realize workers' basicrights, even if they have not ratified the corresponding Conventions. (31) Workers' basic rights are: the elimination of discrimination in respect of employment and occupation; the elimination of all forms of forced or compulsorylabor freedom of association; and the abolition of child labor . (32) The Declaration and its Follow-Up incorporate no direct enforcement powers. However, the ILO monitors and reports on international child labor practices. The programs established under theDeclaration rely on two things to eliminate international child labor: annual reports fromparticipating countries and technical assistance programs. All states participating in the Declarationprogram are required to submit an annual report that illustrates their progress towards respecting,promoting and realizing the standards in the corresponding Conventions that they have not ratified. (33) The Declaration and its Follow-Up also commits the ILO to provide technical assistance to memberstates that will assist them in implementing the Fundamental Principles and Rights at Work. The ILO has a number of technical assistance programs that address child labor. The first is theInternational Program to Eliminate Child Labor (IPEC), which became operational in 1992. IPEChas mobilized more resources than any other Declaration technical assistance program.. (34) Eighty-twocountries now participate in the IPEC program, up from the initial six, and the program has attracted27 donor countries, up from the original one (Germany). (35) IPEC accounted for 12.8% of the totalILO extra-budgetary technical cooperation expenditure in 1998-1999. By 2000-01, 27.5% of totalILO extra-budgetary technical cooperation expenditure came from IPEC. (36) This initiative targetschildren engaged in hazardous work and the worst forms of child labor. To enhance sustainabilityand maximize impact, IPEC works with participating governments to remove children fromhazardous work and offers children and their families education, income and employmentalternatives. The program also seeks to prevent other children from becoming child laborers. (37) Thetraining component of IPEC Program helps member states to: determine the nature and extent of the child labor problem; devise national policies and protective legislation; establish mechanisms to provide in-country ownership and operation ofnational programs; create awareness about child labor in communities and workplaces;and enhance workplace monitoring and social protectionprograms. (38) A second technical assistance initiative is the Time Bound Programs (TBP). The TBP seeks to assist member States to implement Convention 182 and eradicate the worst forms of child laborwithin five to ten years. The ILO expects TBPs to have a significant impact on sustainabledevelopment largely because its methodology incorporates all members of society, and because itrequires that states demonstrate commitment to eradicating the worst forms of child labor. Recognizing the link between poverty and child labor, TBPs seek to incorporate strategies for theabolition of the worst forms of child labor into participating countries' national Poverty ReductionStrategy Papers and national labor market policies and processes. (39) A third technical assistance program, the Statistical Information and Monitoring Program on Child Labor (SIMPOC), helps states identify the incidence, scope and causes of child labor. Dataon the scope and magnitude of child labor practices is scarce and is often not collected. Furthermore,the data that is available, including ILO data, has some margin of error. (40) SIMPOC providestechnical and financial support to countries to carry out child labor surveys, sets up national databanks and disseminates information. (41) While child labor has proven extremely difficult to eliminate, the United States has consistentlystrengthened its efforts to combat child labor. It has increased the number of U.S. agencies withmandates to fight the phenomenon, augmented its allocations to anti-child labor efforts, and attachedchild labor criteria to its international agreements and foreign assistance programs. In addition toits increasingly important role in developing programs that counter the spread of child labor, theUnited States has enhanced its role in the global fight against child labor through legislation andinternational agreements. One such international agreement is Convention 182 on the Worst Formsof Child Labor. As of 2002, one hundred twenty-nine countries have ratified Convention 182, dueto rapid Senate action the United States was the third. (42) The United States is also committed to the1990 World Declaration Education for All Initiative. This initiative seeks to ensure that by 2015 allchildren, particularly girls, have access to and are able to complete free and compulsory primaryeducation of good quality. (43) By virtue of its goalof global education for all, this initiative is seenas a tool to fight child labor. A number of U.S. agencies have a mandate to address international child labor. Below is a brief description of some activities that the U.S. Department of Labor, the U.S. Department of Treasury,the U.S. Agency for International Development, and the U.S. Department of State implement toaddress child labor. The U.S. Department of Labor (USDOL) is the lead U.S. agency with the task of implementing projects that counter child labor worldwide. The International Child Labor Program (ICLP) combatsinternational child labor as part of the Bureau of International Affairs (ILAB) of USDOL. ILABseeks to improve working conditions around the globe. The United States is the single largestcontributor to the IPEC Program, (44) contributingover $157 million to the ILO-IPEC between 1995and 2002. The U.S. Department of Labor's International Child Labor Program has grown considerably since its inception in 1993. Initially, the ICLP investigated and reported on international incidencesof child labor. (45) The ICLP continues toinvestigate and report on global incidences of child labor,implements technical assistance initiatives, undertakes awareness raising activities, and maintainsa list of products, which it believes may have been made with forced or indentured child labor. (46) The U.S. Department of Labor (USDOL) International Child Labor Program (ICLP) funds a number of technical assistance programs. The first, the ILO-IPEC Program, receives the largestportion of the technical assistance budget. In FY2002, USDOL contributed $45 million to theILO-IPEC Program. U.S. contributions support ILO-International Program to Eliminate Child Labor(IPEC), -Time Bound Programs (TBPs), and -Statistical Information and Monitoring Program onChild Labor (SIMPOC) activities in over 25 countries. The projects address key issues local to eachcountry, including child labor in Indonesia's footwear industry, trafficking in West and CentralAfrica, and eliminating child labor in Nicaragua's trash dumps. A complete list of USDOL technicalassistance projects can be found in the appendix. The second technical assistance program, the Education Initiative (EI), is a relatively new one. Launched in 2001, the EI seeks to increase access to basic education, and to enhance thesustainability (47) of ongoing international andnational child labor programs. (48) The USDOLallocated$37 million to the EI in FY2002.The Education Initiative has four goals: to raise awareness of the importance of education for all children and mobilize a wide array of actors to improve and expand education infrastructures; to strengthen national institutions and policies on education and child labor; to develop formal and transitional education systems that encourage working children and those at risk of working to attend school; and to ensure the long-term sustainability of these efforts. (49) The USDOL-ICLP also awards grants to raise awareness within the United States about the global problem of child labor. The funds have been used to produce reports on the nature and scopeof child labor in India, Brazil, Mexico, and Kenya; to develop a photographic library of child laborfrom around the world; to support the public education efforts of the Child Labor Coalition (CLC); (50) and to offer a child labor policy advocacy course to 50 graduate students. (51) In addition to its technical assistance efforts the USDOL-ICLP, in conjunction with the Department of Treasury and the Department of State, maintains a list of products believed to beproduced with forced or indentured child labor. (52) The list is updated and the Department ofTreasury, U.S. Customs Service uses this list to seize such goods and prevent them from enteringthe United States. Since June 12, 1999, under Executive Order No. 13126, the USDOL-ICLP hasco-maintained this list and is currently reviewing information regarding the use of forced orindentured child labor in the cocoa industry in Cote d'Ivoire and the production of firecrackers inChina. (53) Section 307 of the Tariff Act of 1930 (P.L. 71-361) prohibits the importation of merchandise produced in whole or in part with prison labor, forced labor, or indentured labor under penalsanction. It was amended in 2000 to specify that the prohibition includes forced or indentured childlabor ( P.L. 106-200 ). (54) The Department ofTreasury, U.S. Customs Service, responsible for enforcingSection 307 and related regulations, has established a Forced Child Labor Command Center in theFraud Investigations Branch of the Office of Investigations. The Command Center has a number offunctions, including: providing a clearinghouse for information and investigative leads; creating strategies to identify illegal merchandise before it arrives in the U.S.; operating as a liaison for Customs investigative filed office; and improving enforcement coordination and information. (55) The U.S. Customs Outreach Program enhances its enforcement efforts. The Outreach Program educates manufacturers, U.S. importers and the public about forced child labor. It also informs itsaudience about the role of Customs in fighting forced or indentured child labor, offers advice onidentifying goods possibly produced with indentured or forced child labor, and explains U.S. childlabor law. The U.S. Customs Service also fights forced and indentured child labor abroad through its attachés. Attachés, based in more than 20 countries, are responsible for investigating allegationsofforced or indentured child labor, informing foreign government counterparts, NGOs and privatebusinesses on Customs' role in fighting forced and indentured child labor, and conducting seminarsand conferences on forced and indentured child labor. Congress has appropriated over $14 millionto the U.S. Customs forced child labor program since FY2000. The U.S. Agency for International Development (USAID) programs to limit international child labor are implemented largely through three initiatives: the Sustainable Tree Crops Program (STCP),the Education to Combat Abusive Child Labor (ECACL) Activity, and anti-trafficking programs. The Sustainable Tree Crops Program is a public-private partnership that seeks to raise the income and quality of life in cocoa-, coffee- and cashew-producing communities. Initially, the projectfocused its efforts on economically and environmentally improving the standards of ruralhouseholds. Recently, the program has evolved to address abusive child labor practices bypromoting and monitoring acceptable forms of labor. Recognizing that abusive forms of child laborare often a symptom of poverty, USAID hopes that by combining strategies to increase access toenvironmentally friendly technology to raise profitability, productivity and efficiency of smallholdertree crops systems, farmers will rely less on child labor. (56) In an effort to investigate allegations of bonded child labor and child trafficking in harvestingsome cocoa beans in West Africa, USAID in conjunction with the U.S. Department of Labor, theChocolate Manufacturers Association (CMA) and the ILO conducted a survey in Cameroon, Coted'Ivoire, Ghana, Guinea, and Nigeria. As a result of the survey findings, three congressionalmembers (57) , the Government of Cote d'Ivoire, theILO-IPEC, the CMA, other NGOs, and a host ofother chocolate employers and workers unions (58) were involved in the formation of a coalition todevelop an action plan to address abusive child labor in West African cocoa production. (59) Ultimately, the coalition agreed to a program for growing and processing cocoa beans and theirderivative products in a manner that complies with ILO Convention 182. (60) The Sustainable TreeCrops Program (STCP), the ILO, Governments of West Africa and the CMA are developing a pilotphase of activity that would complement existing STCP activities. Pilot projects were scheduled tobegin by November 30, 2002. (61) USAID seeks to integrate child labor activities into all of its socio-economic mission-level development programs through the Education to Combat Abusive Child Labor (ECACL) Activity. The ECACL assesses the extent of in-country child labor problems; and conducts policy analyses,evaluations, and feasibility studies, as well as applied research. Through this activity ECACLexplores various strategies to eliminate abusive and hazardous child labor, such as alternative formsof education, scholarships, payments and other incentives. The research has already revealed thatmany children engaged in hazardous forms of child labor and their families do not see the merit inattending school; and many feel that the liberal arts form of education usually found in school is notrelevant to their lifestyle and will not serve to improve their financial standing. The ECACL hasalready produced a number of publications, a child labor database, child labor country briefs, andreports that serve as planning guides for assisting host countries and USAID missions in the planningand implementation of on-the-ground activities. The ECACL will also report on the results of itspilot projects that seek to prevent children from entering hazardous or exploitative forms of workworldwide. (62) Finally, USAID conducts a range of anti-trafficking activities that include assisting children in Africa, cooperating with NGOs in Central Asia to combat trafficking and change legislation, andmonitoring cross-border trafficking for sexual exploitation in Latin America and the Caribbean. Many of these activities are conducted in conjunction with the U.S. Department of State and U.S.Embassies. (63) The U.S. Department of State is involved in child labor initiatives, which it coordinates with the ILO, USDOL, and USAID. Through its Office of International Labor Affairs it promotes the ILOcore labor standards, which include the abolition of child labor; plays a major role in U.S.Government participation in the ILO; pursues the inclusion of worker rights on the agenda ofinternational institutions, including the World Trade Organization (WTO), the World Bank, and theInternational Monetary Fund; and monitors countries' compliance with worker rights' provisions inU.S. laws. P.L. 106-386 called for the establishment of an Interagency Task Force to Monitor andCombat Trafficking, chaired by the Secretary of State. It also authorizes the U.S. Department ofState to establish an Office to Monitor and Combat Trafficking to assist the task force. In addition,the Department of State is required to issue a report each year on trafficking, including an assessmentof what governments are doing to combat trafficking. Trafficking is discussed comprehensively inCRS Report RL30545, Trafficking in Women and Children: The U.S. and International Response. Congressional support for the abolition of child labor, particularly the worst forms of child labor,is very strong. Congress has acted to fund programs to combat child labor, expand the United States'role in the global fight against child labor, and include clauses that require action on eliminatingchild labor in trade agreements. In 1993, Congress directed the U.S. Department of Labor (USDOL)International Child Labor Program (ICLP) to investigate and report on child labor around the world.Since then, Congress has continued to fund the USDOL-ICLP research and reporting efforts. It hasexpanded the ICLP's mandate to include administering grants to organizations engaged in effortsto eliminate child labor and to improve access to quality basic education; and raising publicawareness and understanding of child labor issues. (64) Appropriations for the ICLP have grown to $82million in FY 2002. Congress has also greatly enhanced U.S. efforts to fight child labor by addingchild labor responsibilities to a host of U.S. agencies including, USAID, U.S. Department of State,and U.S. Customs Service. Congress has also advanced the U.S. role in countering the worst forms of child labor through legislation, such as Section 634 of P.L. 105-61 , which restricts the importation of goods producedby forced or indentured child labor. Congress also added child labor stipulations to foreign aidlegislation through the Export-Import Bank Reauthorization Act of 1997 ( P.L. 105-121 ). This billintegrates child labor into the list of criteria for denying credit by the Export-Import Bank. Anotherbill targeting child labor abuses is the Victims of Trafficking and Violence Protection Act of 2000( P.L. 106-386 ). The legislation provides punishment for traffickers, as well as assistance andprotection to trafficking victims, with a special emphasis on women and children, both in the U.S.and abroad. (65) Recognizing that international child labor could serve as an artificial barrier to trade, as countries that do not rely on child labor in export production could have difficulty competing against countriesthat do, Congress has used international trade agreements to fight child labor. The GeneralizedSystem of Preferences (GSP) is a program that extends duty-free entry to a wide range of productsfrom more than 140 countries and territories. The Trade and Development Act of 2000 ( P.L.106-200 ) expanded the GSP eligibility criteria to include the Worst Forms of Child Labor. The Actprohibits any country from GSP consideration if "[s]uch country has not implemented itscommitments to eliminate the worst forms of child labor." (66) The Trade Act of 2002 ( P.L. 107-210 )amended the Andean Trade Preference Act (ATPA) to add child labor criteria. (67) The NorthAmerican Agreement on Labor Cooperation (NAALC), the labor supplement to the North AmericanFree Trade Agreement (NAFTA), also has a child labor component. The agreement seeks topromote fundamental labor standards, including those addressing child labor, compliance with laborlaws, and the enforcement of those laws in each country. The Office of the U.S. TradeRepresentative states that the NAALC has enhanced transparency and public debate on labor law andenforcement issues more than any previous bilateral or trilateral cooperative agreement. (68) Although Congress has consistently supported American efforts to eliminate child laborworld-wide, proponents of these efforts say that a number of issues continue to complicate theseinitiatives, including: ineffective enforcement mechanisms, sparse monitoring systems, and insufficient funding for programs that alleviate poverty, decrease incidences of HIV/AIDS, andincrease access to relevant education. Some argue that until international enforcement mechanismsare established, global monitoring systems are enhanced and funding for programs that combatpoverty, HIV/AIDS and illiteracy are boosted, child labor will continue to flourish. There are a number of international, national and local programs that seek to eliminate international child labor. Some argue that a lack of enforcement mechanisms diminishes the impactof these programs. (69) Ratification of ILOConventions and participation in the ILO international childlabor programs are voluntary. Some maintain that the ILO should have some form of enforcementcapacity or penalty mechanisms in place to strengthen the child labor Conventions. These argumentshave raised a number of questions, including whether the ILO should add enforcement mechanismsto its charter, and the impact that enforcement mechanisms could have on ILO membership (thereare 186 ILO member states). Some have also suggested that the ILO should allow countries to filegrievances against countries that consistently use child labor. Some argue that linking child labor to international trade strengthens efforts to eliminate its use. Advocates of this practice argue that countries that use child labor create unemployment indeveloped countries as multinational companies move their plants to countries with lower laborcosts. This, they argue, constitutes "social dumping", a term that implies that developing countrieswithout adequate labor standards distort trade and investment flows and participate in unfaircompetition. (70) Additionally, supporters of usingtrade as a tool to discourage the use of child labormaintain that this linkage will help developing countries to modernize, because children will beforced to attend school, and in the long run a more educated workforce will boost the country'sproductive potential. Others oppose marrying child labor and international trade for a number of reasons. First, they argue that the United States unjustly requires states to ratify or comply with international child laborconventions, which it has not ratified. (71) Second,opponents argue that heightened trade barriers willworsen the plight of workers and more than likely increase reliance on child labor, as growth ishalted and families struggle to contend with increased poverty. Finally, since most child labor occurson family farms and in the informal sector, trade initiatives will have only minimal impact on childlaborers, opponents argue. If the United States would reduce its trade barriers (such as tariffs onforeign textiles and agriculture), some argue, developing countries would be able to grow, fightpoverty, and minimize their reliance on child laborers. (72) This issue has spurred debates on a numberof issues, including whether the United States should continue to use international trade forums tocontribute to the abolition of international child labor. Another issue some have raised is whetherU.S. tariffs and subsidies indirectly contribute to international child labor. Opponents of the use ofU.S. tariffs and subsidies have argued that the United States might be able to offer trade-friendlyoptions to eliminate child labor, such as halting direct foreign aid payments to governments that usechild labor. Both the ILO and the United States train labor monitors in foreign countries. However, most labor monitoring activities are undertaken in the formal sector. As noted early in this report, mostforms of international child labor occur in the informal sector, such as family farms and homebusinesses. Countries that already struggle with insufficient numbers of labor monitors who areoften ill-trained and ill-equipped can not effectively monitor the informal sector. Advocates of theincreased use of labor monitors have debated whether the United States should encourage the ILOto train labor monitors to inspect labor practices in the informal sector. Others have suggested thatthe ILO could offer governments additional technical assistance to hire more labor monitors. Someargue that alternative methods of supporting labor monitors, such as encouraging the private sectoror non-governmental organizations to offer support to in-country labor monitors or the ILO inmonitoring and documenting child labor abuses. Some have maintained that funding for poverty alleviation, HIV/AIDS, basic education, and agriculture is insufficient. These observers argue that a comprehensive anti-child labor agendashould include increased funding for poverty reduction programs, education initiatives and otherdevelopment programs. They maintain that if child labor were approached from a human rightsperspective then the myriad of development issues would be addressed in conjunction with childlabor programs. (73) Those who see child labor asa development issue argue that countries, includingthe United States, should increase funding to other development programs, such as HIV/AIDS, basiceducation and agriculture. Others express concern that if the United States were to increase itsfunding to anti-poverty initiatives it might have to cut funding for other programs. At the same time,some argue that the United States needs to change the way it offers foreign aid overall. The ILO divides child labor into three categories: labor performed by a child who is under the minimum age ; children engaged in hazardous work ; and children in the unconditional worst forms of child labor Labor that is performed by a child under the minimum age is unacceptable because this work is likely to impede on a child's education and full development (74) , and thus the ILO considers it to bethe first form of child labor to be immediately abolished. The ILO estimates that in 2000approximately 246 million children between 5 and 17 years old were engaged in child labor thatrequires elimination. (75) Children in hazardous work is defined as children participating in any activity or occupation which, by its nature or type has, or leads to, adverse effects on the child's safety, health (physical ormental), and moral development. Hazards could be as a result of excessive workloads, physicalconditions of work, and/or work intensity (duration or hours of work even if the activity is deemednon-hazardous or safe). (76) The ILO estimates thatin 2000 more than two-thirds of those in childlabor were engaged in hazardous work. An estimated 171 million children between ages 5 and 17were estimated to work in hazardous conditions in 2000. (77) T he unconditional worst forms of child labor includes: all forms of slavery or practices similar to slavery, such as sale and trafficking of children, debt bondage and serfdom and forced or compulsory labor, including forced orcompulsory use of children in armed conflict; the use, procuring or offering of a child for prostitution, for the production ofpornography, or for pornographic performances; and the use, procuring or offering of a child for illicit activities, particularly in theproduction and trafficking of drugs. (78) Table 3. USDOL-Funded Child Labor Technical AssistanceProjects, FY1995-FY2001 Source: U.S. Department of Labor, Bureau of International Affairs, Office of the International Child Labor Program. Table 4. Estimates of Economically ActiveChildren in 2000 (in thousands) Source: ILO, Every Child Counts: New Global Estimates on Child Labor. | International child labor has become an increasingly important issue in discussions concerninginternational trade, human rights and foreign aid. While a number of international, national and localinitiatives seek to abolish the practice, there continues to be a debate on what constitutes child labor. Some consider any work undertaken by children to be child labor, while others may use the term torefer to work under abusive conditions. The International Labor Organization (ILO) defines childlabor as a form of work that is inherently hazardous, employs children below the internationallyrecognized minimum age, or is exploitative. Child labor is used in this report as defined by the ILO. According to the ILO about 246 million children were engaged in child labor in 2000. Some 186million child laborers were below the age of 15, and approximately 110 million were below the ageof 12. While awareness of the issue has increased, the ability to address the complex problem has been complicated by a number of related issues including, rising poverty, surging HIV/AIDS infectionrates, and a lack of relevant education. News stories have featured children working in exportindustries (such as textiles, clothing, carpets and footwear) and caused international uproar. Whilethe news stories have contributed to a heightened awareness about the problem of international childlabor, the ILO has found that child workers in export industries are relatively few compared to thoseemployed in activities geared to domestic consumption. Congressional support for the abolition of international child labor, particularly the worst formsof child labor, is very strong. Congress has funded programs to combat international child labor,initiated bills that expand the United States' role in the global fight against child labor, and includedclauses that require action on eliminating child labor in international trade agreements. AlthoughCongress has consistently boosted American efforts to eliminate child labor world-wide, there area number of issues that continue to impede these efforts, including: ineffective enforcementmechanisms; sparse monitoring systems; and insufficient funding for programs that alleviatepoverty, decrease incidences of HIV/AIDS, and increase access to relevant education. This reportwill discuss the ILO definition of child labor, outline the scope of the problem, explain thedifficulties in eliminating it, describe U.S. and international efforts to counter exploitative childlabor, and present some issues Congress may consider. This report will be updated as events warrant. |
Four major principles underlie U.S. policy on legal permanent immigration: the reunification of families, the admission of immigrants with needed skills, the protection of refugees, and the diversity of admissions by the country of origin. These principles are embodied in federal law, the Immigration and Nationality Act (INA) first codified in 1952. Congress has significantly amended the INA several times since, most recently by the Enhanced Border Security and Visa Reform Act of 2002 ( P.L. 107-173 ). An alien is "any person not a citizen or national of the United States" and is synonymous with noncitizen . It includes people who are here legally, as well as people who are here in violation of the INA. Noncitizen is generally used to describe all foreign-born persons in the United States who have not become citizens. The two basic types of legal aliens are immigrants and nonimmigrants . Immigrants are persons admitted as legal permanent residents (LPRs) of the United States. Nonimmigrants—such as tourists, foreign students, diplomats, temporary agricultural workers, exchange visitors, or intracompany business personnel—are admitted for a specific purpose and a temporary period of time. Nonimmigrants are required to leave the country when their visas expire, though certain classes of nonimmigrants may adjust to LPR status if they otherwise qualify. The conditions for the admission of immigrants are much more stringent than nonimmigrants, and many fewer immigrants than nonimmigrants are admitted. Once admitted, however, immigrants are subject to few restrictions; for example, they may accept and change employment, and may apply for U.S. citizenship through the naturalization process, generally after 5 years. Immigration admissions are subject to a complex set of numerical limits and preference categories that give priority for admission on the basis of family relationships, needed skills, and geographic diversity. These include a flexible worldwide cap of 675,000, not including refugees and asylees (discussed below), and a per-country ceiling , which changes yearly. Numbers allocated to the three preference tracks include a 226,000 minimum for family-based, 140,000 for employment-based, and 55,000 for diversity immigrants (i.e., a formula-based visa lottery aimed at countries that have low levels of immigration to the United States). The per country ceilings may be exceeded for employment-based immigrants, but the worldwide limit of 140,000 remains in effect. In addition, the immediate relatives of U.S. citizens (i.e., their spouses and unmarried minor children, and the parents of adult U.S. citizens) are admitted outside of the numerical limits of the per country ceilings and are the "flexible" component of the worldwide cap. The largest number of immigrants is admitted because of family relationship to a U.S. citizen or immigrant. Of the 1,064,318 legal immigrants in FY2001, 64% entered on the basis of family ties. Immediate relatives of U.S. citizens made up the single largest group of immigrants, as Table 1 indicates. Family preference immigrants —the spouses and children of immigrants, the adult children of U.S. citizens, and the siblings of adult U.S. citizens—were the second largest group. Additional major immigrant groups in FY2001 were employment-based preference immigrants , including spouses and children, refugees and asylees adjusting to immigrant status, and diversity immigrants . The Bureau of Citizenship and Immigration Services (BCIS) in the Department of Homeland Security (DHS) is the lead agency for immigrant admissions. Refugee admissions are governed by different criteria and numerical limits than immigrant admissions. Refugee status requires a finding of persecution or a well-founded fear of persecution in situations of "special humanitarian concern" to the United States. The total annual number of refugee admissions and the allocation of these numbers among refugee groups are determined at the start of each fiscal year by the President after consultation with the Congress. Refugees are admitted from abroad. The INA also provides for the granting of asylum on a case-by-case basis to aliens physically present in the United States who meet the statutory definition of "refugee." All aliens must satisfy State Department consular officers abroad and DHS Bureau of Customs and Border Protection inspectors upon entry to the U.S. that they are not ineligible for visas or admission under the so-called "grounds for inadmissibility" of the INA. These criteria categories are: health-related grounds; criminal history; national security and terrorist concerns; public charge (e.g., indigence); seeking to work without proper labor certification; illegal entrants and immigration law violations; lacking proper documents; ineligible for citizenship; and, aliens previously removed. Some provisions may be waived or are not applicable in the case of nonimmigrants, refugees (e.g., public charge), and other aliens. All family-based immigrants entering after December 18, 1997, must have a new binding affidavit of support signed by a U.S. sponsor in order to meet the public charge requirement. The INA also specifies the circumstances and actions that result in aliens being removed from the United States, i.e., deported. The category of criminal grounds has been of special concern in recent years, and the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 expanded and toughened the deportation consequences of criminal convictions. The category of terrorist grounds has also been broadened and tightened up by the USA Patriot Act of 2001. ( P.L. 107-77 ). The annual number of LPRs admitted or adjusted in the United States rose gradually after World War II, as Figure 1 illustrates. However, the annual admissions never again reached the peaks of the early 20 th century. The BCIS data present only those admitted as LPRs or those adjusting to LPR status. The growth in immigration after 1980 is partly attributable to the total number of admissions under the basic system, consisting of immigrants entering through a preference system as well as immediate relatives of U.S. citizens, that was augmented considerably by legalized aliens. In addition, the number of refugees admitted increased from 718,000 in the period 1966-1980 to 1.6 million during the period 1981-1995, after the enactment of the Refugee Act of 1980. The Immigration Act of 1990 increased the ceiling on employment-based preference immigration, with the provision that unused employment visas would be made available the following year for family preference immigration. There are two major statistical perspectives on trends in immigration. One uses the official BCIS admissions data and the other draws on Bureau of Census population surveys. The BCIS data present only those admitted as LPRs or those adjusting to LPR status. The census data, on the other hand, include all residents in the population counts, and the census asks people whether they were born in the United States or abroad. As a result, the census data also contain long-term temporary (nonimmigrant) residents and unauthorized residents. The percent of the population that is foreign born, depicted in Figure 2 , resembles the trend line of annual admissions data presented in Figure 1 . It indicates the proportion of foreign born residents is not as large as during earlier periods, but is approaching historic levels at the turn of the last century. Figure 2 illustrates that the sheer number—32.5 in 2002—has more than doubled from 14.1 million in 1980 and is at the highest point in U.S. history. Another tradition of immigration policy is to provide immigrants an opportunity to integrate fully into society. Under U.S. immigration law, all LPRs are potential citizens and may become so through a process known as naturalization . To naturalize, aliens must have continuously resided in the United States for 5 years as LPRs (3 years in the case of spouses of U.S. citizens), show that they have good moral character, demonstrate the ability to read, write, speak, and understand English, and pass an examination on U.S. government and history. Applicants pay fees of $310 when they file their materials and have the option of taking a standardized civics test or of having the examiner quiz them on civics as part of their interview. The language requirement is waived for those who are at least 50 years old and have lived in the United States at least 20 years or who are at least 55 years old and have lived in the United States at least 15 years. Special consideration on the civics requirement is to be given to aliens who are over 65 years old and have lived in the United States for at least 20 years. Both the language and civics requirements are waived for those who are unable to comply due to physical or developmental disabilities or mental impairment. Certain requirements are waived for those who have served in the U.S. military. For a variety of reasons, the number of LPRs petitioning to naturalize has increased in the past year but has not reached nearly the highs of the mid-1990s when over a million people sought to naturalize annually, as Figure 3 depicts. The pending caseload for naturalization remains over half a million, and it is not uncommon for some LPRs to wait 1-2 years for their petitions to be processed, depending on the caseload in the region in which the LPR lives. Illegal aliens or unauthorized aliens are those noncitizens who either entered the United States surreptitiously, i.e., entered without inspection (referred to as EWIs), or overstayed the term of their nonimmigrant visas, e.g., tourist or student visas. Many of these aliens have some type of document—either bogus or expired—and may have cases pending with BCIS. The former INS estimated that there were 7.0 million unauthorized aliens in the United States in 2000. Demographers at the Census Bureau and the Urban Institute estimated unauthorized population in 2000 at 8.7 and 8.5 million respectively, but these latter estimates included "quasi-legal" aliens who had petitions pending or relief from deportation. Noncitizens' eligibility for major federal benefit programs depends on their immigration status and whether they arrived before or after enactment of P.L. 104-193 , the 1996 welfare law (as amended by P.L. 105-33 and P.L. 105-185 ). Refugees remain eligible for Supplemental Security Income (SSI) and Medicaid for 7 years after arrival, and for other restricted programs for 5 years. Most LPRs are barred SSI until they naturalize or meet a 10-year work requirement. LPRs receiving SSI (and SSI-related Medicaid) on August 22, 1996, the enactment date of P.L. 104-193 , continue to be eligible, as do those here then whose subsequent disability makes them eligible for SSI and Medicaid. All LPRs who meet a 5-year residence test and all LPR children (regardless of date of entry or length of residence) are eligible for food stamps. LPRs entering after August 22, 1996, are barred from Temporary Assistance for Needy Families (TANF) and Medicaid for 5 years, after which their coverage becomes a state option. Also after the 5-year bar, the sponsor's income is deemed to be available to new immigrants in determining their financial eligibility for designated federal means-tested programs until they naturalize or meet the work requirement. Unauthorized aliens, i.e., illegal aliens, are ineligible for almost all federal benefits except, for example, emergency medical care. Aliens in the United States are generally subject to the same tax obligations, including Social Security (FICA) and unemployment (FUTA) as citizens of the United States, with the exception of certain nonimmigrant students and cultural exchange visitors. LPRs are treated the same as citizens for tax purposes. Other aliens, including unauthorized migrants, are held to a "substantive presence" test based upon the number of days they have been in the United States. Some countries have reciprocal tax treaties with the United States that—depending on the terms of the particular treaty—exempt citizens of their country living in the United States from certain taxes in the United States. | Congress typically considers a wide range of immigration issues and now that the number of foreign born residents of the United States—32.5 million in 2002—is at the highest point in U.S. history, the debates over immigration policies grow in importance. As a backdrop to these debates, this report provides an introduction to immigration and naturalization policy, concepts, and statistical trends. It touches on a range of topics, including numerical limits, refugees and asylees, exclusion, naturalization, illegal aliens, eligibility for federal benefits, and taxation. This report does not track legislation and will not be regularly updated. |
Each year, the Senate and House Armed Services Committees report their respective versions of the National Defense Authorization Act (NDAA). These bills contain numerous provisions that affect military personnel, retirees, and their family members. Provisions in one version are often not included in another; are treated differently; or, in certain cases, are identical. Following passage of these bills by the respective legislative bodies, a Conference Committee is usually convened to resolve the various differences between the House and Senate versions. In the course of a typical authorization cycle, congressional staffs receive many requests for information on provisions contained in the annual NDAA. This report highlights those personnel-related issues that seem to generate the most intense congressional and constituent interest, and tracks their statuses in the FY2012 House and Senate versions of the NDAA. The House version of the National Defense Authorization Act for Fiscal Year 2012, H.R. 1540 , was introduced in the House on April 14, 2011; reported by the House Committee on Armed Services on May 17, 2011 ( H.Rept. 112-78 ); and passed by the House on May 26, 2011. The Senate version of the NDAA, S. 1867 , was passed on December 1, 2011. On December 14, 2011, the House passed the conference reported version of H.R. 1540 . On December 15, 2011, the Senate passed H.R. 1540 , and President Obama signed P.L. 112-81 into law on December 31, 2011. The entries under the headings "House," "Senate," and "P.L. 112-81" in the tables on the following pages are based on language in these bills, unless otherwise indicated. Where appropriate, related CRS products are identified to provide more detailed background information and analysis of the issue. For each issue, a CRS analyst is identified and contact information is provided. Some issues were addressed in the FY2011 National Defense Authorization Act and discussed in CRS Report R41316, FY2011 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. Those issues that were considered previously are designated with a " * " in the relevant section titles of this report. Topics have been arranged in the order in which they were reported in the House report. Background: In 2000, Congress passed P.L. 106-446 entitled "To require the immediate termination of the Department of Defense practice of euthanizing military working dogs at the end of their useful working life and to facilitate the adoption of retired military working dogs by law enforcement agencies, former handlers of these dogs, and other persons capable of caring for these dogs." Discussion: Military working dogs are trained to be fearless and aggressive. These traits may or may not be desired outside of the military or law enforcement environments. In passing P.L. 106-446 , Congress included language that limited liability of claims arising out of such a transfer including, injury, property damage, additional training, etc. There are public concerns for the welfare of these dogs. There are also concerns for any family member of deceased or seriously wounded members of the Armed Forces who care for these dogs, but who were not responsible for their original training and handling. A recent article noted that a small percent of the dogs deployed suffer from 'canine PTSD' which can lead to 'troubling behavior.' CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The National Defense Authorization Act for Fiscal Year 2008 ( P.L. 110-181 ) authorized the Army to grow by 65,000 and the Marine Corps by 27,000, to respective end strengths of 547,400 and 202,000 by FY2012. In FY2009, 2010 and 2011, the Army was authorized additional, but smaller increases to an FY2011 end strength of 569,400. Even with these increases, the nation's Armed Forces, especially the Army and Marine Corps, continue to experience high deployment rates and abbreviated "dwell time" at home stations. But with withdraw of U.S. forces from Iraq in December 2012 and plans to begin withdrawing U.S. forces from Afghanistan in July, 2012, the Secretary of Defense announced on January 6, 2011 that the Active Army would begin a reduction in its end strength by 22,000 in 2012. This reduction would be followed by an additional reduction of 27,000 to begin in FY2015 and be completed in FY2016. Discussion: FY2012 represents the first year of the Army drawdown with a reduction of 7,400 in FY2012. There are less dramatic reductions slated for the Navy (-2,961) and a slight increase for the Air Force (+600) (see table below). The House Armed Services Committee (HASC) however, expressed concern with these reductions in light of the existing 20,000 nondeployable personnel currently in the Army (17% of the Active Component) and the 9,000 soldiers who remain in the disability processing system for up to a year. The committee also expressed concern about reducing end strength when only marginal improvement has been realized in dwell time and uncertainty remains over the withdrawal from Afghanistan. The Senate generally supported the House's strength recommendations but did recommend a further reduction of 39 for the Navy. The Senate's recommended strength levels were supported by the Conference Committee. The Congressional Budget Office (CBO) estimates that the House-proposed decrease of 9,800 military personnel will save $5.8 billion over the 2012 to 2016 period. This savings results from reductions in pay and benefits for fewer personnel and operation and maintenance costs. Reference(s): Previously discussed in CRS Report R41316, FY2011 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], and CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. See also CRS Report RL32965, Recruiting and Retention: An Overview of FY2009 and FY2010 Results for Active and Reserve Component Enlisted Personnel , by [author name scrubbed]. CRS Point of Contact: Charles Henning, x[phone number scrubbed]. Background: Although the Reserves have been used extensively in support of operations since September 11, 2001, the overall authorized end strength of the Selected Reserves has declined by about 2% over the past ten years (874,664 in FY2001 versus 856,200 in FY2011). Much of this can be attributed to the reduction in Navy Reserve strength during this period. There were also modest shifts in strength for some other components of the Selected Reserve. For comparative purposes, the authorized end strengths for the Selected Reserves for FY2001 were as follows: Army National Guard (350,526), Army Reserve (205,300), Navy Reserve (88,900), Marine Corps Reserve (39,558), Air National Guard (108,022), Air Force Reserve (74,358), and Coast Guard Reserve (8,000). Between FY2001 and FY2011, the largest shifts in authorized end strength have occurred in the Army National Guard (+7,674 or +2%), Coast Guard Reserve (+2,000 or +25%), Air Force Reserve (-3,158 or -4%), and Navy Reserve (-23,400 or -26%). A smaller change occurred in the Air National Guard (-1,322 or -1.2%), while the authorized end strength of the Army Reserve (-300 or -0.15%) and the Marine Corps Reserve (+42 or +0.11%) have been largely unchanged during this period. Discussion: The authorized Selected Reserve end strengths for FY2012 are the same as those for FY2011 with the exception of the Air Force Reserve and the Navy Reserve. The Air Force Reserve's authorized end strength for FY2011 was 71,200, but the administration requested an increase to 71,400 (+200). The Navy Reserve's authorized end strength for FY2011 was 65,500, but the administration requested an increase to 66,200 (+700). The final bill approved the administration's requested increases. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: At present, there are three major statutory provisions by which reservists can be involuntarily ordered to active duty by the federal government for an extended period of time. Depending on which of these provisions is used, a reserve activation is commonly referred to as either a Presidential Reserve Call-up (PRC), a Partial Mobilization, or a Full Mobilization. They are authorized by law in 10 USC 12304, 12302, and 12301(a), respectively. These provisions differ from each other in terms of the statutory requirements for utilization, the number and type of reservists called up, and the duration of the call up. There has been debate in recent years about modifying these authorities to allow for broader use of the reserve components, particularly to enhance federal capabilities for disaster response. Discussion: The Senate bill contained two new provisions for activating units and individuals in the Reserve Components. Section 515 in the Senate bill would allow 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 already has a short-term, disaster response activation authority (14 USC 712). There was no analogous provision in the House bill. Section 515 of the final bill adopted the Senate's language. Section 515 of the Senate bill 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." There was no analogous language in the House bill. Section 515 of the final bill adopted the Senate's language. A separate provision of the Senate bill (Section 511) would add a new authority to involuntarily activate individuals and units of the Selected Reserve, and members of the Individual Ready Reserve's "mobilization category," for up to 365 consecutive days of active duty. The authority to activate reservists under this provision rests with the Service Secretary, but it may only be invoked for missions that are "preplanned" and where the reserve component activations were budgeted for. According to the Senate Committee report, 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" 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. There was no analogous provision in the House bill. Section 516 of the final bill largely adopts the Senate language, but clarifies that the "preplanned mission" must be in support of a combatant command, and that only units of the Selected Reserve may be activated. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: 10 U.S.C. Section 525 establishes the criteria for the number of general/flag officer authorizations and provides the formula for determining the appropriate grade distribution of these positions. As of July 2010, there were 967 actual general/flag officers on active duty but general/flag officer authorizations allow for up to 982 positions. Of these 982 positions, 658 are slated to fill in-service requirements while an additional 324 fill joint duty assignments. In March, 2011, Secretary of Defense Gates released a 48-page memo that announced a number of efficiency initiatives designed to save $178 billion over the 2012 to 2016 period. One of the initiatives would eliminate 101 general/flag officer positions from the FY2010 baseline and downgrade an additional 22 positions by filling them at a lower grade. These positions would be eliminated and downgraded over the next two years as U.S. forces in Iraq and Afghanistan are withdrawn. Discussion: Congress is sensitive to the general/flag officer content of the services, especially when compared to service end strength. These general/flag officer to other service member ratios have worsened since 9/11 and today the Air Force, for example, has one general for every 1,045 airmen as compared to the Army which has one general for every 1,764 soldiers. The changes noted in Section 502 are in addition to the eliminations and downgrades identified by Secretary Gates. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: In 1994, Congress established the position of Vice Chief of the National Guard Bureau (VCNGB), with the grade of major general (two-star general). Ten years later, it was redesignated as the Director of the National Guard Bureau Joint Staff to reflect the duties of the position in light of the Bureau's reorganization, which included a joint staff. Section 904 of S. 1390, the Senate-passed version of the FY2010 National Defense Authorization Act, contained a provision to re-establish the position of VCNBG, with a grade to be determined by the Secretary of Defense. This provision was not included in the final bill, but a separate provision did require DOD to provide an assessment of the necessity of reestablishing the position of VCNGB. DOD has not yet submitted this report. Discussion: In the FY2008 National Defense Authorization Act ( P.L. 110-181 , Title XVIII), Congress elevated the grade of the Chief of the National Guard Bureau (CNBG) from lieutenant general (3-star general) to general (4-star general) and added new responsibilities to the position. Supporters of re-establishing the VCNGB position argue that the CNGB needs someone to assist him in carrying out his duties, just as the Service Chiefs and the Chairman of the Joint Chiefs of Staff each have Vice Chiefs to assist them. They also note that a Vice Chief should be at least the same rank as the Directors of the Army National Guard and the Air National Guard, both of whom are lieutenant generals, in order to effectively act in the place of the CNGB when required. Some may consider the redesignation and increase in grade as unnecessary, particularly in a time when general officer positions are being eliminated or downgraded within the Department of Defense. Both the House bill and Senate bill would reestablish the VCNGB position with the grade of lieutenant general. However, the House provision contained criteria for selection to the position which were not in the Senate bill. It also made the position a presidentially appointed position, subject to Senate confirmation, while the Senate provision specified that the Secretary of Defense would appoint the VCNGB. Section 511 of the final bill adopted the House language. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: 10 U.S.C. 1142 requires the Service Secretaries to provide pre-separation counseling to members of the Armed Forces whose discharge or release from active duty is anticipated as of a specific date. The counseling must include discussions of a number of topics, including educational benefits, relocation assistance services, post-separation medical and dental coverage, career counseling, financial planning, employment and re-employment rights, and veterans' benefits. The counseling may begin as far out as 24 months before retirement and 12 months before separation, but generally must begin no later than 90 days prior to the date of discharge or release. This time frame can be difficult to meet for reserve component members serving on operational deployments (for example, in Iraq and Afghanistan), as it is often not feasible to provide counseling services while they are performing operational duties, and they are typically released from active duty within a few weeks of return to the United States. The Department of Defense requested an amendment to 10 U.S.C. 1142 "[i]n order to bring the reserve components into compliance with the statute." Discussion: The House and Senate provisions are aimed at adapting the pre-separation counseling requirement to the reserve deployment cycle. The final bill adopted the Senate language, which means that pre-separation counseling will be conducted for members of the National Guard and Reserve serving on active duty for a period of more than 180 days, but the counseling may occur less than 90 days prior to the date of separation. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Joint Chiefs of Staff is made up of a Chairman, a Vice-Chairman, the Chief of Staff of the Army, the Chief of Naval Operations, the Chief of Staff of the Air Force, and the Commandant of the Marine Corps. The Chairman is "the principal military adviser to the President, the National Security Council, the Homeland Security Council, and the Secretary of Defense." The other members of the JCS "are military advisers to the President, the National Security Council, the Homeland Security Council, and the Secretary of Defense" but normally provide their advice through the Chairman. At present, the Army National Guard and the Air National Guard are represented on the Joint Chiefs of Staff (JCS) by their service chiefs—the Chief of Staff of the Army and the Chief of Staff of the Air Force, respectively—in the same way that the Army Reserve and Air Force Reserve are represented. Some have argued that this representation is inadequate, particularly when it comes to issues related to the use of the National Guard in a non-federalized status for domestic operations (for example, responding to disasters), and note that the National Guard has often been excluded from participating in key decision-making processes. They have advocated making the Chief of the National Guard Bureau (CNGB) a member of the JCS in order to ensure that the National Guard has a "seat at the table" when high-level policy options are debated and recommendations for the President and Secretary of Defense are formulated. This issue was debated before the Commission on the National Guard and Reserve (CNGR) in 2006-2007, which recommended against such a change "on the grounds that the duties of the members of the Joint Chiefs of Staff are greater than those of the Chief of the National Guard Bureau." The Commission report further noted that making the CNGB a member of the JCS: would run counter to intra- and inter-service integration and would reverse progress toward jointness and interoperability: making the Chief of the National Guard Bureau a member of the Joint Chiefs of Staff would be fundamentally inconsistent with the status of the Army and Air National Guard as reserve components of the Army and Air Force. Finally, the Commission concludes that this proposal would be counter to the carefully crafted organizational and advisory principles established in the Goldwater-Nichols legislation. Shortly after the Commission report was published, Congress made a number of changes related to the National Guard Bureau and the CNGB. Although Congress declined to make the CNGB a member of the JCS at that time, it did elevate the grade of the position from lieutenant general (three-star general) to general (four-star general) and added new responsibilities to the position. Congress also specified that—in addition to the Chief of the National Guard Bureau's existing duties as principal advisor to the Secretaries and Chiefs of Staff of the Army and Air Force on National Guard matters—the Chief was also "a principal adviser to the Secretary of Defense, through the Chairman of the Joint Chiefs of Staff, on matters involving non-federalized National Guard forces and on other matters as determined by the Secretary of Defense." On November 10, 2011, the Senate Armed Services Committee received testimony from the DOD General Counsel, the six current members of the Joint Chiefs of Staff, and the Chief of the National Guard Bureau on whether the Chief should be made a member of the JCS. The current members of the Joint Chiefs of Staff and the DOD General Counsel were opposed to making this change, while the Chief of the National Guard Bureau, General Craig McKinley, favored it. In his testimony, General McKinley argued that "only full Joint Chiefs of Staff membership for the Chief of the National Guard Bureau will ensure that the responsibilities and capabilities of the non-Federalized National Guard are considered in a planned and deliberate manner that is not based upon ad hoc or personal relationships but is, instead, firmly rooted in the law and the National strategy." Discussion: Both the House and Senate bill would make the CNGB a member of the JCS. The House bill would make other changes as well. It would formally assign the CNGB with responsibility for being an advocate and liaison for the National Guards of the states and territories, informing them of all actions that could affect their federal or state mission, consulting with governors and adjutant generals before changes in force structure or equipment levels are made, and ensuring that the National Guard has the resources to perform both its war fighting and domestic response missions. Section 512 of the final bill designates the Chief of the National Guard Bureau as a member of the Joint Chiefs of Staff and specifies that "[a]s a member of the Joint Chiefs of Staff, the Chief of the National Guard Bureau has the specific responsibility of addressing matters involving non-Federalized National Guard forces in support of homeland defense and civil support missions." Reference(s): Testimony before the Senate Armed Services Committee by Jeh Johnson, General Martin Dempsey, Admiral James Winnefield, General Ray Odierno, Admiral Jonathan Greenert, General James Amos, General Norton Schwartz, and General Craig McKinley, available at http://armed-services.senate.gov/Transcripts/2011/11%20November/11-73%20-%2011-10-11.pdf Testimony before the Commission on the National Guard and Reserve by General Steven Blum, Dr. David Chu, Major General Frank Vavala, and General Peter Pace, available at http://www.cngr.gov/ . Second Report of the Commission on the National Guard and Reserves: 75-76, http://www.cngr.gov/pdf/CNGR%20Second%20Report%20to%20Congress%20.pdf . CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Congress authorized the Cold War Recognition Certificate years ago as part of the FY1998 National Defense Authorization Act (section 1084). Its was created to recognize the contributions and sacrifices of our armed forces and government civilians whose service contributed to victory in the Cold War. Members of the armed forces and federal government civilian employees who served the United States during the Cold War period, from September 2, 1945, to December 26, 1991, are eligible. Discussion: A number of veterans' organization have supported efforts to create this medal in recognition of the veterans' role in the Cold War. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Prior to 1987, the Services had differing policies with regard to how they treated secondary educational credentials in the recruiting process. Following empirical analysis, three tiers were created that corresponded with the likelihood that a recruit would successfully complete his/her first term. Those most likely to finish their first term are in tier one and include recruits with a traditional high school diploma and/or at least one year of college. Those with alternative diplomas, such as the GED, Adult Education diplomas, Home Study certificates, Correspondence School Graduates, for example, are in tier two. Those with no credentials (e.g., high school dropouts), or with credentials that do not satisfy falling into the first two tiers were given the lowest priority. Although this approach appears to be working, it has been over 20 years since the data have been reviewed. During that time, other forms of alternative education have emerged, including on-line programs. Discussion: The House is concerned that since DOD developed its policy on secondary education, other alternative means of obtaining a diploma have emerged such as on-line educational programs (i.e., non-"brick and mortar" programs). DOD originally created this policy based on attrition data. This approach seems to suggest making the changes and then studying the data. Reference(s): CRS Report 88-474 F, Military Recruiting: Controversy over the Use of Educational Credentials , by [author name scrubbed] (out of print; available upon request). CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: P.L. 111-321 called for the repeal of Title 10 U.S.C., Section 654, which served as the basis for the 1993 policy banning open homosexuality in the military, colloquially known as Don't Ask, Don't Tell or DADT. Before the law and policy were repealed, a number of steps were taken, including (1) certification by the President, Secretary of Defense and Chairman of the Joint Chiefs of Staff that the repeal was consistent with military readiness, military effectiveness, unit cohesion and recruiting; (2) certification that DOD prepared the necessary policies and regulations for implementing the repeal; and (3) a subsequent 60-day waiting period before repeal would occur. Until these steps are satisfied, the law prohibiting open homosexuality in the military remains in effect. On September 20, 2011, Section 654 was repealed. Discussion: During the process of considering legislation to repeal Don't Ask, Don't Tell, certain amendments, including the language in sec 533, were procedurally blocked. As structured, the repeal required only the certification from those who had previously stated support for repeal of DADT in the military. Although other members of the Joint Chiefs of Staff had stated they could carry out the repeal, certain members of the Joint Chiefs of Staff expressed reservations regarding the repeal. Given that the repeal has already occurred, it is not clear what effect enacting this language would have had. Reference(s): CRS Report R40782, "Don't Ask, Don't Tell": Military Policy and the Law on Same-Sex Behavior , by [author name scrubbed], and CRS Report R42003, The Repeal of "Don't Ask, Don't Tell": Issues for Congress , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background Concerns over laws regarding rape and sexual misconduct, as well as the repeal of the Don't Ask Don't Tell policy led to a review of the Uniform Code of Military Justice. The Joint Service Committee of Military Justice recommended numerous changes to the Uniform Code of Military Justice concerning rape and sexual assault. These changes were submitted to the House and Senate Armed Services Committees for consideration. Included in these recommendations was language that would repeal the prohibition on sodomy. Discussion: In addition to reorganizing and modifying existing language pertaining to rape and sexual assault, including rape and sexual assault of children, this section creates language regarding non-consensual sexual misconduct (indecent viewing, visual recording or broadcasting). These changes align the language in Article 120 with definitions in other Articles of the UCMJ ('rape by unlawful force'), clarifies sexual assault ('removing the focus from the degree of incapacity of the victim and refocuses on the accused's actions'), and simplifies existing language with regard to the rape of children, according to the Joint Service Committee. Despite these and previous changes, including changes in prosecution and victim advocacy, problems remain. This language removes sodomy as a chargeable offense. Although the removal of sodomy has been justified based on certain court decisions striking down sodomy laws ( Lawrence v. Texas , for example), some have noted that the Comprehensive Review Working Group recommended that it be removed as part of the effort to repeal the Don't Ask, Don't Tell policy. Reference(s): CRS Report R40782, "Don't Ask, Don't Tell": Military Policy and the Law on Same-Sex Behavior , by [author name scrubbed], and CRS Report R42003, The Repeal of "Don't Ask, Don't Tell": Issues for Congress , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: In 1996, the Defense of Marriage Act (DOMA) was enacted ( P.L. 104-199 ). Under this law, the federal government does not recognize same-sex marriages, the law allows states to refuse to recognize such marriages, and defines marriage for federal benefit purposes, as the union of one man and one woman. A few states have recognized same-sex marriages. The Attorney General, Eric Holder, announced in a letter to Speaker of the House, John A. Boehner, that the definition of marriage as set forth in DOMA was "unconstitutional." Under Title 10, U.S.C., for example, certain military benefits, such as military health care, describe who are eligible beneficiaries, including "Spouse," "Former Spouse," "Widow," and "Widower." Following the repeal of DADT, a service member who marries a same-sex partner in a state that recognizes such, would be prevented from providing the spouse with military health care and certain other benefits because of restrictions under DOMA. Discussion: The matter of DOMA is currently being contested in the courts. The language above recommits the House to the definition of marriage under DOMA. The Senate language allows military chaplains to opt out of performing any marriage as a matter of conscience or moral principle. Reference(s): CRS Report RL31994, Same-Sex Marriages: Legal Issues , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: See the previous issue for a discussion of the 1996 Defense of Marriage Act ( P.L. 104-199 ). According to reports, in April 2011, Navy Chief of Chaplains, Rear Adm. M.L. Tidd, announced on April 13, 2011, a change in policy allowing same-sex marriages to be performed in Navy Chapels. Following criticism by certain Members of Congress, on May 10, 2011, the policy change was "suspended." Discussion: Rear Adm. Tidd announced the change in guidance was suspended "until further notice pending additional legal and policy review and inter-Departmental coordination." As such, it appears that the services are or will begin this process. The House language would recommit DOD to the definition of marriage under DOMA. Reference(s): CRS Report RL31994, Same-Sex Marriages: Legal Issues , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Military members who are single parents are subjected to the same assignment and deployment requirements as are other service members. Deployments to areas that do not allow dependents (such as aboard ships or in hostile fire zones) require the service member to have contingency plans to provide for their dependents. (See U.S. Department of Defense, Instruction No. 1342.19, "Family Care Plans," May 7, 2010.) Concerns have been raised that the possibility or actuality of military deployments may encourage courts to deny custodial rights of a service member to a former spouse or others. Also, concerns have been raised that custody changes may occur while the military member is deployed and unable to attend court proceedings. Discussion: This language would allow courts to temporarily assign custody of a child for the purposes of deployment without allowing the (possibility of) deployment to be prejudicially considered against the service member in a custody hearing. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Issues of sexual assault in the Armed Forces have been of concern to Congress for decades. Over the years, Congress has, on numerous occasions, addressed the issue via studies, hearings and legislation. Title V (subtitle I) of H.R. 1540 contains seven Sections concerning sexual assault. (Note: Section numbers and order do not necessarily correspond across reported bills.) Discussion: These sections elevate the handling of sexual assault case management, set standards for record keeping, allow victims to seek transfers or other actions to reduce the possibility of retaliation, and establish training requirements. The House report language notes, in two sections, that $45 million is to be set aside for training, although that language does not exist in the legislation. It is also important to note that those serving as Sexual Assault Response Coordinators and Sexual Assault Victims Advocates must either be members of the military or federal employees, thereby preventing private, self-assigned, advocacy groups from financially exploiting the issue. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Section 594 would require the Secretary of Defense to carry out a career-development services program for severely wounded warriors of the Armed Forces, and their spouses if appropriate, during fiscal years 2012 through 2016. The provision directs the Secretary to obligate $1 million for the program using merit-based or competitive procedures from funds appropriated for Defense-wide Operation and Maintenance Administrative and Service-wide Activities. It also requires DOD to submit a cost-benefit analysis of the program to Congress within one year following enactment of the bill. The program would be required to include at a minimum the following services: 1. Exploring career options; 2. Obtaining education, skill, aptitude, and interest assessments; 3. Developing veteran-centered career plans; 4. Preparing resumes and education/training applications; 5. Acquiring additional education and training, including internships and mentorship programs; 6. Engaging with prospective employers and educators when appropriate; 7. Entering into various kinds of occupations (whether full-time, part-time, paid, or volunteer, or self-employment as entrepreneurs or otherwise); 8. Advancing in jobs and careers after initial employment; and 9. Identifying and resolving obstacles through coordination with the military departments, other departments and agencies of the federal government. Discussion: The program would provide a range of services including testing and assistance in developing career plans, preparing resumes, and improving skills. Those services would be provided at as many as 20 locations in geographic areas with the largest concentrations of wounded former and current service members. Based on information from DOD's Office of Wounded Warrior Care and Transition Policy and the National Organization on Disability, the Congressional Budget Office (CBO) estimates that implementing this provision would cost $60 million over the 2012-2016 period, assuming that the program opens and maintains 20 locations in the United States for most of that period. Congress has stated its interest in monitoring the outcome of DOD's Education and Employment Initiative. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: The United States ended the involuntary induction of men into the Armed Forces ("the draft") in 1973. The requirement that men register for the draft upon reaching age 18 was suspended in 1975, but reinstated in 1980. Current law requires that The Selective Service System shall be maintained as an active standby organization, with (1) a complete registration and classification structure capable of immediate operation in the event of a national emergency, and (2) personnel adequate to reinstitute immediately the full operation of the System, including military reservists who are trained to operate such System and who can be ordered to active duty for such purpose in the event of a national emergency (including a structure for registration and classification of persons qualified for practice or employment in a health care occupation essential to the maintenance of the Armed Forces). SSS is an independent agency with a budget of about $24 million per year. It has a staff of approximately 130 civilian employees, 175 National Guard and Reserve officers, and 11,000 trained volunteers who would staff local boards in the event the draft were reinstated. Since the U.S. Armed Forces became "all volunteer" in 1973, some have questioned the need to maintain the Selective Service System. Opponents argue that a return to conscription is highly unlikely and, as such, money spent on SSS is wasteful. They also argue that even if conscription did need to be reinstated at some time in the future, a new agency could be established and conscription begun in a fairly short period of time. Supporters of SSS argue that the cost of the agency is very small, and that the ability to restart conscription rapidly and equitably is an important strategic hedge. They dispute the notion that an equitable conscription system could be rapidly put into place if events required it in the future. Discussion: The House provision would require the Government Accountability Office (GAO) to conduct a study on the Selective Service System to determine the fiscal and national security implications of several alternatives to the current system. The Senate bill contained no similar provision. The final bill largely adopts the House provision, while making a few changes in the description of the report—the report is to assess the necessity of the SSS, rather than its criticality; the definition of deep standby mode is changed to include personnel sufficient to conduct "necessary functions"—and extending the deadline for its completion from March 31 to May 1, 2012. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Military funeral honors, memorial services and wreath laying ceremonies include the playing of a bugle call commonly known as "Taps." In cases where a trained bugler is not available, DOD approved the use of a ceremonial bugle that contains a device that plays a recorded version of Taps. Some have complained that the use of such a recorded device is unsuitable and inauthentic. Discussion: This language only expressed the sense of the House with regard to the playing of Taps and does not create a requirement for the performance of Taps at these events. Reference(s): CRS Report RS21545, Military Funeral Honors and Military Cemeteries: Frequently Asked Questions , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: Increasing concern with the overall cost of military personnel, combined with ongoing military operations in Afghanistan, and, at the time, Iraq, has continued to focus interest on the military pay raise. Title 37 U.S.C. Section 1009 provides a permanent formula for an automatic annual military pay raise that indexes the raise to the annual increase in the Employment Cost Index (ECI). The FY2012 President's Budget request for a 1.6% military pay raise was consistent with this formula. However, since the attacks on the World Trade Center on September 11, 2001, (aka "9/11"), Congress has approved the pay raise as the ECI increase plus 0.5%; this occurred in fiscal years 2004, 2005, 2006, 2008, 2009, and 2010. The pay raise was equal to the ECI in 2007 and 2011. Discussion: A military pay raise larger or smaller than the permanent formula is not uncommon. In addition to "across-the-board" pay raises for all military personnel, mid-year and "targeted" pay raises (targeted at specific grades and longevity) have also been authorized over the past several years. The Congressional Budget Office (CBO) estimates that the total cost of a 1.6% military pay raise would be $1.2 billion in 2012. The Senate and the Conference did not address the issue of the military pay raise. As a result, the automatic provisions of 37 U.S.C. will result in a 1.6% (equal to the Employment Cost Index) across-the board pay raise effective January 1, 2012. Reference(s): Previously discussed in CRS Report R41316, FY2011 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed], and CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. See also CRS Report RL33446, Military Pay and Benefits: Key Questions and Answers , by [author name scrubbed]. CRS Point of Contact: Charles Henning, x[phone number scrubbed]. Background: Samson Luke, a captain in the Arkansas National Guard, went home for the evening after a day of inactive duty training at Fort Chaffee, fully expecting to return the next morning. That evening, at his off-base home, Luke died, reportedly of heart problems. Since he was not on-base at the time, although he was eligible to spend the night on-base or at a nearby hotel, his surviving wife was not eligible to receive the $100,000 Death Gratuity benefit. Discussion: When is a Reservist on duty? Under current law, when such a person is serving on active duty (such as during a call-up), serving on inactive duty training (such as the routine one weekend a month duty when members of the National Guard train), traveling to and from such training, or if away from home as the result of such training. Because Captain Luke returned home for the evening, he was not considered to be in a training capacity and therefore ineligible for certain death benefits. The Senate provision would have extended the law to cover individuals in such situation. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background: The Survivor Benefit Plan (SBP) provides an annuity to an eligible spouse of a deceased military member/retiree. Dependency and Indemnity Compensation provides compensation to a surviving spouse of a member/retiree who suffered a disability that is service connected. A surviving spouse who is eligible for both will have his or her SBP reduced or offset on a dollar-for-dollar basis by Dependency and Indemnity Compensation (DIC). For certain beneficiaries affected by the offset, Section 644 of the National Defense Authorization Act for Fiscal Year 2008, created a new Special Survivor Indemnity Allowance (SSIA) to be paid to survivors of covered service members. This monthly allowance, effective October 1, 2008, was $50, and is scheduled to increase annually by $10 through FY2013. The benefit was scheduled to end in 2016. However, during the 111 th Congress, SSIA was made more generous in that for the years 2014 through 2017, the amount would increase from $150, to $200, $275, and finally, $310, after which the benefit will terminate on October 1, 2017 (see the CRS report below). The amount received under SSIA may not be greater than the amount of the SBP-DIC offset. (SSIA was extended to survivors of active duty members later in October, 2008.) Critics have noted that with the earlier repeal of the Social Security offset, survivors could be receiving three government subsidized benefits based on the same period of service; a form of "triple dipping." Discussion: Efforts in previous years to end the SBP-DIC offset have not been successful. In the current budget situation, ending the offset appears unlikely. Advocates for these survivors view SSIA as a better option to provide these beneficiaries more money. Critics note that providing more money than was contracted for under the original SBP was unjustified, particularly under these budgetary conditions. The Senate approach was to eliminate the offset entirely. Reference(s): CRS Report RL31664, The Military Survivor Benefit Plan: A Description of Its Provisions , by [author name scrubbed]. CRS Point of Contact: [author name scrubbed], x[phone number scrubbed]. Background : TRICARE is a health care program serving uniformed service members, retirees, their dependents and survivors. Section 701 of H.R. 1540 would limit future increases in TRICARE Prime enrollment fees for military retirees and their dependents to the annual cost-of-living adjustment (COLA) for military retirement annuities beginning in fiscal year 2013. Under current law, the Secretary of Defense may adjust TRICARE Prime annual enrollment fees effective October 1, 2011. The House Armed Services Committee (HASC) Personnel Subcommittee marked up the original bill to extend a prohibition on TRICARE Prime annual enrollment fee increases for one year. Such provisions have been included regularly in annual national defense authorizations. However, this provision was removed this year in the HASC chairman's mark. By not extending the existing prohibition on fee increases, the bill would allow the Obama Administration to implement its proposal to increase the annual enrollment fee by $30 per year for individual and $60 per year for family enrollments. The Administration also has proposed to index future increases in those enrollment fees to the per capita growth rate in national health expenditures as published by the Centers for Medicare and Medicaid Services; that growth rate is currently projected to be about 5 percent to 6 percent per year over the next decade. In contrast, the Congressional Budget Office (CBO) estimates that under Section 701, indexing annual enrollment fee increases to the annual increases in the military retirement COLA (which are based on the consumer price index for urban wage earners and clerical workers) would limit the fee increases to an average of about 2 percent per year over that same period. Discussion: Currently, about 700,000 military retiree households are enrolled in TRICARE Prime, covering about 1.6 million beneficiaries. If the Administration proposal is implemented as permitted under the House-passed version of H.R. 1540 , the TRICARE Prime enrollment fees in 2012 will be increased to $260 (from $230) for those who enroll as individuals and $520 (from $460) for those who enroll their families. CBO estimates that limiting future growth in the enrollment fees to the military retirement COLA would cost $186 million over the 2013–2016 period. Reference(s): Previously discussed in CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]; CRS Report R40711, FY2010 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]; and CRS Report RS22402, Increases in Tricare Costs: Background and Options for Congress , by [author name scrubbed]. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: Section 703 of H.R. 1540 would amend Title 10, U.S.C., to require that the Secretary of Defense provide to any member of the reserve components performing inactive-duty training during scheduled unit training assemblies free access to mental health assessments with a licensed mental health professional who would be available for referrals during duty hours on the premises of the principal duty location of the member's unit. Section 703 would further amend Title 10 to provide that each member of a reserve component of the Armed Forces while participating in annual training or individual duty training shall have access to behavioral health support programs. The behavioral health support programs would include one or any combination of the following: programs providing access to licensed mental health providers in armories, reserve centers, or other places for scheduled unit training assemblies; and programs providing training on suicide prevention and post-suicide response. Discussion: CBO estimates that implementing Section 703 would cost $118 million over the 2012-2016 period. CBO based its estimate of this provision's costs on pilot programs providing such care to the California and Montana National Guards. For those programs, guard units contracted with behavioral health professionals to be available during drill weekends. Based on information from DOD, CBO estimates that the Montana and California programs combined cost about $1 million per year and covered about 25,000 reserve members. After scaling those costs upward to cover the roughly 700,000 drilling members of the selected reserve and adjusting for inflation, CBO estimates this provision would require appropriations of almost $30 million per year when fully implemented. Costs would be lower in the first year because of the time needed to establish regulations and set up the required programs. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: Section 704 of H.R. 1540 would amend Title 10, U.S.C., to close enrollment in the Uniformed Services Family Health Plan (USFHP) to Medicare-eligible beneficiaries of the military health system. Those currently enrolled in USFHP would be allowed to remain in the program for as long as they wish. However, anyone who enrolled after the end of fiscal year 2012 would be forced to leave USFHP once they reach the age of 65. At that point, such individuals would move to the regular Medicare/TRICARE-for-Life benefit. These changes were included in the Administration's 2012 Budget. Discussion: USFHP, a TRICARE option available to active duty dependents, retirees and retiree family members through not-for-profit health care systems in six areas of the United States, originated separately from the other TRICARE options. Six former, government-owned Public Health Service (PHS) hospitals were closed in the late 1970s and sold to non-profit health care entities; now owned by: Johns Hopkins Medicine (MD) Christus Health (TX) Pacific Medical Centers (WA) Martin's Point Health Care (ME, NH, VT) Brighton Marine Health Center (MA, RI) Saint Vincent Catholic Medical Centers (NY) These health systems now operate plans similar to TRICARE Prime for military beneficiaries that are collectively know as the "Uniformed Services Family Health Plan." Initially, these hospitals were legislatively "deemed" as equivalent to DOD military hospitals and DOD paid for beneficiary hospitalizations and outpatient visits. With the advent of TRICARE in 1994, DOD changed its payment model to a per member per month "capitated fee" and the USFHP were responsible for managing the care. All categories of beneficiaries who live in these geographic areas are eligible to enroll in the USFHP (both Medicare-eligible and non-Medicare). The law currently makes most Medicare-eligible retirees ineligible for TRICARE unless they enroll in and pay Medicare Part B premiums. Medicare-eligible retirees enrolled in USFHP, however, are not required to enroll in Medicare Part B. Because DOD believes that it pays a higher capitated rate than the equivalent Medicare capitated plan, it believes that the Government can reduce expenditures if future Medicare-eligible USFHP enrollees are required to enroll in Medicare Part B to retain TRICARE coverage under the TRICARE for Life plan. Medicare Part B premiums are currently $96.40 per month for individuals with incomes less than $85,000 per year. The Congressional Budget Office (CBO) cost estimate for this provision concurs and estimates that limiting enrollment in USFHP would result in a net savings to the federal government of about $76 million over the 2013-2021 period. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. Background: Section 711 of H.R. 1540 would amend Title 10, U.S.C., to require the President, with the advice and assistance of the Chairman of the Joint Chiefs of Staff, through the Secretary of Defense, to establish a unified command for medical. The principal function of the command would be to provide medical services to the Armed Forces and other health care beneficiaries of the Department of Defense. The Section would amend Title 10, to add a new Section 167b. The Section would require that all active military medical treatment facilities, training organizations, and research entities of the Armed Forces be assigned to the unified medical command, unless otherwise directed by the Secretary of Defense. The commander of the unified medical command would hold the grade of general or, in the case of an officer of the Navy, admiral while serving in that position, without vacating their permanent grade. The commander of the unified medical command would be appointed to that grade by the President, with the advice and consent of the Senate, for service in the position. The unified medical command would have the following subordinate commands: 1. A command that includes all fixed military medical treatment facilities, including elements of the Department of Defense that are combined, operated jointly, or otherwise operated in such a manner that a medical facility of the Department of Defense is operating in or with a medical facility of another department or agency of the United States. 2. A command that includes all medical training, education, and research and development activities that have previously been unified or combined, including organizations that have been designated as a Department of Defense executive agent. 3. A Defense Health Agency to which would be transferred the TRICARE Management Activity and all functions of the TRICARE Program. The commander of the unified medical command would conduct all affairs of the command relating to medical operations activities including developing programs and doctrine; preparing and submitting to the Secretary of Defense program recommendations and budget proposals for the forces assigned to the unified medical command; exercising authority, direction, and control over the expenditure of funds for the Defense Health Program, forces assigned to the unified medical command and for military construction funds of the Defense Health Program; training assigned forces; conducting specialized courses of instruction for commissioned and noncommissioned officers; and ensuring the interoperability of equipment and forces. Discussion: The current organizational structure of the military health system (MHS) has long been considered by many observers to present an opportunity to gain efficiencies and save costs by consolidating administrative, management, and clinical functions. Recent Government Accountability Office testimony summarized these views, stating that The responsibilities and authorities for the MHS are distributed among several organizations within DOD with no central command authority or single entity accountable for minimizing costs and achieving efficiencies. Under the MHS's current command structure, the Office of the Assistant Secretary of Defense for Health Affairs, the Army, the Navy, and the Air Force each has its own headquarters and associated support functions. DOD has taken limited actions to date to consolidate certain common administrative, management, and clinical functions within its MHS. To reduce duplication in its command structure and eliminate redundant processes that add to growing defense health care costs, DOD could take action to further assess alternatives for restructuring the governance structure of the military health system. In 2006, if DOD and the services had chosen to implement one of the reorganization alternatives studied by a DOD working group, a May 2006 report by the Center for Naval Analyses showed that DOD could have achieved significant savings. Our adjustment of those savings from 2005 into 2010 dollars indicates those savings could range from $281 million to $460 million annually, depending on the alternative chosen and the numbers of military, civilian, and contractor positions eliminated. The Administration's Statement of Administration Policy on H.R. 1540 dated May 24, 2011, strongly objected to the provision, stating: The Administration strongly objects to Section 711, which would require the President to create a new unified combatant command for medical operations. DOD will shortly complete a study on how to best deliver high-quality medical care to service members and their families in an effective and cost-efficient manner. Among the options this study will consider is a joint medical command similar to this provision; however, this Section presumes the outcome of the study and of decisions to be made by DOD leadership on this important subject. The Senate amendment allows the process to move forward in a more measured pace. Reference(s): Previously discussed in CRS Report RL34590, FY2009 National Defense Authorization Act: Selected Military Personnel Policy Issues , coordinated by [author name scrubbed]. CRS Point of Contact: Don Jansen, x[phone number scrubbed]. | Military personnel issues typically generate significant interest from many Members of Congress and their staffs. Recent military operations in Iraq and ongoing operations in Afghanistan, along with the operational role of the Reserve Components, further heighten interest in a wide range of military personnel policies and issues. The Congressional Research Service (CRS) has selected a number of the military personnel issues considered in deliberations on the House and Senate versions of the National Defense Authorization Act for FY2012. This report provides a brief synopsis of sections that pertain to personnel policy. These include end strengths, pay raises, health care issues, and language affecting the repeal of the "Don't Ask, Don't Tell" policy, as well as congressional concerns over the handling of sexual assaults in the military. The House version of the National Defense Authorization Act for Fiscal Year 2012, H.R. 1540, was introduced in the House on April 14, 2011; reported by the House Committee on Armed Services on May 17, 2011 (H.Rept. 112-78); and passed on May 26, 2011. Various Senate versions were introduced. S. 1867 was introduced on November 15, 2011, and passed by the Senate on December 1, 2011. Often the Senate will add language not included in the House version, add language that affects an issue in a differing manner (for example, the Senate may have end strengths numbers that differ from the House). Usually, these differences will be worked out under the Conference Committee's consideration of the legislation. The Conference Committee language was incorporated into the report. On December 14, 2011, the House passed the conference reported version of H.R. 1540. The next day, the Senate passed H.R. 1540. On December 31, 2011, President Obama signed P.L. 112-81 into law. Where appropriate, related CRS products are identified to provide more detailed background information and analysis of the issue. For each issue, a CRS analyst is identified and contact information is provided. This report focuses exclusively on the annual defense authorization process. It does not include language concerning appropriations, veterans' affairs, tax implications of policy choices, or any discussion of separately introduced legislation. |
The Federal Railroad Administration (FRA) of the U.S. Department of Transportation is the federal agency primarily responsible for promoting and regulating the safety of the railroad industry. The FRA's rail safety programs were last authorized in 1994 ( P.L. 103 - 440 ); that authorization expired at the end of FY1998. FRA's safety programs have continued to be funded through annual appropriations bills. Reauthorization of the FRA is taking place in a context of improvement in most measures of rail safety. However, there continue to be around 1,000 rail-related deaths each year. The trend of improvement in some rail safety measures, such as train accidents and deaths in grade-crossing collisions, has leveled off in recent years, and with forecasts of significant growth in rail traffic in the future, there is concern over the need to make more progress in rail safety. Several hearings have been held in the 110 th Congress in both the House and Senate on reauthorization of FRA. An Administration proposal to reauthorize FRA has been introduced, by request, as the Federal Railroad Safety Accountability and Improvement Act ( H.R. 1516 and S. 918 ). No action has been taken on this legislation in either the House or the Senate. Representative James Oberstar, Chairman of the House Transportation and Infrastructure Committee has introduced a reauthorization proposal, the Federal Railroad Safety Improvement Act of 2007 ( H.R. 2095 ). A managers' amendment was adopted, with amendments, and was ordered to be reported out of the Transportation and Infrastructure Committee on June 14, 2007. The amended bill was reported by the committee on September 19, 2007, and was approved by the House of Representatives on October 17, 2007. Senator Frank Lautenberg, Chairman of the Senate Commerce Committee's Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety, and Security, has also introduced a reauthorization proposal, the Railroad Safety Enhancement Act of 2007 ( S. 1889 ). A managers' amendment was adopted and ordered to be reported out of the Commerce Committee on September 27, 2007; the bill was reported out on March 3, 2008. The Senate substituted S. 1889 , with amendments, for the text of H.R. 2095 , and passed it by unanimous consent on August 1, 2008. This report describes the major issues in the debate over reauthorization of FRA in the 110 th Congress. It also describes the major provisions of H.R. 2095 as passed by the House and as passed by the Senate. These include changes to the rail hours of service law, including limitations on limbo time; imposition of a deadline for the implementation of positive train control by railroads; and new requirements for highway-rail grade crossings. The nation's railroad sector consists of both freight rail companies and those passenger rail systems that use the nation's intercity rail network (i.e., both Amtrak and commuter rail systems). The sector consists of roughly 570 freight railroads and 118 passenger, commuter, and excursion railroads. These organizations employ around 235,000 people and operate roughly 220,000 miles of track. The vast majority of the rail sector consists of freight railroad operations. The freight railroad industry is divided into three classes, based on operating revenues; there are only 7 railroads in the top category, Class I, for which the threshold is roughly $320 million in annual revenues, but those 7 railroads represent about 70% of freight rail industry employment and own roughly 70% of total U.S. rail mileage. The Staggers Rail Act of 1980 ( P.L. 96 - 448 ) largely deregulated the freight rail industry. Since that time, there has been extensive consolidation of the industry. Employment has been reduced from 480,000 (1980) to 235,000 (2006), while freight revenue ton-miles have increased from 918 million (1980) to 1.96 trillion (2006). The miles of road operated in freight service have been reduced from 177,000 (1980) to 141,000 (2005), while the number of train-miles operated has increased from 718 million (1980) to 811 million (2006). The number of passenger-miles has increased from 12 billion (1980) to 16 billion (2006). During this period, the overall safety record of the industry has shown great improvement. Between 1980 and 1994, the annual rate of train accidents (that is, the number of accidents divided by the number of miles traveled by trains) declined from almost 12 accidents per million train miles to just under 4 per million train miles. However, since 1994 the improvement has leveled off, and the rate of train accidents has varied from 3.5 to 4.4 per million train miles since then. In addition to this lack of improvement in the train accident rate, several recent serious accidents have raised concerns about the need for further improvement in rail safety. The numbers of grade-crossing collisions and resulting injuries and deaths declined until 2003, but has shown little improvement since then. Most rail-related deaths are to pedestrians trespassing on rail lines and motorists colliding with trains at highway rail grade crossings. While there are nearly 1,000 rail-related deaths each year, only around 20-30 rail employees are killed while on duty each year, and railroads have lower employee injury rates than other modes of transportation and most other major industries. FRA classifies the causes of train accidents into five categories: human factors, track and structures, equipment, signal and train control, and miscellaneous. Of these, human factors and track are responsible for the majority of train accidents. Examples of human factor causes of accidents include improperly positioning the switches that determine which track a train will follow (the cause of the Graniteville, SC accident), moving rail cars without checking for safe conditions in the vicinity, and leaving rail cars in a position that blocks track. Examples of track conditions that lead to accidents include defective joint bars (that connect one piece of rail to the next), defective or ineffective crossties (that maintain the proper alignment of the parallel rails that form the track), and broken or worn switches. Without further reductions in the rate of train accidents, the number of train accidents and resulting deaths and injuries is likely to grow, due to expected increases in train traffic. The Department of Transportation (DOT) has estimated that between 1998 and 2020 the amount of freight moved by rail (measured by weight) will increase by roughly 50%. Also, many communities are interested in establishing, or expanding already existing, commuter rail operations (which generally operate on the freight rail network) to provide transportation alternatives and manage congestion. Thus, the number of train miles on the nation's freight rail network is likely to significantly increase in the coming years. If train accident rates do not improve, this may lead to increased numbers of accidents, injuries and deaths. FRA's role in rail safety is threefold: to assess the safety of rail operations; to promulgate regulations to promote cost-effective improvements in safety standards; and to enforce compliance with federal rail safety laws and regulations. These regulations address such topics as track condition, passenger and freight equipment, signal and train control systems, maintenance of active warning devices at highway-rail grade crossings, accident reporting, alcohol and drug testing, operating rules and practices, and many others. FRA also enforces the Hazardous Materials Regulations, prescribed by DOT's Pipeline and Hazardous Materials Safety Administration, as they apply to rail transportation. FRA is a relatively small agency in relation to the size of the railroad industry it oversees. It has around 800 employees, of whom 650 are classified as safety personnel, including around 430 inspectors (supplemented by 160 state inspectors who work with FRA on safety oversight of railroads), to oversee an industry with over 235,000 employees, 220,000 miles of track, 158,000 signals and switches, and over 1.3 million freight cars and other equipment in service. Although FRA and the state investigators conduct some 63,000 inspections each year, these inspections cover only a small fraction of the operations of railroads each year. To make the most of its resources, FRA focuses inspections at locations judged as likely to have safety problems based on accident data and results of previous inspections. FRA's annual budget for its core safety responsibilities (that is, excluding funding for grants to Amtrak) is roughly $200 million. FRA's traditional approach to safety is to regulate the design of rail structures and the behavior of rail workers, then to use inspections to enforce compliance with the specific standards. The Government Accountability Office (GAO) has noted that "these inspections focus on compliance with minimum standards and are not designed to determine how well railroads are managing safety risks throughout their systems that could lead to accidents." In response to reviews of its work by the DOT Inspector General and the Office of Management and Budget, FRA has begun to adopt new approaches to supplement its traditional safety program. These include efforts to target its inspections using a more quantitative assessment of risk, as well as new initiatives that make use of risk management approaches to improving safety. For example, FRA has implemented a Confidential Close Call Reporting Program pilot project. This project allows employees of participating railroads to report close calls—that is, incidents where an accident could have occurred, but didn't. The information on the close calls is kept confidential, so that both employees and the participating railroads are shielded from punishment for providing the information. A team composed of representatives of the participating railroads, labor organizations, FRA, and the Bureau of Transportation Statistics will review the information to identify safety problems. A similar program has been in place in the aviation industry for many years, and has contributed to improvements in safety there. In response to concerns raised by the accidents experienced in 2004 and early 2005, in May 2005 FRA instituted a new safety action plan to improve rail safety. The Rail Safety Action Plan includes initiatives to: Reduce train accidents caused by human factors; Reduce employee fatigue; Improve track safety; Improve hazardous materials safety and emergency preparedness; Strengthen FRA's safety compliance program; and Increase highway-rail grade crossing safety. According to GAO, FRA's Rail Safety Action Plan provides a reasonable framework for guiding the agency's efforts. Since the plan was introduced relatively recently, most of its initiatives have not yet been fully implemented, and their overall impact on safety will probably not be known for several years. Some of the initiatives rely on voluntary actions by railroads, such as the adoption of a worker fatigue model to help railroads schedule the duty periods of train crews so as to reduce worker fatigue; thus their implementation is uncertain. GAO noted that, while FRA has goals for its safety efforts (e.g., to reduce train accidents caused by human factors), it does not have measures of the direct results of its inspection and enforcement programs that would show their contribution to achieving those goals. Neither has FRA evaluated the effectiveness of its enforcement program in achieving its goals. The major issues in the current reauthorization debate include addressing employee fatigue through changes to the federal rail hours of service legislation, implementing new train control technology that promotes safety, improving the condition of track, and improving safety at highway-rail grade crossings. In the rail industry, which operates heavy machinery in all conditions around the clock, the impact of employee fatigue on safety is an ever-present concern. The FRA estimates that fatigue is at least a contributing factor in 25% of serious train accidents that are caused by human factors. The National Transportation Safety Board (NTSB) has identified fatigue as a factor in at least 18 rail accidents since 1984 , and notes that, given the difficulty of identifying fatigue as a cause or contributor to accidents, the number of accidents due to fatigue is likely to be underestimated. NTSB has had operator fatigue on its list of "Most Wanted Transportation Safety Improvements" since it began keeping such a list in 1990. Congress enacted legislation in 1907 to limit the amount of time certain rail workers, such as train operating personnel and signalmen, can work at one stretch, and to specify the minimum amount of rest they must be provided before reporting for work again. These limits are enacted in law , unlike the hours of service limits for workers in other transportation modes, which are set through the regulatory process. Therefore, unlike for other modes, the rail hours of service limits cannot be changed by DOT through the regulatory process. The rail hours of service law has not been substantially changed since 1969. Under the current law, train operating crews and signalmen can work a maximum of 12 hours, after which they must be given at least 10 hours rest. However, if they work less than 12 hours they are only required to be given 8 hours of rest. Under these rules, a train crew worker can work 432 hours a month. This compares to a maximum work schedule of 100 hours in a month for a commercial pilot, 260 hours in a month for commercial truck drivers, and 360 hours in a month for licensed maritime workers aboard vessels under 100 tons when at sea. Most rail workers do not work anywhere near the theoretical maximum of 432 hours. According to Association of American Railroads (AAR) data from several railroads collected in 1998-1999, the average work schedule for train, engine, and yard employees was in the range of 125 to 175 hours a month, with 17% working more than 200 hours in a month. Fewer than 1% worked more than 300 hours in a month. Both FRA and the NTSB have testified that the current rail hours of service regime is antiquated and does not reflect current understanding of the causes of, and effective countermeasures for, fatigue. The FRA has testified that "the limitations in [the time that can be worked under the hours of service law], although ordinarily observed, do not seem adequate to effectively control fatigue." The NTSB has made several recommendations to DOT over the years to change the rail hours of service act, but DOT has not been able to respond to these recommendations because the rules are set in the statutes. Among the issues that have been raised regarding the shortcomings of the current hours of service rule are inadequate rest periods and schedules that conflict with circadian rhythms. While workers are required to have at least eight hours off duty between shifts, that means that the worker has eight hours to commute home, enjoy any leisure time, take care of any personal tasks that need to be done, rest, then commute back to the work site. Moreover, the employee may not know whether they will have to return to work in 8 hours or whether they will have a longer period to rest. If they are called to return to work in 8 hours, the call to report to work, which is required by labor agreements to come early enough to give the employee time to get to work, may come as much as 2 hours in advance of the time to report to work, which could be only 6 hours after the employee left work at the end of their previous shift. Thus a worker could, even under ideal circumstances away from the job, have as little as 5 to 6 hours of undisturbed rest before returning to work. The difficulties created by the relatively short length of the minimum off-duty period set by the hours of service act can be exacerbated by the uncertainty of rail employee work schedules. It may be difficult for rail employees to make effective use of their available rest time between shifts, because when they leave work at the end of a shift train crews do not always know when they will next have to report to work. The FRA has testified that crews of freight trains rarely have predictable work schedules. The United Transportation Union has testified that the majority of train crews are subject to call with little notice. This uncertainty makes it difficult for train crews to know how to make the best use of their off-duty time. This uncertainty of employee's work schedules is due in part to labor agreements which affect the work scheduling practices of railroads. These agreements prioritize the availability of employees for work based on factors such as seniority. Employees who are called to report to work when they feel they have not had adequate rest can decline the call, but may face disciplinary action if they do so. Researchers have learned that human beings, like most mammals, sleep and wake in a cycle approximately 24 hours in length, known as a circadian rhythm. Rapid changes in a person's circadian pattern of sleep and wakefulness disrupt many physiological functions and may impair their performance. The work schedules permitted under the current hours of service rule may in certain instances conflict with employee's circadian rhythms, making it more difficult for them to get adequate rest. Under the current regulations, rail workers can work 8 hours and rest 8 hours, and maintain that schedule indefinitely. Thus, one day they might be resting from midnight to 8 a.m., the next day from 4 p.m. to midnight, the next day from 8 a.m. to 4 p.m., and the next day back to midnight to 8 a.m., a "backward-rotating" schedule that never allows the workers to establish a circadian rhythm. FRA has adapted a model developed by researchers working with the U.S. military that can estimate the degree of fatigue likely to be experienced by a person, based on such factors as the time of day, the amount of sleep they last got, when that sleep occurred, and how long the person has been awake since then. FRA has tested this model against a record of crew work schedules and found that it is useful in predicting when an employee may be fatigued to the point of increased risk of contributing to an accident. FRA is encouraging rail companies to use this model to inform their crew scheduling practices. FRA is also encouraging and supporting efforts to address sleep disorders among rail employees. Railroads and rail labor have cooperated in efforts to address fatigue. For example, the BNSF Railway Company provides train crews 14 hours of undisturbed rest after working 8 hours. CSX Transportation provides a 10-hour period of undisturbed rest, as well as fixed work-rest schedules in some locations. However, efforts by rail management and rail labor to address fatigue issues have often achieved limited success. Factors that have constrained the success of the various initiatives include the variability in demand for rail services, which can increase the need for rail labor more quickly than employees can be added, staffing and retention issues that have affected the supply of rail labor, and provisions in collective bargaining agreements which may make a fatigue management practice mandatory in one location and optional in another, even within the same railroad. According to rail labor representatives, programs to provide more predictable work schedules are currently covering no more than 2% of affected employees. Also, even successful voluntary programs are subject to being changed or eliminated as conditions change in the industry. A more fundamental difficulty facing efforts to address fatigue is that both rail managers and rail workers have incentives to maintain the status quo regarding rail hours of service. For managers, the current system allows more flexibility in scheduling employees for work than any likely alternative; for workers, the current system provides the opportunity to work more hours (and thus, earn more income) than any likely alternative. For these reasons, voluntary efforts to address fatigue are likely to face much resistance. Another difficulty in attempting to address fatigue is the degree to which the current hours of service regime has become intertwined with the contractual arrangements that have been negotiated over decades by rail labor and management. These labor agreements, resulting from collective bargaining, often include provisions that affect how often, and under what circumstances, employees can work. Changes in the hours of service regime may affect the impact of these provisions, and thus upset the balance of interests achieved through long negotiation. Limbo time refers to a situation where a train operating crew has reached the limit of the amount of time it is allowed to work at one stretch under the hours of service law (12 hours), but has not yet reached the location where it is to be released from duty. In such a situation the crew is required to stop the train and not engage in safety-related duties, but it is not allowed to leave the train until a replacement crew arrives, at which time the original crew can be transported to a final release point. The time the crew spends being transported to its final release point is neither on-duty time for purposes of the hours of service law (and so not a violation of the hours of service law) nor off-duty time (and so does not count against the amount of off-duty time the crew is required to be given in order to rest after their shift); hence, "limbo" time. The train crews are generally paid for limbo time, but there is concern about its impact on employee fatigue: the minimum rest period currently required after a 12-hour shift may not be sufficient to recover from a shift that was more than 12 hours long—in some cases much more—due to the addition of limbo time. Limbo time was created in 1969 amendments to the rail hours of service law. Prior to that change, the time the original crew spent being transported to its final release point was considered off-duty (rest) time. Rail labor requested that the transportation time be considered as on-duty time, but railroads objected that that change would create increased scheduling difficulties for them, since they would have to arrange to stop the trains even further from the pre-arranged destination and have the original crew spend more time being transported to its release point. Limbo time was created to ensure that train crews' off-duty period did not begin until they were truly off duty so that they had the opportunity to rest during their rest period, while still providing railroads operational flexibility without endangering safety. FRA has also interpreted the time the original crew spends waiting with the train for the arrival of transportation to its final release point as limbo time, an interpretation that has been upheld by the Supreme Court. FRA has expressed concern about employees being held on trains for long periods of time while awaiting the arrival of transportation, in the absence of any valid emergency that would justify such long waits. Changing conditions in the rail industry since 1969 have increased the scale of the limbo time issue. In the 1960s, the industry consisted of many mid-sized companies operating in relatively small regions, and railroads typically had employees stationed every few dozen miles who could be sent to pick up train crews whose shifts had expired. Since then there has been significant consolidation in the rail industry, which is now dominated by a few major companies whose operations span much larger territories. The average distance covered by a train crew during a shift is now much greater, and there may be few or even no intermediate locations from which transportation can be dispatched to pick up a crew whose shift has expired. Industry-wide statistics on limbo time are not available, so the full extent of limbo time is not known, nor can an increase in the incidence of limbo time be documented industry-wide. The Brotherhood of Locomotive Engineers and Trainmen (BLET) recently presented data on limbo time for train crews at one Class I railroad indicating that the incidence of limbo time at that railroad was increasing. Over the six-year period 2001-2006, the number of crews whose work tours exceeded 14 hours, indicating at least 2 hours of limbo time, increased from between 32,000-33,000 a year in 2001 and 2002 to between 75,000-80,000 in 2005 and 2006. Those crews whose work tours exceeded 15 hours rose from around 12,000 a year in 2001 and 2002 to between 35,000-38,000 a year in 2005 and 2006. The BLET figures show that on 1,003 occasions crews at that Class I railroad spent at least 8 hours in limbo, resulting in a shift lasting at least 20 hours. The NTSB investigation of the Macdona, Texas accident found that the engineer on the Union Pacific train that struck the BNSF train had one shift earlier that month that had lasted 22 hours: 10 hours of limbo time after a 12-hour shift. Fatigue is not entirely preventable, no matter the countermeasures. Researchers have found, for example, that human performance is impaired during the early morning hours (roughly 3-6 a.m.), regardless of how well-rested the worker. Thus there is interest in technologies that can reduce the opportunities for human error resulting from fatigue or other factors to create safety problems. One such technology is positive train control. Positive train control (PTC) refers to technology that is capable of preventing collisions between trains, derailments resulting from trains traveling too fast for conditions, and injuries to roadway workers (e.g., maintenance-of-way workers, bridge workers, signal maintainers), as well as potentially limiting the consequences of hijackings and runaway trains. PTC can serve as a backup system able to intervene when a train crew operates a train improperly or fails to comply with signals. Examples of PTC systems vary widely in complexity and sophistication based on the level of automation they implement and the degree of control they are capable of assuming. PTC has been on the NTSB's Most Wanted Transportation Safety Improvements list since the list was established in 1990. In its review of the Macdona, Texas accident, the NTSB noted that "[b]oard accident investigations over the past three decades have shown that the most effective way to prevent train-to-train collisions is through the use of a positive train control (PTC) system that will automatically assume some control of a train when the train crew does not comply with signal indications." Congress has also been interested in PTC. Since 1992, Congress has on several occasions requested information from FRA about the costs and benefits of PTC and the status of PTC deployment. Since 1994, Congress has provided approximately $40 million to FRA to support development, testing, and deployment of PTC prototype systems in Illinois, Alaska, and among the Eastern railroads. In 1997 FRA asked the Rail Safety Advisory Committee to examine PTC. The Advisory Committee concluded that the safety benefit of PTC to railroads did not justify the significant costs of deploying such systems. It estimated that PTC deployment on the Class I railroads would cost from $1.2 billion to $7.8 billion over 20 years, depending on the sophistication of the system, while over the same period the estimated safety benefit from avoided accidents ranged from around $500 million to $850 million, again depending on the sophistication of the system. FRA subsequently issued a regulation establishing a performance standard for PTC (finalized in 2005), but has not required railroads to implement PTC. FRA noted in its 2005 Final Rule on PTC standards that PTC systems offer nonsafety benefits, including substantial public benefits, although the total value of these benefits is subject to debate. FRA concluded that mandating the implementation of PTC systems could not be justified based on "normal cost/benefit principles relying on direct railroad safety benefits." FRA encourages railroads to voluntarily deploy PTC. In 2006 the NTSB observed that it was encouraged that FRA had adopted performance standards for PTC in 2005 and that PTC pilot projects are underway at various railroads, but noted that the 2004 Macdona, Texas accident was "another in a long series of railroad accidents that could have been prevented had there been a PTC system in place at the accident location." In 2006, defective track was the leading cause of train accidents. Frequently the defect causes a derailment. The number of derailments has risen from 1,816 (1996) to 2,138 (2006). For example, on March 12, 2007, a CSX train derailed in upstate New York. There had been several previous derailments in the area, and the FRA initiated an audit of CSX track in New York state. The audit found 78 track defects and one serious violation. FRA has announced that it will extend the audit to other railroads' tracks in New York state. To make better use of its limited inspection resources, FRA has begun to target its inspections to those sites deemed likely to have problems, based on quantitative analysis of risk factors and past inspections. Some types of track defects are difficult to detect by visual inspection, so FRA has acquired technology that can improve its track inspections. It has recently introduced two new automated track geometry inspection vehicles, which measure the width between rails, whether the rails are level, and whether the shape of each rail complies with federal standards intended to prevent derailments. This brings the track geometry inspection fleet to five. FRA expects that these new vehicles will enable it to triple the amount of track it inspects each year by automated means, to nearly 100,000 miles. FRA has also acquired a vehicle-mounted joint-bar inspection system that can detect subtle visual cracks in joint bars that are often missed by traditional visual inspection. Broken joint bars are a leading cause of accidents due to track conditions. Collisions between trains and highway vehicles are the second-leading cause of rail-related fatalities, after trespassing. These collisions occur primarily at places where roads cross railroad tracks at the same level, or "at grade." There are some 240,000 such crossings, of which roughly 150,000 are public crossings (where the railroad tracks are crossed by a public road). The remaining 90,000 or so crossings are known as private crossings, where the railroad tracks are crossed by, for example, driveways or farm roads. The number of collisions and fatalities at grade crossings has been reduced significantly over the past few decades, even as the amount of both train and highway traffic has significantly increased. Since the FRA was last authorized, train miles traveled have increased by 24% (from 655 million miles in 1994 to 810 million miles in 2006), while road vehicle miles traveled have increased by 26% (from 2.3 trillion miles in 1994 to 2.9 trillion miles on 2006). Meanwhile, the collisions at grade crossings decreased by 42% (from 4,979 in 1994 to 2,908 in 2006) However, the trend of improvement has leveled off in recent years. Given the progress that has been made in reducing fatalities at grade crossings over the past decade, some have questioned whether additional Congressional action is needed. On the other hand, highly visible crashes such as the Glendale, California incident bring calls for additional efforts to improve safety at grade crossings. All public crossings are required to have warning devices. In most cases these are passive devices: crossbuck signs and pavement markings that warn motorists that they are approaching a railroad crossing, but do not indicate to motorists whether a train is approaching or not. However, train operators are required to sound the locomotive's horn as they approach any crossing. Approximately 63,000 of the roughly 150,000 public crossings have been equipped with automated warning devices, such as warning lights and crossbars, that warn motorists if a train is approaching. These devices are installed by state and local transportation agencies; once installed, railroads are responsible for maintaining these devices and ensuring their proper functioning. These devices can be relatively expensive and generally must compete with other transportation improvements for funding. The Federal Highway Administration has a Grade-Crossing Hazard Elimination Program that provides $220 million annually to states for safety improvements to grade crossings. The eligibility of crossings for safety improvement funding is based on their risk, with the most dangerous crossings given priority. Most of the crossings in urban areas have been provided with automated warning devices. The provision of automated warning devices to the more than 80,000 public rail-highway crossings that do not have conventional automated warning devices is constrained by both the costs of the devices and by concern on the part of public authorities that increasing the protection provided to motorists at one crossing could be used in lawsuits to argue the inadequacy of protection provided at other crossings in the area. Another method of reducing grade crossing accidents is to eliminate the grade crossing. In some cases this is done by elevating the road or rail crossing, but this is a very expensive option. Most often this is done by closing the road where it crosses the railroad tracks. In 1994, FRA set a goal of reducing the-then 280,000 public and private grade crossings by 25% (to 210,000). That goal has not been achieved, though some 30,000 crossings have been closed since then. FRA encourages states and communities to close grade crossings based on the safety benefits. Communities are often reluctant to close grade crossings because of the inconvenience resulting from reducing the number of places where railroad tracks can be crossed. FRA also supports Operation Lifesaver, a national nonprofit railroad safety education program which attempts to reduce grade-crossing accidents by educating the public about the dangers of grade crossings and encouraging safe driving behavior at grade crossings. Operation Lifesaver programs in 49 states (and the District of Columbia) use volunteer trainers to make some 30,000 presentations a year to the public, as well as offering training for groups such as commercial truck drivers, school bus drivers, and emergency personnel, and providing public service announcements. Fewer than 1% of grade crossing collisions are investigated by FRA each year. Most of the information FRA relies on for analysis of grade crossing collisions comes from accident reports submitted by the railroads. According to the reports, many of these collisions result from incautious behavior on the part of motorists. The DOT Inspector General has recommended that FRA supplement the accident reports submitted by railroads with independent sources of information, such as police reports, event data recorders, and eyewitness accounts, in order to better evaluate the causes of collisions and the extent of railroads' compliance with safety regulations. In response to this recommendation, FRA instituted a pilot study to assess the benefits and costs of analyzing information about crossing collisions from independent sources. The results of that study had not been made public as of late July 2007. The DOT's Inspector General has recommended several other steps FRA could take in order to further reduce grade crossing collisions and fatalities. These include ensuring that railroads comply with the requirement to promptly report serious grade crossing collisions, so that the collisions can be investigated; increasing FRA's involvement in grade crossing collision investigations; requiring railroads to clear obstructions (such as vegetation) near crossings to make it easier for motorists to see oncoming trains; requiring railroads and states to provide updated information on grade crossings and the types of warning devices installed at each crossing; and requiring states with the most grade crossings and most accidents to develop plans for identifying and remediating the most dangerous crossings. Several hearings have been held in both the House and Senate during the 110 th Congress on rail safety reauthorization issues. Several bills have been introduced and are under consideration in both houses. An Administration proposal to reauthorize FRA has been introduced, by request, as the Federal Railroad Safety Accountability and Improvement Act ( H.R. 1516 and S. 918 ). No action has been taken on this legislation in either in the House or the Senate. Representative James Oberstar, Chairman of the House Transportation and Infrastructure Committee, has introduced a reauthorization proposal, the Federal Railroad Safety Improvement Act of 2007 ( H.R. 2095 ). A managers' amendment was adopted by the full committee, with amendments, by the Transportation and Infrastructure Committee on June 14, 2007; the amended bill was reported on September 19, 2007. An amendment in the nature of a substitute was adopted by the House on October 17, 2007. Senator Frank Lautenberg, Chairman of the Senate Commerce Committee's Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety, and Security, has introduced a reauthorization proposal, the Railroad Safety Enhancement Act of 2007 ( S. 1889 ). A managers' amendment was adopted by the full committee and was ordered to be reported out of the Commerce Committee on September 27, 2007; it was reported on March 3, 2008, and with some further changes was passed, as an amended version of H.R. 2095 , on August 1, 2008. Summaries of the contents of these bills, and an analysis of selected issues, follow. The Administration's reauthorization proposal ( H.R. 1516 / S. 918 ) included few significant changes to FRA's safety program. It did propose to convert the rail hours of service law to a regulation which DOT could amend through the regulatory process. It also proposed to create a safety risk reduction program within FRA to augment FRA's traditional regulatory approach to safety, which focuses on catching mistakes on the part of railroads. The safety risk reduction program would promote improvements in the processes railroads use in order to eliminate the causes of mistakes. The Administration asserted that this approach would maximize the safety results obtained with FRA's limited resources, but that to implement the program, FRA would have to acquire new skills and adopt new ways of thinking. The Administration also proposed to allow FRA to monitor the radio communications of railroads without their consent, in order to determine whether safety rules are being followed and for investigating accidents. The Administration observed that allowing FRA to monitor these communications without the knowledge of railroads and their employees would provide a more accurate picture of the degree of compliance with safety rules. No action has been taken on this legislation in either the House or the Senate, and it appears likely that Congress will focus on other legislation in the FRA reauthorization debate. The Federal Railroad Safety Improvement Act of 2007 ( H.R. 2095 ) was introduced by Representative James Oberstar, Chairman of the House Committee on Transportation and Infrastructure. A managers' amendment was marked up and ordered to be reported, with amendments, by the Transportation and Infrastructure Committee on June 14, 2007, and was reported on September 19, 2007. An amended version was adopted by the House on October 17, 2007, by a vote of 377-38. H.R. 2095 would make significant changes to a number of FRA's safety programs. FRA would be renamed the Federal Railroad Safety Administration (FRSA). It would make several changes to address the issue of employee fatigue: it would increase the minimum rest period length under the rail hours of service act from 8 to 10 hours, and would authorize FRSA to further increase the length of that minimum rest period through regulation; it would phase in a limit of 10 hours on the amount of limbo time an employee could accrue each month (not including any limbo time caused by delays unforeseeable at the time the employee left a designated terminal); it would require that employees accruing limbo time on a shift be given additional rest time after that shift equal to the amount of limbo time accrued; and it would require railroads to develop fatigue management plans in consultation with rail labor unions It would also require railroads to set minimum training standards for employees, to address concerns that employees are not being provided adequate training. The bill would increase the number of safety inspectors from the current level of approximately 430 to 800. It would require Class I railroads to implement positive train control by December 2014, though DOT could extend that deadline through waivers. The bill would require safety improvements at grade crossings, such as posting of toll-free telephone numbers to notify railroads of emergency situations at grade crossings and requiring railroads to remove visual obstructions (such as vegetation) near grade crossings. It would also direct FRA to provide model legislation to state and local governments regarding safety at grade crossings. The bill would establish new civil penalties, and increase existing penalties, for failure to comply with federal safety regulations. The bill would authorize a total of $1.1 billion over four years (FY2008-FY2011) for FRA's safety programs. Currently FRA receives around $200 million annually for its safety & operations and research & development accounts. The bill would also authorize three new grant programs: for Operation Lifesaver ($1.5 million annually); for deployment of positive train control systems (such sums as may be necessary); and for emergency improvements to grade crossings (such sums as may be necessary). The bill would also authorize $18 million for the construction of a tunnel at the Transportation Technology Center in Pueblo, Colorado, for safety and security training. It also requires the NTSB to assist the families of passengers involved in rail accidents that result in fatalities. The bill also requires DOT to issue regulations requiring that, in nonsignaled territory (i.e., areas where there are no signals along the track to inform train operators of track conditions or the approach of other trains), railroads must either install position indicators on track switches on main lines or operate trains at speeds that will allow train employees to observe, and stop in advance of, misaligned switches. In October of 2006 FRA issued a notice of proposed rulemaking on, among other issues, preventing misaligned switches in nonsignaled territory. Amendments added during House consideration include (1) a provision that mechanical and brake inspections of rail cars that are performed in Mexico will not be regarded as satisfying U.S. standards unless the Secretary of Transportation certifies that the inspection standards and procedures are comparable to U.S. inspections and that FRA is allowed to perform onsite inspections to ensure compliance; and (2) a provision allowing state and local governments to regulate solid waste rail transfer facilities. The Administration has stated its opposition to several of the provisions of the bill. These include the hours of service provisions, which it terms "overly prescriptive," several of the mandated FRA rulemakings, and the mandated adoption of positive train control. H.R. 2095 , as passed by the Senate, reflects much of the substance of S. 1889 , the Railroad Safety Enhancement Act of 2007. The Senate struck the text of H.R. 2095 , as passed by the House, and substituted much of S. 1889 , with some changes. This bill was passed by the Senate by unanimous consent on August 1, 2008. S. 1889 was introduced by Senator Frank Lautenberg, Chairman of the Senate Commerce Committee's Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety, and Security, on July 26, 2007. The committee approved an amended bill on September 27, 2007, and ordered it to be reported. The bill was reported on March 3, 2008, and a version of the bill was substituted as an amendment to H.R. 2095 , with additional changes, when it was passed by the Senate. H.R. 2095 , as passed by the Senate, authorizes $1.5 billion for FRA over six years (FY2008-2013), create two new grant programs (for rail safety technology and for rail safety infrastructure improvements), directs FRA to increase its labor force by 150 safety personnel over the period 2008-2013, and require railroads to implement positive train control technology by the end of 2018. It directs FRA to issue regulations regarding rail employee training, and includes provisions promoting safety at highway-rail grade crossings. The bill would increase the minimum amount of uninterrupted rest time and limit the amount of limbo time that can be accrued by rail employees under the rail hours of service statute, and would authorize DOT to amend the rail hours of service limits through the regulatory process. The bill would also allow FRA to monitor the radio communications of railroads without their consent, in order to determine whether safety rules are being followed and for investigating accidents. In H.R. 1516 / S. 918 , the Administration proposed to give the FRA authority to completely revise the rail hours of service laws through the regulatory process. In acknowledgment of the variety of working conditions within the rail industry, the Administration proposed to allow DOT to authorize and enforce compliance with fatigue management plans proposed by railroads as an alternative to compliance with an hours of service regulation, provided FRA judged that those plans provided a level of safety equal to or better than that provided by the regulation. H.R. 2095 , as passed by the House, would increase the minimum off-duty period under the rail hours of service law, and would give the DOT authority to further increase the minimum off-duty period, or decrease the maximum on-duty period, by regulation. It would also require railroads to submit to DOT fatigue management plans designed to reduce employee fatigue and the likelihood of accidents and injuries caused by fatigue. The bill would also amend the hours of service law to increase the current minimum off-duty period from eight hours to 10 hours, with a minimum of one 24-hour rest period every seven days, thereby reducing the maximum amount of time that could be worked in a week from the current level of 100 hours to 78 hours. The bill would also require that an employee's minimum rest time be undisturbed; that is, it would bar a rail company from communicating with a train employee in any manner that would disturb the employee's rest during the minimum rest period (except for emergencies). H.R. 2095 , as passed by the Senate, would make similar changes. Significant differences from the changes proposed by the House include requiring 48 consecutive hours off duty for employees after working six consecutive days, unless a collective bargaining agreement allows for working seven consecutive days, in which case employees must then be given 72 consecutive hours off duty; capping the total on-duty and limbo time an employee could accrue at 276 hours per month; giving DOT the authority to approve alternate hours of service plans jointly developed by rail labor and management that will not adversely affect rail safety; allowing DOT to waive the prohibition on communicating with a train employee during the minimum rest period for commuter or intercity passenger rail carriers if necessary in order to maintain efficient operations and on-time performance; and directing DOT to regulate hours of service for commuter rail and intercity passenger rail train employees (such requirements may vary from those prescribed in the bill). FRA testified against the provisions of these bills that would amend the hours of service limits. Acknowledging the frustrations that the issue has produced and the desires of some Members of Congress to provide quick relief, FRA asserted that hours of service issues are complicated and need to be addressed within the overall context of fatigue prevention and management. Consequently, FRA urged that it be given the authority to completely revise the hours of service law through regulations based on the current scientific understanding of fatigue. Both the House and Senate version of H.R. 2095 allow FRA to regulate hours of service, but not to increase the on-duty time or reduce the off-duty requirements prescribed in the bill (except for commuter and intercity passenger rail train employees). In a Statement of Administration Policy, the Administration opposed the hours of service provision of the House-passed H.R. 2095 as being overly prescriptive, and expressed concern that the new limits on hours of service, in combination with the limits on limbo time also included in the bill, would tend to increase railroads' need to hire additional operating employees at a time when retirements and resignations are making it increasingly difficult for railroads to have a full complement of workers, thereby aggravating potential service disruptions and the safety problems that can come with large numbers of new, relatively inexperienced employees. AAR supported a revision of the hours of service law to reflect current scientific understanding of fatigue. AAR contended that rail companies do not want workers who are too tired to properly perform their duties, and are making efforts to address fatigue. AAR testified that, generally speaking, railroads do not object to the provision of these bills that increase the minimum rest time from 8 to 10 hours, and that bar nonemergency communications from rail companies during the minimum rest period. However, AAR did object to the provision requiring that employees subject to hours of service limits have at least 24 consecutive hours off duty every seven days as being inconsistent with railroad work schedules. AAR requested that period be extended by one day, to require that employees receive 24 consecutive hours off duty every eight days (with an exception for signal employees). And while not objecting to the requirement that railroads prepare fatigue management plans, AAR did request some changes to the specifics of that requirement, including that the plans should only apply to those employees who are subject to the hours of service law. AAR supported the limitation of total hours worked by an employee (including limbo time) to 276 hours per month, as proposed in the Senate-passed H.R. 2095 . Rail labor organizations also support a revision of the hours of service regime. They support the provisions these bills that would amend the current rail hours of service regime to ensure that an employee was undisturbed during their minimum rest period, and to require rail companies to develop fatigue management plans in consultation with employees. The Administration bill did not propose any direct change (though it is possible that limbo time would be affected as a result of the regulatory process of revising the hours of service regime, which the Administration proposed). The House-passed version of H.R. 2095 , which as introduced would have eliminated limbo time, limits the amount of limbo time an employee can accrue to 10 hours per month (not including limbo time caused by delays that were unforeseeable at the time an employee left a designated terminal), phased in over a period of two years after enactment of the legislation. The Senate-passed version of H.R. 2095 would limit limbo time to a maximum of three hours per day (not including limbo time caused by delays that were unforeseeable when an employee left a designated terminal), while allowing employees to elect additional off-duty time equal to the amount of limbo time incurred during their shift. The Senate bill's overall limit of 276 hours of work by an employee each month includes limbo time in calculating the total hours worked. The Administration objected to the limbo time provision of the House-passed H.R. 2095 , contending that "there is nothing inherently unsafe about a crew being left on a train so long as the crew is relieved of duties and given adequate rest time." While the FRA is concerned about the impact of limbo time on employee fatigue, the FRA Administrator objected that reclassifying limbo time as on-duty time would: shift the law from a safety frame of reference to a "fair labor standards" frame of reference, force carriers to reduce the length of many assignments to avoid the possibility of "violations" under circumstances where safety could not be seriously compromised, and ensure that any further reforms would be very costly indeed. The FRA Administrator urged instead that, given the complications of hours of service issues, and the need to consider them within the context of fatigue prevention and management, the FRA be given the authority to develop hours of service regulations based on a scientific understanding of fatigue. The AAR contends that eliminating limbo time by reclassifying it as on-duty time would create "intractable scheduling problems" for railroads and result in increased costs that would be passed on to rail shippers. The railroads propose instead to address the safety-related fatigue implications of limbo time by providing additional time off to employees who have accrued at least one hour of limbo time. Also, the railroads propose a monthly maximum of 276 on-duty hours for train operating employees; limbo time would count toward that monthly maximum, even though it would not be considered on-duty time in any particular instance. Failing that approach, the railroads would support providing FRA with the authority to deal with the issue through regulating rail hours of service. Rail labor groups support the elimination of limbo time by reclassifying it as on-duty time. They argue that the Supreme Court decision classifying the time the original crew spends waiting for transportation as limbo time promotes the type of abuse—failing to get the crews to their final release point as soon as possible—that the 1969 amendment to the hours of service act was intended to remedy. James Brunkenhoefer, the United Transportation Union's National legislative Director, asserted that the limit of 10 hours per month on limbo time would effectively eliminate limbo time, because of the difficulty railroads would have in keeping track of the remaining limbo time for two separate members of a train crew. The Administration bill did not address PTC. The House-passed H.R. 2095 would require each Class I railroad to submit to DOT, within 12 months of passage of the bill, a plan for implementing a PTC system by December 31, 2014. The Secretary would be permitted to extend the implementation deadline by up to 24 months. The Secretary would be required to review the railroads' compliance with their plans, and issue a report to the pertinent Congressional committees by December 31, 2011 on the status of PTC implementation. No penalty is provided in the event that railroads do not comply with this requirement. The House-passed H.R. 2095 also includes a grant program to support deployment of train control technologies; no specific level of funding was authorized for this program. The Senate-passed H.R. 2095 requires that each railroad that has inadequate safety performance (as determined by the DOT Secretary) submit a risk reduction plan, which shall include a schedule for implementing a PTC system by December 31, 2018, though the Secretary can set an earlier deadline. Again, no penalty is provided for noncompliance. The bill also creates a safety technology grant program, which provides a 50% match for the implementation of train control technologies; the program would be funded at $10 million annually. The Administration has objected that mandating implementation of PTC by an "arbitrary" deadline is premature, contending that the safety benefits have not yet been shown to justify the costs, and that the technology is not yet proven. If Congress decides to mandate the implementation, the Administration requested that the Secretary of Transportation be given greater flexibility to guide implementation to promote safety and avoid disruptions to commerce. AAR has testified that railroads are committed to the deployment of positive train control technology where it makes sense (e.g., on high-density main lines, not low-density branch lines) and on a schedule based on available funds. In light of the variety of train control systems and their differing advantages and disadvantages, which railroads are still evaluating, AAR objected to setting a fixed deadline for deployment at this stage. AAR did support having railroads provide FRA with an implementation plan for PTC within 12 months of the act, suggesting that a firmer implementation timetable might be established at that point. The Brotherhood of Railroad Signalmen testified in support of the requirement for deployment of PTC in House-passed H.R. 2095 , and the Brotherhood of Locomotive Engineers and Trainmen testified in support of the provision on PTC deployment in Senate-passed H.R. 2095 . Testimony from other rail labor groups did not comment on the PTC requirements. Rail labor is wary of PTC's implications for the issue of train operating crew size. Technology has enabled railroads to increase worker productivity, reducing the average train crew size from 4-5 persons to 2-3 persons in recent decades. There is concern on the part of rail labor that railroads would like to reduce the size of the train operating crew to one person, which would be feasible with PTC. The Brotherhood of Locomotive Engineers and Trainmen has generally expressed support for PTC as a supplement to "existing methods of train control." The Administration bill did not propose any specific initiatives for track inspection. House-passed H.R. 2095 would require FRA to increase its number of rail inspectors from the current figure of approximately 440 to at least 800 by 2012. FRA's rail safety inspectors are divided into five areas of expertise; the legislation does not specify how many inspectors should be added to each of the five groups. The bill would also direct FRA to purchase 6 Gage Restraint Measurement System vehicles and 5 track geometry vehicles, so that one of each type of vehicle can be deployed in each of FRA's eight regions. Senate-passed H.R. 2095 requires FRA to increase the number of safety-related FRA employees by 150 over six years, to purchase Gage Restraint Measurement System vehicles and other track safety inspection vehicles as needed, and requires DOT to conduct a study to determine whether current track inspection practices and remedial action requirements should be changed. Representatives of rail labor testified in support of the proposed increase in the number of FRA safety inspectors. AAR testified that railroad companies do not see a need for an increase in the number of FRA safety inspectors. FRA has noted that traditional visual inspections are not always able to identify subtle track flaws, and that they have acquired automated tracks inspection equipment that can identify flaws that human inspectors often miss, and can inspect track at a much faster rate than could be done by human inspectors. The Administration bill proposed requiring an update of FRA's grade crossing inventory. It also included provisions intended to encourage the development of new technologies to prevent accidents at rail crossings, and would protect suppliers, state and local governments, and railroads from tort liability for the use of such systems, if installed and maintained according to FRA's guidelines. The House-passed H.R. 2095 would require railroads to provide toll-free telephone numbers, to be posted at each grade crossing, to receive reports of malfunctioning safety devices and of highway vehicles blocking a crossing, in order to alert train crews and public safety officials; require railroads to remove visual obstructions (such as vegetation) that might obscure a motorist's or pedestrian's view of an oncoming train; require DOT to develop model legislation providing civil or criminal penalties, or both, for violations of grade crossing warning signals by motorists; require that the FRA's inventory of grade crossings be updated every four years; authorize DOT to buy and distribute small promotional items to increase awareness of grade crossing safety issues; authorize $1.5 million annually for grants to Operation Lifesaver, a nonprofit organization promoting awareness of risks at grade crossings; and authorize a grant program for emergency grade crossings improvements (no specific level of funding was authorized). The Senate-passed H.R. 2095 includes similar grade crossing safety improvements (its grade crossing safety improvement grant program is authorized at $500,000 annually). Representatives of rail labor testified in support of these provisions, except for the Administration's proposal providing protection from tort liability for new grade crossing protection technologies. AAR testified in favor of these provisions, while requesting that the provisions of the regulations governing the removal of visual obstructions should specify the distance to be kept clear and should preempt state and local laws to provide uniformity nationwide. The provision of toll-free numbers for notification of emergency conditions at grade crossings has been of interest to Congress for some time. In 1994, Congress directed FRA to conduct a pilot program of the effectiveness of such a program; the results of that study, published in 2006, found that such programs provide safety benefits. FRA and NTSB have urged railroads to provide toll-free numbers at each grade crossing. As of 2006, approximately 50% of all crossings are included in an emergency notification system. Many states already require railroads to remove visual obstructions near grade crossings, but the requirements are not uniform. The Highway-Rail Grade Crossing Hazard Elimination formula program currently provides $220 million annually to states for safety improvements at grade crossings. | The Federal Railroad Administration (FRA) is the federal agency primarily responsible for safety in the rail industry. FRA's safety programs were last authorized in 1994; their authorization expired in 1998. Most measures of rail safety have improved significantly since FRA's last authorization, including the number of grade crossing collisions and fatalities and the number of employee injuries and deaths. These improvements came while the amount of both freight and passenger rail activity on the nation's rail infrastructure was increasing. However, the improvements in safety measures have leveled off in recent years. Given significant projected continued increases in freight and passenger rail activity in the coming decade, there is concern that without additional efforts, some of the gains of the past decade may be lost. Among the issues that have dominated debate thus far are alleged shortcomings in the rail hours of service statute (49 U.S.C. 21101 et seq) that limit the act's effectiveness in preventing fatigue among train operating crews, which may be a contributing factor in a significant number of train accidents. A related issue is limbo time, time that train operating crews spend on shift, but not engaged in safety-related duties, after they have reached the limit of their shift under the rail hours of service act, which also contributes to fatigue. Unlike the hours of service rules for other transportation modes, the rail hours of service rules are set in law and cannot be altered through the regulatory process. Other prominent issues have included implementation by railroads of automated collision-prevention technology in trains, the adequacy of FRA track inspections, and safety at highway-rail grade crossings. The House (on October 17, 2007) and Senate (on August 1, 2008) passed differing versions of H.R. 2095, the Federal Railroad Safety Improvement Act. On September 24, 2008, the House agreed to the Senate amendment with an amendment pursuant to H.Res. 1492. This amended version of H.R. 2095 incorporated another piece of legislation, the Passenger Rail Investment and Improvement Act of 2008 (differing versions of which were previously passed by both the Senate and House as S. 294), which reauthorizes Amtrak and federal passenger rail programs. Further action is now up to the Senate. According to press reports and information at the House Transportation and Infrastructure Committee's website, the amended H.R. 2095 includes provisions that would increase the length of the minimum rest period under the rail hours of service act and give FRA the authority to further increase the minimum rest period through regulation, increase the number of FRA safety inspectors, and mandate implementation of positive train control. It would also authorize about $13 billion in funding for Amtrak and passenger rail activities, and direct the Department of Transportation (DOT) to solicit bits to develop and operate high-speed rail lines in 11 corridors, including the Northeast Corridor (for further information about Amtrak reauthorization, see CRS Report RL33492, Amtrak: Budget and Reauthorization, by [author name scrubbed] and [author name scrubbed]). This report will be updated. |
On November 3, 2010, the Federal Reserve (Fed) announced that it would purchase an additional $600 billion of Treasury securities, an action that has popularly been dubbed quantitative easing or "QE2." This announcement followed purchases of $300 billion of Treasury securities, $175 billion of agency debt, and $1.25 trillion of agency mortgage-backed securities (MBS) since March 2009. While there may not be a universally accepted definition of quantitative easing, this report defines quantitative easing 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." By this definition, quantitative easing has not been tried in the United States before, although it was implemented in Japan from 2001 to 2006. Congress has given the Fed a statutory mandate to "promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates," and the Fed has made the case that quantitative easing can help it to fulfill its mandate. In its announcement of QE2, the Fed explained its decision by citing "disappointingly slow" progress toward achieving a reduction in unemployment and stable inflation, which has been falling. By contrast, critics argue that unconventional monetary actions such as QE2 could be destabilizing and ultimately result in high inflation. For example, an open letter from a group of economists to Fed Chairman Ben Bernanke on November 15 stated, "The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment." This report discusses the Fed's actions to stimulate the economy through quantitative easing from September 2008 to the announcement of a further round of quantitative easing in November 2010 (popularly referred to as QE2). This report evaluates arguments for and against QE2 in the context of the current economic outlook, the intended and estimated economic effects of quantitative easing, as well as future concerns regarding the "exit strategy" for eventually returning to a more conventional monetary policy. It also addresses concerns about whether the Fed is monetizing the federal debt and what effects QE2 might have on the federal budget deficit. Normally, monetary policy is conducted by setting a target for the federal funds rate, the overnight inter-bank lending rate. To keep the actual federal funds rate (determined by the supply and demand for bank reserves) near the target, the Fed regularly buys and sells Treasury securities. Before 2007, the Fed's balance sheet consisted overwhelmingly of Treasury securities, with a very modest growth in the portfolio over time. While the Fed has always lent to banks at its discount window, the amount of loans outstanding has typically been less than $1 billion. It had not lent to non-banks since the 1930s. Beginning in December 2007, the Fed undertook a series of unprecedented policy steps that fundamentally departed from traditional policy. Beginning in 2007, the Fed reduced its target for the federal funds rate in a series of steps to a range of 0% to 0.25% on December 16, 2008. Since the federal funds rate cannot be reduced below zero, the Fed could deliver no additional stimulus through conventional policy. Deeming conventional policy to be insufficient given the state of the economy in September 2008, the Fed turned to quantitative easing even before its federal funds target reached to zero, as will be discussed below. From December 2007 to October 2008, the Fed introduced a series of emergency lending facilities for banks and non-bank financial firms and markets to restore liquidity to the financial system. Lending under these facilities is reported as assets on the Fed's balance sheet. To prevent these facilities from leading to an expansion in the size of the Fed's overall balance sheet and the money supply, the Fed "sterilized" (offset) the effects of the facilities on its balance sheet until September 2008 by selling a cumulative $315 billion of its Treasury securities, as seen in Figure 1 . When the financial crisis dramatically worsened in September 2008, private liquidity became scarce, causing the Fed's support to the financial system to increase significantly. The increase in support made it impractical for the Fed—if it had desired—to continue sterilizing these loans through asset sales. Instead, the Fed allowed its balance sheet to grow as lending to the financial system increased. Between September and November 2008, the Fed's balance sheet more than doubled in size, increasing from under $1 trillion to over $2 trillion. Over the same period, support offered through liquidity facilities and for specific institutions (including the private security holdings of the Fed's Maiden Lane facilities) increased from about $260 billion to $1.4 trillion. Since there was no longer any sterilization of its lending, the increase in assets on the Fed's balance sheet was now matched by an increase in its liabilities. The Fed's three main liabilities are Federal Reserve notes, bank reserves held at the Fed, and Treasury deposits held at the Fed—all three items are, in effect, "IOUs" from the Fed to the bearer. As the Fed's assets increased, the primary liability to increase was bank reserves, as seen in Figure 2 . The sum of outstanding Federal Reserve notes and bank reserves form the "monetary base," or the portion of the money supply controlled by the Fed. The increase in bank reserves can be seen as the inevitable outcome of the increase in assets held by the Fed. These reserves, in effect, finance the Fed's asset purchases and loan programs. In the case of lending facilities, reserves increase because the loan amounts are credited to the recipient's reserve account at the Fed. In the case of asset purchases, the funds to finance the purchase are credited to the seller's reserve account at the Fed, or if the seller is not a member of the Federal Reserve system, the funds eventually lead to an increase in a member bank's reserves as the proceeds get deposited into the banking system. By the beginning of 2009, demand for loans from the Fed was falling as financial conditions normalized. Had the Fed done nothing to offset the fall in lending, the balance sheet would have shrunk by a commensurate amount, and the stimulus that it had added to the economy would have been withdrawn. The Fed judged that the economy, which remained in a recession at that point, still needed this stimulus. On March 18, 2009, the Fed announced a commitment to purchase $300 billion of Treasury securities, $200 billion of agency debt (later revised to $175 billion), and $1.25 trillion of agency mortgage-backed securities. Since then, the Fed's direct lending has continued to gradually decline, while the Fed's holdings of Treasury and agency securities have steadily increased, as seen in Figure 1 . Most emergency lending facilities were allowed to expire in February 2010; by that point emergency lending had fallen to about $200 billion overall, and consisted mostly of the Term Asset-Backed Securities Loan Facility, Maiden Lane holdings, and assistance to the American International Group (AIG). The Fed's planned purchases of Treasury securities were completed by the fall of 2009 and planned agency purchases were completed by the spring of 2010. By this point, the recession had officially ended. The net result of the Fed's actions in phase two was to keep the overall size of the balance sheet relatively constant. Once the phase two purchases were completed, the Fed faced a decision on what to do about its maturing short-term assets. If the Fed did not replace securities as they matured, its balance sheet would gradually decline at a pace of about $100 billion to $200 billion per year, according to Chairman Bernanke. To prevent that, the Fed announced on August 10, 2010, that it would replace maturing securities (whether they be Treasury, agency, or mortgage-backed securities) with Treasury security purchases. Dissatisfied with the slow pace of the economic expansion, the Fed announced on November 3, 2010 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, and continue the practice of replacing maturing securities with Treasury security purchases. The Fed's announced intention is to purchase securities with maturity lengths primarily between 2 ½ to 10 years. Congress has given the Fed a statutory mandate to pursue stable prices and maximum employment. In the Fed's view, further stimulus is required to meet both goals—unemployment is too high and price inflation is uncomfortably close to zero and falling. In its November 3, 2010, announcement, the Fed gave the following reason for pursuing QE2: Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its [statutory] dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The National Bureau of Economic Research (NBER) dated the end of the recent recession as June 2009. Beginning in the third quarter of 2009, gross domestic product rose, and it has grown modestly each quarter since then. Unemployment has fallen from a high of 10.1% in October 2009 to 9.8% in November 2010. Since World War II, the only other period when unemployment was above 9.5% was from 1982 to 1983. Most economic forecasters are predicting that the economy will continue to grow at a similar pace through 2011, and that unemployment will continue to top 9% through the end of 2011. There are two downside risks to the consensus view on the economic outlook that can be considered unlikely but not implausible. There is a fear the economy will experience "double dip" recessions, 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, unlike today. The usual pattern is that once the expansion takes root (as the NBER has determined has happened), it continues for some time. For the expansion to be knocked off course and the economy to return to recession, some new "shock" to the economy would likely be needed, such as economic crisis throughout Europe, perhaps following a sovereign default. By their nature, shocks are hard to foresee, but large shocks are relatively infrequent. Another scenario is that the economy does not re-enter recession, but nor does it experience 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 reduce significantly the slack in the economy. Evidence in favor of this scenario is the weakness of the expansion to date and the fact that the economy may still be suffering from a debt overhang, where businesses and consumers are "deleveraging" (increasing saving, and in some cases selling assets, to reduce debt). While 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, GDP growth in Japan averaged 3.8%. Since 1991, GDP growth has never exceeded 2.9% in a year, and from 1992 to 2003, GDP growth was below 2% in all but two years. 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 low growth was in part due to inadequate aggregate demand. Although the central bank lowered 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. The Bank of Japan eventually tried quantitative easing in 2001, but on a smaller scale than the Fed (its balance sheet increased by about 70% overall). Further, some economists believe that Japan's deflationary trap was prolonged by sporadic attempts by the government 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. Many economists believe it was prolonged by Japan's failure to address problems in its financial system following its financial crash. As discussed below, one often-mentioned concern is that QE2 will lead to high inflation. While this is possible, the larger QE1 has not resulted in any increase in inflation in any of the major indices so far. On the contrary, inflation has been below average and falling. For example, in the last 12 months, the consumer price index has risen by 1.2% and the core consumer price index has risen by 0.6%. For most of 2009, the consumer price index fell compared to the previous 12 months, meaning the economy experienced deflation. Inflationary expectations have also remained low so far, despite the attention that QE2 has brought to the issue. Based on the consensus forecast, QE2 has been justified on the grounds that the pace of the economy's return to full employment is intolerably slow and inflation has persistently been lower than the Fed's "comfort zone." Alternatively, QE2 could be opposed on the grounds that it is not needed because the economic recovery is firmly rooted. In that view, if the only benefit of QE2 is to return to full employment a little quicker, it is better not to risk fueling inflationary pressures or undermining the Fed's credibility, since both would be costly to reverse in the future. Both of the downside risks to the forecast—a double dip recession or a deflationary trap—argue more strongly in favor of pursuing QE2. If these scenarios materialized, there would arguably be little harm in QE2 as announced, and it might be criticized for being insufficient to ward them off. It is unclear whether opponents of QE2 believe that the projected pace of recovery is sufficient, or if they believe that unconventional monetary policy is inappropriate even if economic conditions are still sluggish once the federal funds rate has reached the zero bound. While both of the downside scenarios are seen as unlikely, there appear to be even fewer forecasters who are predicting that the economy will grow so much more quickly than the consensus forecast that inflationary pressures will become a problem in the short run, or that inflationary expectations will become ungrounded in the short run. Therefore, arguments against QE2 on inflationary grounds are more persuasive in the context of long term rather than imminent problems with inflation. If the stimulus from QE2 could be effectively unwound in time, then these long-run fears need never be realized. Thus, whether or not QE2 poses long-term risks to price stability revolve around whether the Fed has a viable exit strategy. This is discussed below in the section entitled " Exit Strategy ." Some forecasters have tried to estimate how much quantitative easing will affect interest rates and economic growth. Former Fed vice chairman Donald Kohn, while acknowledging great uncertainties, estimated that QE1 could increase nominal GDP by as much as $1 trillion over the next several years relative to a baseline forecast. Goldman Sachs estimated that the Fed's previous actions were equivalent to an easing in financial conditions of 1.6 percentage points and predicts that QE2 had an effect equivalent to a 0.8 percentage point easing in financial conditions, which could boost GDP growth by 0.5 percentage points over the next year. Given that this was the estimated effect that occurred between August (when the Fed first began hinting at QE2) and November 4 (when it was officially announced), it remains to be seen whether this estimate will prove accurate and whether the effect will be long lasting. The forecasting firm Macroeconomic Advisors predicts that QE2 – which they believe will be expanded in the future – would raise GDP growth by 0.3 percentage points next year. Given there is no previous experience with quantitative easing in the United States, these estimates are highly speculative. Uncertainty about the effectiveness of quantitative easing makes it difficult to accurately estimate the magnitude of asset purchases needed to achieve the intended stimulus. Furthermore, monetary policy's effect on the economy is gradual, so QE2's full effects will take time and QE1's effects may not yet have completely materialized. Unless there has been a fundamental change in the economic environment, the effects of QE2 could be expected to be similar to those of QE1, but proportionately smaller. This section discusses four transmission channels through which quantitative easing could affect the economy, and reviews data and research that have attempted to estimate how much QE1 affected the economy. The initial aim of QE1, the Fed's balance sheet expansion, was to restore liquidity to the financial system, which in late 2008 was highly dysfunctional. Virtually all short-term markets on which financial firms heavily rely on a regular basis were frozen at that time, including interbank lending markets, commercial paper markets, and repurchase agreement ("repo") markets. Most economists believe the Fed's emergency facilities were highly successful in restoring liquidity, although some argue that the system could have healed itself. At this point, financial conditions have normalized enough that further increasing financial market liquidity is arguably not an important goal of QE2. One view is that emergency lending was necessary to fulfill the Fed's lender of last resort role, but that the Fed's balance sheet should have been allowed to shrink when demand for emergency programs receded, allowing liquidity to be allocated by private markets as soon as it was sufficiently available again. QE1 has left a lasting imprint on the interbank lending market, where large excess reserve holdings have reduced the demand for private interbank borrowing. If one takes that position, however, there remains the dilemma of what role monetary policy should play if the economy is not returning to full employment when policy interest rates are at the zero bound. Any increase in the asset side of the Fed's balance sheet is matched by an increase in the liability side of the balance sheet. The initial result of an increase in the Fed's asset holdings, whether they be purchases of securities or direct lending, is an increase in bank reserves. In normal times, banks would be expected to lend out those reserves, and this would stimulate overall spending in the economy. While one cannot directly track what banks have done with these reserves, bank lending has fallen 0.3% over the last year, so overall it appears that banks have been mainly content to hold these reserves at the Fed, short circuiting this channel as an effective stimulus. Banks could choose to maintain these reserves instead of lending them for a number of reasons—to increase their liquidity, to reduce the riskiness of their overall portfolio, because they do not believe the profitable lending opportunities exist, because demand for loans by borrowers has declined, or because they face capital constraints that inhibit their ability to increase lending. For those who believe that quantitative easing is "pushing on a string," the approximately $1 trillion increase in excess bank reserves over the past two years is compelling evidence to make that case. The bank lending channel, if too successful, would also lead to a rapid increase in the overall money supply through the "money multiplier" effect, which in normal times would lead to a rapid increase in inflationary pressures. The increase in the Fed's balance sheet has been matched virtually one-to-one by an increase in that portion of the money supply which is controlled by the Fed, called the monetary base. Normally, banks would lend out money they received from the Fed, and through a process referred to by economists as the "money multiplier," every $1 increase in the monetary base would lead to a much larger increase in the overall money supply. But if banks hold the money received from the Fed in bank reserves instead of lending it out, the money multiplier process will not occur, so the growth in the overall money supply will be smaller. Data from the Fed show that almost all of the increase in reserves has been through reserves in excess of what regulators require, which is consistent with banks holding most of the increase in reserves instead of lending them out. Thus, the unprecedented doubling of the monetary base in a year beginning in August 2008 has resulted in relatively modest increases in the overall money supply, shown in Figure 3 as M1 and M2. In fact, the monetary base is now larger than M1, which has never happened in the past 50 years for which data are available, and all measures of inflation are currently extremely low, as was discussed above. Based on the experience to date, QE2 can also be expected to lead to an increase in bank reserves similar in size to the amount of assets being purchased. It remains to be seen whether QE2 will have a larger effect on banking lending and broader measures of the money supply than QE1 did. Even if the money multiplier channel has become blocked by the growth in excess bank reserves, quantitative easing may still stimulate the economy through other channels. The Fed has stressed the asset yield channel in its explanations of the benefits of quantitative easing. Traditional monetary stimulus is limited to altering short-term rates (the federal funds rate). But long-term investment projects are likely to be financed at longer-term rates. By buying longer-term securities, quantitative easing could lead to a flattening of the yield curve (i.e., pushing down long interest rates relative to short rates). Before the crisis, the Fed held about 50% of its Treasury securities with a remaining maturity date of less than a year and 20% with a maturity date of five years or more. Under QE2, the Fed plans to buy no Treasury securities with a maturity of less than a year and over 50% with a maturity of 5 ½ years or more. A Federal Reserve Bank of San Francisco study estimates that QE1 reduced long-term interest rates by 0.5 to 0.75 percentage points, and cites evidence that long-term rates are more stimulative than equivalent reductions in short-term rates. The expected direct effect of asset purchases would be to reduce the yields on the assets being purchased. In the case of Treasury securities, lower Treasury yields would have little direct effect on the economy. But if lower Treasury yields cascade through to a broader reduction in interest rates on private securities, this would normally stimulate business investment spending on plant and equipment. How stimulative this "portfolio rebalancing" channel would be depends on how much private yields fall when Treasury yields fall, how sensitive firms are to interest rate changes and, in the present context, how many firms have access to credit markets. Most research on QE1 found that it had modest but tangible effects on broader interest rates. Its concentration on purchasing mortgage-related assets suggests that it had the largest effects on mortgage rates. As shown in Figure 4 , a simple comparison of yields before and after QE1 does not show any obvious impact from QE1—yields on Treasury securities and mortgage rates were relatively flat for about a year after QE1 was implemented, with no downward trend for Treasury or mortgage rates beginning until the spring of 2010, after QE1 was completed. Yields on BAA-rated corporate bonds did fall after QE1, but the downward trend predated QE1. Unfortunately, the improvement in economic conditions and normalization of financial conditions was probably pushing Treasury yields up and private yields down at the same time, so more sophisticated methods are needed to attempt to disentangle the effects of QE1. Furthermore, conventional mortgage rates were influenced by the government's decision to take the GSEs into conservatorship in September 2008. Some commentators have attributed the decline in yields since August 2010 to QE2 although it has not started yet, on the grounds that investors began anticipating QE2 by that point (several announcements by Fed officials hinted that the Fed was considering QE2 beginning in August) and have already adjusted expectations to take it into account. Research by the New York Fed concludes that QE1 was effective in lowering interest rates based on the immediate response of rates to official announcements about the purchases, although this research could be questioned on the grounds that the rate reductions must be long-lasting to be stimulative, and for some of the maturities in question, interest rates over the entire period rose, on balance. Interpreting the overall effect on interest rates during the life of the asset purchase program is complicated by the fact that other changes in economic conditions also influence interest rates. The authors also use time-series evidence to estimate that the purchase program reduced the yield on ten-year securities relative to short-term securities by 0.38 to 0.82 percentage points. A similar study of the Treasury securities purchased in QE1 found that it reduced Treasury yields by about 0.5 percentage points across the yield curve, with larger effects for long-term securities. Evidence that QE1 pushed down mortgage rates could potentially suffer from omitted variable bias—namely, the change in the risk-premium associated with MBS over the period in question, given the uncertainty prior to the purchase program caused by GSE conservatorship and the financial crisis. Another study found small effects of the Fed's MBS purchases on interest rates after adjusting for prepayment and default risk, with the effect mainly occurring at the time the program was announced—before purchases had begun. Another fear that has been raised is that QE2 will lead to excessive risk taking by driving excess liquidity into riskier pursuits, possibly leading to another asset bubble. Arguably, more risk taking is needed in the economy today, as the financial crisis has left investors extremely risk averse. Given that QE1 seems to have had a relatively modest effects on yields, the risk of QE2 leading to bubbles does not seem acute at this time. Nevertheless, some see the role of monetary policy in last decade's housing bubble as a cautionary tale. Many economists have argued that the Fed left interest rates too low for too long after the last recession because of what turned out to be unfounded fears of deflation and a double dip recession. For example, the recession ended in November 2001, but the federal funds rate was not raised above 2% until the end of 2004. They believe that overly loose monetary policy contributed to the housing bubble by making too much credit available. The Fed likely favors Treasury securities as the vehicle for quantitative easing because it has a neutral effect on the allocation of capital. (Its purchases of mortgage-related assets in QE1, on the other hand, would be expected to shift the market allocation of capital in favor of housing. One goal of QE1 was to stabilize a fragile housing market.) The drawback of purchasing Treasury securities is that it may have less "bang for the buck" in terms of stimulating overall spending than if the Fed purchased an equivalent amount of private securities or made an equivalent amount of direct loans to private corporations. (Both of these options currently face statutory limitations.) The advantage of purchasing Treasury securities is that it does not put the Fed in the position of "picking winners," which it arguably is not set up to do as well as private financial markets. It could also undermine the Fed's political independence. Another channel through which quantitative easing could affect the economy is through effects on the value of the dollar. While influencing the exchange rate is not a stated goal of QE2, most macroeconomic models would predict, all else equal, that a byproduct of quantitative easing (or any monetary stimulus) would be to reduce the value of the dollar, assuming other countries do not alter their monetary policy in response. Some critics have opposed QE2 on the grounds that it will reduce the value of the dollar, but in conventional models, a weaker dollar would have a stimulative effect on total spending by increasing exports and decreasing imports, all else equal. A decline in the trade deficit could help reduce "global imbalances" that some economists believe are a threat to global economic stability. If QE2 causes political friction that results in trading partners altering exchange rate or trade policies, however, that would also have an effect on the U.S. economy. In real terms, after a downward trend since 2002, the broad inflation-adjusted dollar index rose from September 2008 until the spring of 2009, despite balance sheet expansion. Most economists attribute this to a "flight to quality" effect, as investors flocked to dollar-denominated assets as a safe haven despite the fact that the crisis was centered in U.S. mortgage markets. The dollar then declined from the announcement of the first large scale asset purchase program to the fall of 2009, and remained relatively stable over the following year. Exchange rate movements are determined by many factors besides monetary policy, including relative growth rates, inflation rates, saving rates, and investment rates. Furthermore, economic models are fairly unsuccessful in predicting exchange rate movements, so the forecasted path of the dollar remains relatively uncertain. One study estimated that the dollar declined by an average of 3.71% against 5 major currencies following the Fed's March 2009 asset purchase announcement. Including prior statements that foreshadowed the March 2009 announcement, the dollar fell by a cumulative 6.56%. The actual change in the dollar was somewhat smaller than the author's model had predicted. A shortcoming of this type of study is that a big jump in the dollar after the announcement could potentially be dissipated by subsequent market movements, leaving no substantial economic effect over time. Since the dollar continued to depreciate after March 2009, that does not seem to be the case. Once the economic outlook improves, banks may decide to use their reserve holdings to rapidly increase their lending. At that point, if the Fed found itself fighting inflationary pressures, it would have to find a way to prevent banks from lending those reserves to prevent an excessive increase in the money supply. The most straightforward method to achieve this would be for the Fed to withdraw those reserves from the banking system by selling some of its assets or not replacing assets that mature. This would reduce both the assets and liabilities on its balance sheet. Some of the Fed's outstanding assets can be sold relatively quickly in theory, although there could be political resistance in reality. By April 2010, the Fed's balance sheet consisted predominantly of securities that could be sold in secondary markets. But the Fed has pledged to hold these assets long term. Given the Fed's concerns about the fragility of housing markets, it is not clear how its mortgage-related holdings could be reduced quickly if the Fed became concerned about rising inflation. Selling only Treasury securities might not be sufficient, given the size of the balance sheet compared to the amount of Treasury securities the Fed might feel comfortable selling. In 2008, the Fed was only comfortable reducing its holdings of Treasury securities to approximately $480 billion. Another option would be to give banks incentives not to lend out reserves by raising the interest rate that the Fed pays on reserves, thereby keeping the larger monetary base from increasing the broader money supply. Since there is no domestic and very little international experience with first increasing the monetary base and then tightening policy without reversing the increase in the monetary base, this strategy can be considered untested. To better prevent these reserves from being lent out if necessary, the Fed began offering "term deposits" with a one to six month maturity for bank reserves. The interest rate on these term deposits would be set through auction; banks would presumably be willing to bid for term deposits only if the interest rate exceeded the rate paid by the Fed on normal reserves. The Fed could also attempt to reduce liquidity by lending its assets out through "reverse repos." This would change the composition of liabilities on the Fed's balance sheet, replacing its other liabilities with reverse repos. It is unlikely that reverse repos operations could be large enough to remove most of the new liquidity, however. Cash balances held at the Fed through the Treasury Supplemental Financing Program could also be used to tie up excess liquidity if needed. The Treasury announced the Supplementary Financing Program on September 17, 2008, as an alternative method for the Fed to increase its assistance to the financial sector without increasing the amount of money in circulation. Under this program, the Treasury has temporarily auctioned more new securities than it needs to finance government operations and has deposited the proceeds at the Fed. (The operations do not affect inflation because the money received by the Treasury is held at the Fed and not allowed to circulate in the economy.) Since 2009, $200 billion has been kept in this account, except at times when the federal debt has approached the statutory debt limit. Given that the size of this program is constrained by the debt limit, it would be insufficient to significantly reduce liquidity without a large increase in the debt limit. If the Fed decides to pursue an exit strategy based on raising rates while maintaining a large balance sheet, economic theory casts some doubt on whether it would have any overall effect on the economy. Any stimulative effect of a larger balance sheet on the economy would be offset by the effects of paying interest on reserves, reverse repos, the Treasury Supplemental Program, or issuing Fed bonds. The large balance sheet would have no positive effect on aggregate demand if it is offset by any of these actions that drain liquidity from the economy. If investors have rational expectations, it is not clear how this strategy could flatten the yield curve either, since the long end of the yield curve is determined primarily by expectations of future interest rates, and sterilized purchases of assets in the present should not change those expectations, all else equal. Previous experience suggests that sterilized attempts to flatten the yield curve have failed to stimulate the economy. For example, a study by Ben Bernanke (before he became Fed Chairman) and other economists concluded that a similar policy in the 1960s called "Operation Twist" is "widely viewed today as having been a failure." To date, quantitative easing has not had any noticeable effect on the public's inflationary expectations. If inflationary expectations remain low, it would be expected to make an exit strategy, and monetary policy generally, more effective. On the other hand, one criticism of quantitative easing is that it could undermine expectations of low and stable inflation, and the Fed's credibility on inflation. If inflationary expectations rise, larger-scale operations could become necessary for an exit strategy. In a worst case scenario, a rise in inflationary expectations could force the Fed to pursue an exit strategy before the economy has recovered, or risk "stagflation" (stagnant growth with high inflation). The Fed is a self-financing entity that yields a profit each year. That profit is largely remitted to the Treasury, where it is added to general revenues, thereby reducing the budget deficit. As the Fed has increased the interest-earning assets on its balance sheet, its profits have increased. The Fed had net income of $38.8 billion and remitted $34.9 billion to the Treasury in 2008. Net income increased to $52.4 billion and remittances to the Treasury rose to $47.4 billion in 2009. A further $600 billion increase in Treasury security holdings would be expected to increase the Fed's profits further. The Fed's profits are generated by the positive spread between its interest-earning assets (securities and loans) and its liabilities. Federal reserve notes are interest-free liabilities, and until 2008, bank reserves were also interest-free liabilities. Congress authorized the Fed to pay interest on bank reserves in the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ). Since the Fed began paying interest on reserves in mid-October 2008, it has set the interest rate near the federal funds rate target, and has paid 0.25% on reserves since December 2008. Through the first half of 2010, the Fed has paid $4.4 billion in interest over the life of the program, reducing the Fed's net income by an equal amount. While the cost of paying interest on reserves is relatively low when interest rates are near zero, were the federal funds rate to return to a more normal level and reserves remained large—a scenario outlined in the section on " Exit Strategy "—it could significantly reduce the Fed's remittances to Treasury. The Treasury Supplemental Financing Program also has implications for the federal budget deficit. The Supplemental Financing Program requires Treasury to issue more interest-bearing securities, thereby increasing the government's debt service costs. Higher debt service costs are ultimately canceled out by higher profits on the Fed's larger holdings of Treasury securities, leaving the deficit no larger than if the Supplemental Financing Program were reduced to zero and the Fed reduced its assets by an equivalent amount. Nevertheless, the Supplemental Financing Program leaves the deficit larger than if the Fed's Treasury purchases were backed by higher bank reserves, as long as the interest paid on reserves is lower than Treasury yields. Fears that the emergency activities of the Fed would lead to losses have proved to be unfounded. To date, the Fed has not realized any losses and relatively few risky assets (namely, the TALF loans and the Maiden Lane assets) remain on the balance sheet. While the Fed's exposure to Agency debt and Agency MBS remain high, these assets have no credit risk as long as the federal government stands behind the GSEs. Nonetheless, the Fed faces interest rate risk and prepayment risk on the assets. Losses on these assets could be realized in a scenario where interest rates rose and the Fed were forced to sell them. But if the Fed holds them to maturity, no losses should ever be realized. Some commentators have interpreted the Fed's decision to make large scale purchases of Treasury securities as a signal that the Fed intends to "monetize the federal deficit," which in 2009 reached its highest share of GDP since World War II, and remained at similar levels in 2010. Monetizing the deficit occurs when the budget deficit is financed by money creation rather than by selling bonds to private investors. Hyperinflation in foreign countries has consistently resulted from governments' decisions to monetize large deficits. According to this definition, the deficit has not been monetized. Section 14 of the Federal Reserve Act legally forbids the Fed from buying newly issued securities directly from the Treasury, and all Treasury securities purchased by the Fed to date have been purchased on the secondary market, from private investors. In modern times, the Fed has always held Treasury securities in order to conduct normal open market operations. Moreover, the size of the Fed's planned purchases of Treasury securities is small relative to the overall deficit. From fiscal years 2009 to 2011, the federal government is projected to run budget deficits equal to a cumulative $3.8 trillion, and the Fed has already purchased or is planning to purchase $600 billion of Treasury securities (plus a small amount to replace maturing MBS and GSE debt.) Nonetheless, the effect of the Fed's purchase of Treasury securities on the federal budget is similar to monetization whether the Fed buys the securities on the secondary market or directly from Treasury. When the Fed holds Treasury securities, Treasury must pay interest to the Fed, just as it would pay interest to a private investor. These interest payments, after expenses, become profits to the Fed. The Fed, in turn, remits about 95% of its profits to the Treasury, where they are added to general revenues. In essence, the Fed has made an interest-free loan to the Treasury, because almost all of the interest paid by Treasury to the Fed is subsequently sent back to Treasury. The Fed could increase its profits and remittances to Treasury by printing more money to purchase more Treasury bonds (or any other asset). The Fed's profits are the incidental side effect of its open market operations in pursuit of its statutory mandate (to keep prices stable and unemployment low). If the Fed chose instead to buy assets with a goal of increasing its profits and remittances, it would be unlikely to meet its statutory mandate. The key practical difference between experiences that have been characterized as monetizing the deficit and the Fed's actions is that under the former, the goal of monetary policy becomes the financing of the government's budget deficit. By December 2008, the Fed had reduced the federal funds rate to zero, thereby exhausting its ability to stimulate the economy through conventional policy. The Fed could have stopped there, but instead took a series of creative and aggressive unconventional policy actions to stimulate an economy that, following the financial crisis, experienced the deepest and longest recession since the Great Depression. QE2 took place in a somewhat different context—the recession had ended, and liquidity in key financial markets had been restored, but employment growth was still sluggish and inflation was close to zero. QE2 can be thought of as QE1 on a smaller scale. Thus, assuming the economic context has not changed fundamentally, arguably the best way to predict the effects of QE2 is to look at the effects of QE1, and adjust them proportionately downward. The direct effect of QE1 was to increase excess bank reserves from almost zero to over $1 trillion, which, in essence, is how the Fed's loans and asset purchases were financed. In normal conditions, banks would be expected to lend out these reserves relatively quickly, which would boost economic growth and result in a rapid increase in the money supply through a money multiplier effect, that would increase inflation. Instead, bank lending fell 0.3% over the past year, and the doubling in the portion of the money supply controlled by the Fed (roughly equivalent to the growth in the Fed's balance sheet), did not translate into large increases in overall measures of the money supply. Some would point to the $1 trillion in bank reserves as evidence that quantitative easing is "pushing on a string." Even if this bank lending channel does not work, the Fed has stressed that quantitative easing can still stimulate the economy through an interest rate channel. Purchasing Treasury securities of longer maturities should reduce long-term Treasury yields. But to stimulate the broader economy, two additional steps are necessary. First, it is necessary for the decline in interest rates to spread to private assets that were not purchased. Second, businesses and consumers must be willing and able to respond to lower interest rates by increase their interest-sensitive investment and consumption spending, respectively. Although interest rates did not fall after QE1 in absolute terms, most research indicates it resulted in a modest decrease in interest rates, relative to if the Fed had not purchased these assets, that modestly increased economic growth relative to what would have occurred in the absence of QE1. Some critics have complained that QE2 will lead to a weaker dollar. Most macroeconomic models would predict that QE2 would lead to a weaker dollar, and this would stimulate the overall economy by stimulating net exports, assuming other central banks do not take steps that depreciate their currencies at the same time. Though there is a consensus that the benefits of QE1 outweighed the risks, the Fed's decision to increase its balance sheet further through QE2 is less clear cut. The recession has officially ended, and the consensus forecast is that the economy will continue to grow in the next year. A case could be made that QE2 is not necessary because the economy is already on the road back to full employment, so the benefits of trying to get there a little faster do not outweigh the risks. On the other hand, although it is growing, the economy is expected to grow relatively slowly, and unemployment is expected to remain above 9% through the end of next year. Inflation is still close to zero, and has been falling. If this forecast is accurate, a case can be made that QE2 would be expected to help the Fed meet its dual mandate. Furthermore, there are downside risks to the economy, which can be considered improbable, but not implausible. The economy could experience a "double dip" into another recession. Alternatively, it could keep growing, but not quickly enough to return to full employment or keep prices from falling. In other words, it could fall into a "deflationary trap" of the type experienced by Japan after its asset bubble collapsed, where unemployment rose for 11 consecutive years and prices fell in 10 out of 14 years. The lesson from Japan seems to be that conventional fiscal and monetary stimulus that would be considered fairly aggressive in normal conditions are not enough to overcome a deflationary trap, particularly if withdrawn prematurely. Japan even tried quantitative easing on a smaller scale than QE1 from 2001 to 2006, and was unable to generate more than modest economic growth and inflation. QE2 could be seen as insurance against a double dip recession or deflationary trap, and if the economy were to experience either, the worst that might be said about it is that its effects would be too small to make a difference. While those predicting a double dip and deflationary trap are in the minority, there are arguably even fewer economists who are predicting that the economy will grow so rapidly next year that high inflation will become a problem. Nevertheless, a lesson that could be taken from the last recession is it can be dangerous to leave monetary policy too loose for too long. There is a risk that QE2 will eventually lead to excessive inflation because it leads to an increase in bank reserves. Eventually, banks may decide to use those reserves to rapidly increase lending, in which case the growth in the monetary base would translate into a large increase in the overall money supply. The Fed has acknowledged this risk and has devoted considerable efforts to developing an "exit strategy" from quantitative easing when appropriate. But will the exit strategy work? The most straightforward exit strategy would be for the Fed to sell its assets, thereby automatically reversing the growth in its balance sheet and the money supply. The Fed seems somewhat reluctant to pursue this strategy as long as the housing market remains fragile because it would likely involve the sale of its mortgage-related assets. Its other main proposal is to give banks an incentive to keep those reserves sitting at the Fed by raising the interest it pays on reserves, a power that Congress granted the Fed in 2008. This approach is largely untested in the United States or abroad, so its potential effectiveness is unproven. At current reserve levels, it would involve considerable expenditure if interest rates returned to levels closer to their long-term averages, and that expense would ultimately be borne by the taxpayer, since it would reduce the Fed's profits, which are mostly remitted to the Treasury. | On November 3, 2010, the Federal Reserve (Fed) announced that it would purchase an additional $600 billion of Treasury securities, an action that has popularly been dubbed quantitative easing or "QE2." This announcement followed purchases since March 2009 of $300 billion of Treasury securities, $175 billion of agency debt, and $1.25 trillion of agency mortgage-backed securities (MBS). (The agency debt and MBS were primarily issued by Fannie Mae and Freddie Mac.) This report defines quantitative easing 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 its announcement of QE2, the Fed justified its decision by citing the "disappointingly slow" progress to date toward achieving its statutory mandate of maximum employment and stable prices. By contrast, critics believe that unconventional monetary actions such as QE2 could be destabilizing and ultimately result in high inflation. There are several ways that quantitative easing can affect the economy. It would be expected to reduce yields on the securities being purchased, and this could have a cascading downward effect on private yields that could stimulate investment spending. Like any monetary stimulus, it could put downward pressure on the dollar, which would stimulate exports and U.S. production of import-competing goods. The initial quantitative easing following the 2008 crisis helped restore liquidity to the financial system, although this channel is arguably not as important now that liquidity has generally been restored. Finally, the direct effect of quantitative easing to date has been to increase bank reserves by over $1 trillion. If banks choose to lend these reserves, it would stimulate economic activity and increase the money supply. But lending has fallen in the past year, and there have been only relatively modest increases in the overall money supply. Nevertheless, the increase in bank reserves could eventually result in large increases in the overall money supply, which could arguably make it difficult for the Fed to meet its statutory mandate to keep inflation low and stable. The Fed has explored different methods of unwinding quantitative easing if inflationary pressures rose, which have been referred to as the "exit strategy." One method would be to directly reverse quantitative easing by selling some or all of the additional securities that the Fed has purchased, which would automatically withdraw reserves from the banking system. A drawback to this approach is that large sales of securities would probably involve selling its mortgage-related securities, and this could be destabilizing to a housing market that is still sluggish. Another method would be to raise the interest rate that the Fed has been paying to banks on reserves since 2008 to a level high enough that it would give banks an incentive to keep the funds parked at the Fed rather than lending them out. This approach is largely untested, however, and the associated expenditure could become large relative to the Fed's overall profits at historically normal levels of interest rates. Since the Fed remits most of its profits to the Treasury, where these are added to general revenues, both quantitative easing and its unwinding have implications for the federal budget deficit. Since quantitative easing increases the amount of income-earning securities held by the Fed, it would be expected to increase its profits and reduce the federal budget deficit. Indeed, profits increased from $38.8 billion in 2008 to $52.4 billion in 2009. Similarly, unwinding QE would be expected to reduce the Fed's profits. Some critics have argued that the Fed is monetizing the budget deficit through QE2. The Fed is legally prohibited from purchasing federal debt directly from the Treasury, but Fed purchases of Treasury securities on the open market have a similar effect on the budget deficit as if those purchases were made directly. |
Under the State Children's Health Insurance Program (CHIP) statute, FY2017 is the last year federal CHIP funding is provided, even though the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) child maintenance of effort (MOE) requirement is in place through FY2019. The ACA MOE provision requires states to maintain income eligibility levels for CHIP children through September 30, 2019, as a condition for receiving federal Medicaid payments (notwithstanding the lack of corresponding federal CHIP appropriations for FY2018 and FY2019). This report discusses the ACA MOE requirement for children if federal CHIP funding expires. It begins with a brief background of CHIP, including information regarding program design and financing. The report then describes the ACA child MOE requirements for CHIP Medicaid expansion programs and for separate CHIP programs and discusses potential coverage implications. CHIP is a federal-state program that provides health coverage to certain uninsured, low-income children and pregnant women in families that have annual income above Medicaid eligibility levels but do not have health insurance. CHIP is jointly financed by the federal government and the states and is administered by the states. Participation in CHIP is voluntary, and all states and the District of Columbia participate. The federal government sets basic requirements for CHIP, but states have the flexibility to design their own version of CHIP within the federal government's basic framework. As a result, there is significant variation across CHIP programs. In FY2015, CHIP enrollment totaled 5.9 million and federal and state CHIP expenditures totaled $13.7 billion. CHIP was established as part of the Balanced Budget Act of 1997 ( P.L. 105-33 ) under a new Title XXI of the Social Security Act. Since that time, other federal laws have provided additional funding and made significant changes to CHIP. Most notably, the Children's Health Insurance Program Reauthorization Act of 2009 ( P.L. 111-3 ) increased appropriation levels for CHIP, changed the formula for distributing CHIP funding among states, and altered the eligibility and benefit requirements. The ACA largely maintains the current CHIP structure through FY2019 and requires states to maintain their Medicaid and CHIP child eligibility levels through FY2019 as a condition for receiving federal Medicaid matching funds. The ACA provided federal CHIP funding for FY2014 and FY2015, then the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10 ) extended federal CHIP funding for another two years (i.e., through FY2017). States may design their CHIP programs in three ways: a CHIP Medicaid expansion, a separate CHIP program, or a combination approach in which the state operates a CHIP Medicaid expansion and one or more separate CHIP programs concurrently. CHIP benefit coverage and cost-sharing rules depend on program design. CHIP Medicaid expansions must follow the federal Medicaid rules for benefits and cost sharing, which entitle CHIP enrollees to Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) coverage (effectively eliminating any state-defined limits on the amount, duration, and scope of any benefit listed in Medicaid statute) and exempt the majority of children from any cost sharing. For separate CHIP programs, states can design benefits that look more like private health insurance and may impose cost sharing, such as premiums or co-payments, with a maximum allowable amount that is tied to annual family income. Aggregate cost sharing under CHIP may not exceed 5% of annual family income. Regardless of the choice of program design, all states must cover emergency services; well-baby and well-child care, including age-appropriate immunizations; and dental services. If offered, mental health services must meet federal mental health parity requirements. States that want to make changes to their programs beyond what Medicaid or CHIP laws allow may seek approval from the Centers for Medicare & Medicaid Services (CMS) through the use of the Section 1115 waiver authority. Eight states, the District of Columbia, and the territories had CHIP Medicaid expansions as of May 1, 2015, whereas 13 states had separate CHIP programs and 29 states used a combination approach. According to preliminary CHIP enrollment data for FY2015, almost 60% of CHIP enrollees are in CHIP Medicaid expansion programs and 40% are in separate CHIP programs. CHIP is jointly financed by the federal government and the states. The federal government reimburses states for a portion of every dollar they spend on CHIP (including both CHIP Medicaid expansions and separate CHIP programs) up to state-specific annual limits called allotments. The federal government's share of CHIP expenditures (including both services and administration) is determined by the enhanced federal medical assistance percentage (E-FMAP) rate that varies by state. The E-FMAP rate is calculated by reducing the state share under the federal medical assistance percentage (FMAP) rate (i.e., the federal matching rate for most Medicaid expenditures) by 30%, which increases the federal share of expenditures. For FY2016 through FY2019, the E-FMAP rate increases by 23 percentage points for most CHIP expenditures. With this increase, the E-FMAP ranges from 88% to 100%. Although FY2017 is the last year states are to receive CHIP allotments, federal CHIP outlays are expected in FY2018. States have two years to spend their CHIP allotment funds, so states could have access to unspent funds from their FY2017 allotments and unspent FY2016 allotments redistributed to shortfall states (if any). In a few situations, federal CHIP funding is used to finance Medicaid expenditures. For instance, certain states significantly expanded Medicaid eligibility for children prior to the enactment of CHIP in 1997. These states are allowed to use their CHIP allotment funds to finance the difference between the Medicaid and CHIP matching rates (i.e., the FMAP and E-FMAP rates, respectively) to cover the cost of children in Medicaid above 133% of the federal poverty level (FPL). In addition, states may use CHIP allotment funds and receive the higher CHIP matching rate (i.e., E-FMAP rate) for expenditures for children who had been enrolled in separate CHIP programs and were transitioned to Medicaid due to the ACA provision expanding mandatory Medicaid eligibility for children aged 6 to 18 with incomes up to 133% of FPL. States that design their CHIP programs as a CHIP Medicaid expansion or a combination program and face a shortfall after receiving Child Enrollment Contingency Fund payments and redistribution funds may receive federal Medicaid matching funds to fund the shortfall in the CHIP Medicaid expansion portion of their CHIP programs. When Medicaid funds are used to fund CHIP, the state receives the lower regular FMAP rate (i.e., the federal Medicaid matching rate) rather than the higher E-FMAP rate provided for other CHIP expenditures. However, although federal CHIP funding is capped, federal Medicaid funding is open-ended, which means there is no upper limit or cap on the amount of federal Medicaid funds a state may receive. The ACA extended and expanded the MOE provisions in the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). The ACA MOE provisions contain separate requirements for Medicaid and CHIP and were designed to ensure that individuals eligible for these programs did not lose coverage between the date of enactment of the ACA (March 23, 2010) and the implementation of the health insurance exchanges (for adults) and September 30, 2019 (for children). Under the ACA MOE provisions, states are required to maintain their Medicaid programs with the same eligibility standards, methodologies, and procedures in place on the date of enactment of the ACA until January 1, 2014, for adults and through September 30, 2019, for children up to the age of 19. The ACA also requires states to maintain income eligibility levels for CHIP children through September 30, 2019, as a condition for receiving payments under Medicaid. The penalty to states for not complying with either the Medicaid or the CHIP MOE requirements would be the loss of all federal Medicaid matching funds. Together, these MOE requirements for Medicaid and CHIP impact CHIP Medicaid expansion programs and separate CHIP programs differently. For CHIP Medicaid expansion programs, the Medicaid and CHIP MOE provisions apply concurrently. For states to continue to receive federal Medicaid funds, the ACA child MOE provisions require that CHIP-eligible children in CHIP Medicaid expansion programs must continue to be eligible for Medicaid through September 30, 2019. When a state's federal CHIP funding is exhausted, the state's financing for these children switches from CHIP to Medicaid. This switch would cause the state share of covering these children to increase because the federal matching rate for Medicaid is less than the E-FMAP rate. As discussed above, states may have some Medicaid expenditures financed with federal CHIP funds. In any of these situations, when federal CHIP funding is exhausted, states would be responsible for continuing to provide Medicaid coverage to these children through September 30, 2019. However, as is the case with the CHIP Medicaid expansion programs, the financing would switch from CHIP to Medicaid, resulting in an increase in the state share of these expenditures because the federal matching rate would be lowered from the E-FMAP rate to the FMAP rate. For separate CHIP programs, only the CHIP-specific provisions of the ACA MOE requirements are applicable. These provisions contain a couple of exceptions: states may impose waiting lists or enrollment caps to limit CHIP expenditures, or after September 1, 2015, states may enroll CHIP-eligible children in qualified health plans in the health insurance exchanges that have been certified by the Secretary of Health and Human Services (HHS) to be "at least comparable" to CHIP in terms of benefits and cost sharing. In addition, in the event that a state's CHIP allotment is insufficient to fund CHIP coverage for all eligible children, a state must establish procedures to screen CHIP-eligible children for Medicaid eligibility and to enroll those who are eligible in Medicaid. For children not eligible for Medicaid, the state must establish procedures to enroll CHIP-eligible children in qualified health plans offered in the health insurance exchanges that have been certified by the Secretary of HHS to be "at least comparable" to CHIP in terms of benefits and cost sharing. The Secretary of HHS was required by statute to review the benefits and cost sharing for children under the qualified health plans in the exchanges and certify those plans that offer benefits and cost sharing at least comparable to CHIP coverage. In the review released November 25, 2015, the Secretary of HHS was not able to certify any qualified health plans as comparable to CHIP coverage because out-of-pocket costs were higher under the qualified health plans and the CHIP benefits were generally more comprehensive for child-specific services (e.g., dental, vision, and habilitation services). Under these ACA MOE requirements, states are required only to establish procedures to enroll children in qualified health plans certified by the Secretary. If there are no certified plans, the MOE requirement does not obligate states to provide coverage to these children. Even when there are certified plans, not all CHIP children may be eligible for subsidized exchange coverage due to the family glitch , among other reasons. FY2017 is the last year in which federal CHIP funding is provided in the CHIP statute. If no additional federal funding is provided for the program, once federal CHIP funding is exhausted, CHIP children in CHIP Medicaid expansion programs would continue to receive coverage under Medicaid through at least FY2019, due to the ACA MOE requirement. However, when CHIP funding is exhausted, CHIP children in separate CHIP programs could obtain coverage through the exchanges or employer-sponsored insurance, but some of the children likely would become uninsured. According to a Medicaid and CHIP Payment and Access Commission estimate of what would happen if separate CHIP coverage ended in FY2018 (which is when federal CHIP funding is expected to be exhausted under current law), 36% of the children with separate CHIP coverage would become uninsured. | The State Children's Health Insurance Program (CHIP) is a means-tested program that provides health coverage to targeted low-income children and pregnant women in families that have annual income above Medicaid eligibility levels but do not have health insurance. CHIP is jointly financed by the federal government and the states and administered by the states. The federal government sets basic requirements for CHIP, but states have the flexibility to design their own version of CHIP within the federal government's basic framework. States may design their CHIP programs in three ways: a CHIP Medicaid expansion, a separate CHIP program, or a combination approach in which the state operates a CHIP Medicaid expansion and one or more separate CHIP programs concurrently. As a result, there is significant variation across CHIP programs. In FY2015, CHIP enrollment totaled 5.9 million and federal and state CHIP expenditures totaled $13.7 billion. Under the CHIP statute, FY2017 is the last year federal CHIP funding is provided, even though the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) child maintenance of effort (MOE) requirement is in place through FY2019. The MOE provision requires states to maintain income eligibility levels for CHIP children through September 30, 2019, as a condition for receiving federal Medicaid payments (notwithstanding the lack of corresponding federal CHIP appropriations for FY2018 and FY2019). The MOE requirement impacts CHIP Medicaid expansion programs and separate CHIP programs differently. For CHIP Medicaid expansion programs, when federal CHIP funding is exhausted, the CHIP-eligible children in these programs will continue to be enrolled in Medicaid but financing will switch from CHIP to Medicaid. For separate CHIP programs, states are provided a couple of exceptions to the MOE requirement: (1) states may impose waiting lists or enrollment caps to limit CHIP expenditures, and (2) after September 1, 2015, states may enroll CHIP-eligible children in qualified health plans in the health insurance exchanges. In addition, in the event that a state's CHIP allotment is insufficient to fund CHIP coverage for all eligible children, a state must establish procedures to screen children for Medicaid eligibility and enroll those who are Medicaid eligible. For children not eligible for Medicaid, the state must establish procedures to enroll CHIP children in qualified health plans in the health insurance exchanges that have been certified by the Secretary of Health and Human Services to be "at least comparable" to CHIP in terms of benefits and cost sharing. This report discusses the ACA MOE requirement for children if federal CHIP funding expires. It begins with a brief background about CHIP, including information regarding program design and financing. The report then describes the ACA child MOE requirements for CHIP Medicaid expansion programs and for separate CHIP programs and discusses potential coverage implications. |
The role of natural gas in the U.S. economy has been a major part of the energy policy debate in the 114 th Congress. Both the House and the Senate have held multiple hearings related to natural gas. Numerous bills have been introduced in both houses. This report highlights key aspects of global natural gas markets, including supply and demand, and major U.S. developments. Select statutes of U.S. law related to natural gas can be found in Appendix G . Some consider natural gas a potential bridge fuel to a lower-carbon economy, because it is cleaner burning than coal and oil. Natural gas combustion emits about one-half less carbon dioxide than coal and one-quarter less than oil when consumed in a typical electric power plant, offset somewhat by fugitive emissions. Fugitive emissions, which can be intentional (i.e., vented) or unintentional (i.e., leaked), are natural gas that is released to the atmosphere during industry operations. Natural gas combustion also emits less particulate matter, sulfur dioxide, and nitrogen oxides than coal or oil. In recent years, the United States has become the home to the shale gas revolution, as improved methods to extract natural gas from certain shale formations have significantly increased the resource profile of the United States. This has spurred other countries to try to develop shale gas, but progress is slow outside of North America. If the United States continues to and other countries can bring large new volumes of natural gas to market at a competitive price, then natural gas could play a larger role in the world's economy. In 2016, the United States started exporting liquefied natural gas (LNG) from the lower 48 states. Several key factors will determine whether significant new quantities of natural gas come to market, particularly unconventional natural gas resources. These factors include price, technical capability, environmental concerns, and political considerations. Many countries, both producing and consuming, are watching how the development of U.S. unconventional natural gas resources evolves. Natural gas is likely to play a greater role in the world energy mix given its growing resource base and its relatively low carbon emissions compared to other fossil fuels. The world used 122,442 billion cubic feet (bcf) of natural gas in 2015, of which the United States consumed over 27,463 bcf, or about 23% (the most of any country). World natural gas consumption grew by 1.7% in 2015, which was below the 10-year average of 2.3%; U.S. consumption grew by 3%. U.S. unconventional natural gas reserves and production, particularly shale gas, have grown rapidly in recent years. According to the latest data, shale gas made up 51% of proved U.S. natural gas reserves and accounts for 56% of dry natural gas production. The new shale gas resources have changed the U.S. natural gas position from a net importer to a potential net exporter. Global trade in natural gas is increasing and new players are entering on both the supply side and the import side, making the global gas market more integrated. In 2015, the world consumed about 122,442 bcf of natural gas —23.8% of total global primary energy consumption, placing it third behind oil and coal. The United States was the world's largest consumer of natural gas, accounting for 27,463 bcf, or 22.8%, of global consumption (see Figure 1 ). Russia is the second-largest consumer of natural gas, using 13,820 bcf in 2015. Natural gas accounted for 53% of Russia's total primary energy consumption, ranking it above oil and coal. However, natural gas consumption has declined overall in Russia, decreasing 8% between 2011 and 2015, due to a weak economic environment. Global consumption of natural gas grew at 1.7%, which was below the 10-year average of 2.3%. The United States was one of three countries with the largest consumption growth, at 3%, while also contributing the largest growth in absolute terms and accounting for almost 40% of the total growth. Iran and China also experienced increased natural gas consumption, at 6.2% and 4.7%, respectively. China is the most populated country in the world and has a growing economy, resulting in the country being one of the largest global energy consumers. China accounts for almost half of the world's total coal consumption, and while the use of natural gas has increased over the past 10 years it remains a small percentage of China's energy consumption, at about 5%. China continues to seek increased energy security by expanding natural gas imports through pipelines and as LNG. Iran holds the world's second-largest natural gas reserves; however, its energy sector has stagnated in the past few years due to international sanctions and a lack of foreign investment and financing. Iran has a thriving domestic energy demand that has increased 50% since 2004. The majority of Iran's natural gas production is consumed domestically, with natural gas comprising 60% of its total primary energy consumption in 2014. The lifting of international sanctions began in early 2016 following the implementation of the Joint Comprehensive Plan of Action. Major discussion points for policymakers in light of the lifting of sanctions may be Iran's capacity for natural gas production and its role in the global energy market. In 2015, the United States consumed 27,463 bcf of natural gas, making up nearly 23% of total global consumption. The United States is the largest consumer overall of natural gas, and the second-largest consumer overall of energy in the world. Electric power generation made up 35% of U.S. natural gas consumption in 2015; industrial use accounted for 27%, residential use for 17%, and commercial use for 12%. There is a noted rise in the use of natural gas for electric power generation, which can be attributed to low natural gas prices due to the abundance of domestic gas resources, and to policies that promote the use of fuels with lower emissions. Demand for natural gas for power generation has more than doubled since 2000 and is expected to grow by 40% by 2040. The U.S. industrial sector increased its consumption of natural gas by 10% between 2010 and 2015. As the United States continues to expand its growing resource base, the industrial sector will see a wider array of fuel and feedstock choices, and manufacturing industries such as bulk or primary metals could also experience further growth. Global proved natural gas reserves—natural gas that has been discovered and can be expected to be technically and economically produced—amounted to 6,599,400 bcf (or 6,599 trillion cubic feet (tcf)) in 2015, which correlates to a 53-year supply at current production levels (see Figure 2 ). New reserves are developed every year as existing reserves are consumed. Global natural gas reserves have grown about 19% since 2005, demonstrating the success of exploration and improved recovery techniques. Of the top 10 reserve holding companies all are majority owned by their respective governments (see Appendix F ). Globally, over half of the world's proven natural gas reserves are controlled by the top 10 government-owned companies, with all but one being 100% state-owned. Russia's Gazprom is majority-owned by the state and acts as an arm of the government. Iran's National Iranian Oil Company is the single largest reserve holder of natural gas. In 2015, U.S. natural gas reserves were 368,700 bcf, about 5.6% of total world reserves. The development of shale gas has been a huge driver behind the increase in U.S. natural gas resources (see Figure 3 ); in 2014, shale made up 51% of proven natural gas reserves. Global natural gas production in 2015 grew by 2.2%, which was below the 10-year average of 2.4%. Growth was below average in all regions except North America, Africa, and Asia Pacific. U.S. natural gas production accounted for 22% of total global production in 2015. Between 2005 and 2015, total natural gas production in the United States increased 50%. In 2015, the United States produced 27,086 bcf of natural gas, an increase from 25,716 bcf in 2014. The United States had the world's largest production increase, 5.4% (see Figure 4 ). The increase in natural gas production can be attributed to the development of unconventional resources, specifically in the Marcellus and Utica shale formations, which have accounted for 85% of the increase in natural gas production since 2012. Overall, U.S. natural gas production is continually rising despite low prices. Between 2005 and 2015, production increased over 65%. By 2040, shale gas production is projected to increase 73% to 19.6 tcf, leading to a 45% overall increase in total U.S. natural gas production, from 24.4 tcf to 35.5 tcf. Liquefied natural gas (LNG) is natural gas that has been cooled to a liquid state, making it 600 times smaller in volume. In its liquid form, natural gas can be shipped to global markets on tankers and received at LNG import terminals. LNG is becoming more prevalent in the global gas trade as new gas supplies are introduced to the market, further integrating regional gas markets. In 2015, LNG trade increased 1.8%, and the share of LNG in the global gas trade was 33%. In response to the increase in LNG trade, many countries are looking to expand their LNG export capacity. In 2016, Australia (in January) and the United States (in February) from the lower 48 launched their first shipments of LNG. In the past decade, the United States prepared to increase imports of LNG based on forecasts of growing consumption, and began constructing LNG import terminals. However, the rise in prices gave the industry incentives to bring more domestic gas to market, reducing the need to use import terminals. Due to the abundance of domestic natural gas, there has been a push for modification and expansion of existing LNG terminals in order to expand U.S. export capacity, which requires authorization from the Department of Energy and the Federal Energy Regulatory Commission (FERC). The U.S. natural gas market is in a period of transition. Technologies such as hydraulic fracturing and horizontal drilling have expanded the domestic natural gas supply, making possible the development of unconventional natural gas resources found in shale, coal seams, and tight lower-permeability rock formations. Improved efficiency has lowered production costs, making shale gas economically competitive at almost any price. Production has shifted away from the Gulf of Mexico to regions where sources of conventional natural gas are not traditionally found. (See Figure 5 .) For instance, the Marcellus and Utica Basins are expansive shale resources located in the East and Northeast (West Virginia, Pennsylvania, New York, and Ohio). The location of these basins impacts the transportation of natural gas, as there is a reduced need for natural gas from the Rockies or Gulf Coast. The decrease in demand for gas from these areas and an increase in production from shale plays such as Marcellus have reduced prices and the number of imports needed from Canada and elsewhere. Increased production in the future is expected from the Marcellus, Eagle Ford, Anadarko, Utica, and Haynesville Basins. Because of the development in supply, the United States has gone from being a net importer of natural gas to being a projected net exporter by 2017. The first LNG shipments from the lower-48 occurred in February 2016 from the Sabine Pass LNG Terminal in Louisiana to Brazil, India, and the United Arab Emirates. On June 26, 2016, the Panama Canal reopened for commercial business, after undergoing construction for an additional ship traffic lane. The newly expanded canal eliminates about 10 days in transit time from the U.S. Gulf of Mexico to Asian markets, thus offering a potential shipping route for U.S. LNG. However, only 10% of LNG carriers are small enough to fit the canal; no LNG transits have been scheduled through the canal. The development in supply has placed the United States in a strategic position that may prove advantageous in the global natural gas market. However, this also raises questions for policymakers regarding the effects of the export of U.S. natural gas on domestic gas prices and the overall economy. Furthermore, questions remain about the size of U.S. shale gas resources; the price level required to sustain development; and whether there are technical, environmental, or political factors that might limit development. The use and disposition of water in the industry process of hydraulic fracturing is one of the main issues facing companies and regulators. As U.S. natural gas production continues to grow, this practice has raised concerns over the quality and quantity of drinking water in areas situated near hydraulic fracturing, the competition for other water users, and the disposal of wastewater. In 2010, the Environmental Protection Agency (EPA) announced that it would undertake a study to assess any impact hydraulic fracturing might have on drinking water. A final report has not been released. There is concern over deep-well injection and human-caused earthquakes. The wastewater produced from horizontal drilling and hydraulic fracturing is typically disposed through deep-well injection, in which the wastewater is injected into deep geologic strata. The concern is that deep-well injection may be linked to human-induced earthquakes, as the number of earthquakes of magnitude 3.0 or greater has increased. Emissions from the natural gas sector and the impact on human health is also a concern; specifically, methane emissions. As the primary component of natural gas, methane is a precursor to smog and a potent greenhouse gas. While state and local authorities regulate natural gas systems, in 2012 the EPA established national minimum air standards, or New Source Performance Standards (NSPS), to reduce methane and volatile organic compound (VOC) emissions in the natural gas sector. In May 2016, the EPA updated the 2012 NSPS to include additional equipment in the gas production chain. The NSPS include natural gas well sites, natural gas processing plants, and natural gas compressor stations. Federal standards for methane emissions do not cover all sources of methane, such as offshore sources or coalbed methane production facilities. As the production of natural gas continues to expand in the United States, the issue of methane as an air pollutant may be a significant one for policymakers. Although most natural gas is consumed in the country where it is produced, global and regional markets are becoming more integrated (see Figure 6 ). About 30% of natural gas is traded internationally, mostly within regional markets, and the amount of natural gas traded is increasing. Natural gas is transported primarily in two ways: by pipeline, and as a liquid in tankers. Pipelines transport gas between two fixed points, while LNG provides flexibility in the final destination. Global LNG trade increased by 1.8% in 2015, and LNG's share of the global gas trade was 33%. Traditionally, natural gas is sold under long-term contracts indexed to oil prices, except in the United States and a few other places where natural gas prices are market-based. U.S. LNG exports have placed pressure on other countries to delink their gas exports from oil-indexed prices. Almost all natural gas that is traded internationally is under long-term contracts, usually 20 years in length, whether it is by pipeline or as LNG. This is primarily because natural gas transportation is expensive and long-term contracts are needed to finance construction of the transport facilities. Sometimes LNG consumers do not require the entire amount of natural gas in their contracts. LNG producers can sell the excess to other consumers on a one-time or short-term basis (e.g., sell it on "spot"). The spot market for natural gas is growing. Russia is the world's largest natural gas exporter, primarily through its massive pipeline network to Europe. Russia opened its first LNG export terminal in 2009, primarily targeting the Asian market, to give it flexibility in its exports. Qatar is the leading exporter of LNG, accounting for 31% of the world LNG trade in 2015, the majority of which goes to Asia and Europe. Europe is the largest importing region of natural gas, receiving most of its imports by pipeline from Russia, Norway, and Algeria; however, recent developments regarding Russia and the Ukraine have pushed the European Union to consider more secure sources of natural gas. Asia, the most import-dependent region, relies mostly on LNG; however, China has become more reliant on imported gas via pipeline, from Kazakhstan, Myanmar, and Turkmenistan. China has been Turkmenistan's primary importer of natural gas, with more than 70% of Turkmenistan's exports going to China in 2015. Currently, the United States and Canada have an extensively integrated pipeline system. Canada and Mexico are the only recipients of U.S. natural gas by pipeline. Exports are expected to increase to Mexico, from 1 tcf in 2015 to almost 1.5 tcf in 2040. Meanwhile, exports to Canada are projected to slightly rise from 0.7 tcf to 0.75 tcf, over the same time period. U.S. LNG prices are market-based, resulting in a price differential that may create an economic incentive for the United States to export domestically produced natural gas. In February 2016, the first cargo of U.S. LNG was shipped from the Sabine Pass Liquefaction export terminal in Louisiana to Brazil. The export of U.S. LNG has been the center of debate for policymakers, with questions focusing on how U.S. natural gas may affect the global market and geopolitics, as well as domestic prices. As of April 2016, there is one LNG export terminal in operation and several LNG export terminal projects under construction in the lower-48 states: Additional LNG "trains" at Sabine Pass Liquefaction in Sabine, LA; Dominion-Cove Point LNG in Cove Point, MD; Cameron LNG in Hackberry, LA; Freeport LNG Expansion/FLNG Liquefaction in Freeport, TX; and Cheniere Marketing-Corpus Christi LNG in Corpus Christi, TX. The Kenai LNG terminal, which began operations in 1969 in Alaska, continues to operate, primarily supplying LNG to Japan. Also, in February 2016, the United States began shipping quantities of LNG to Barbados from Miami, FL. The LNG was shipped to Barbados in cryogenic containers instead of a specialized tanker ship. Cryogenic containers are comparable to shipping containers and can be transported over land and loaded onto ships. The natural gas from these shipments has been sold at a higher price than the Sabine Pass exports, ranging from $10 per MBtus to almost $16 per MBtus. In 2014, a relatively small amount of LNG was shipped to Honolulu, HI, using this method, the first time to the state. Alaska has great potential to become a major source of natural gas. The United States Geological Survey (USGS) estimates that conventional natural gas resources on Alaska's North Slope may potentially exceed 200,000 bcf, more than eight times the total amount of current U.S. gas consumption. However, the majority of gas produced in Alaska is used for reinjection to boost oil production and is not brought to market. Alaskan officials have pushed for a pipeline to be constructed in order to sell natural gas internationally as LNG, but as of 2016 this is considered commercially challenging. In February 2016, the Trans-Pacific Partnership (TPP) free trade agreement (FTA) was signed between the United States and Singapore, Brunei, New Zealand, Chile, Australia, Peru, Vietnam, Malaysia, Mexico, Canada, and Japan. The TPP may have an impact on the U.S. natural gas trade, as permits for natural gas exports to countries with which the United States has an FTA receive expedited approval under the Natural Gas Act. Thus membership in the TPP would, in effect, grant free trade status to key consumers of LNG. A trade agreement called the Transatlantic Trade and Investment Partnership (TTIP) has been proposed between the United States and the EU, with the aim of promoting trade and economic growth. The areas the TTIP addresses include market access, regulation, and rules and principles for cooperation, and it would, in effect, also give free trade status to signatories regarding natural gas. Neither TPP nor TTIP has been ratified. In December 2015, the United Nations Climate Change Conference, or COP-21, was held in Paris; the objective of the conference was to address climate change and come to a universal agreement on steps needed to mitigate it. The conference resulted in the Paris Agreement, which establishes governing measures regarding emissions mitigations, adaptation, and finance. The United States signed the agreement on April 22, 2016. It is noteworthy that U.S. infrastructure expansion, maintenance, and construction may not be able to keep up with its growing supplies; 50% of gas transmission and gathering pipelines were built in the 1950s and 1960s. It is estimated that investment in natural gas interstate pipelines may range from $2.6 billion to $3.5 billion annually between 2015 and 2030. This amount of investment may prove difficult to raise given other infrastructure demands. Other issues that may affect both the domestic and international markets will be oil prices; new infrastructure; technological development; increased interdependence between the gas and electric sectors; and climate and environmental policy. The Gas Exporting Countries Forum (GECF), also referred to as gas OPEC (Organization of the Petroleum Exporting Countries), is a nascent cartel organization based in Qatar comprising 11 natural gas producing countries ( Table 1 ). The GECF was formed in 2001, signing an organizing charter in 2008. Together, the countries account for 62% of global natural gas reserves, 57% of the LNG trade, and 39% of the pipeline gas trade. Given the U.S. resource base of natural gas, it is highly unlikely that the GECF could significantly affect U.S. natural gas consumption within the next five years or, most likely, longer. Canada, by far the largest source of imported natural gas to the United States, is not a member of the GECF. Europe is probably most vulnerable to possible cartel control, as more than half its imports come from cartel members, particularly Russia and Algeria. Nevertheless, the current structure of natural gas markets (i.e., long-term contracts and pipelines connecting individual sellers to specific buyers) is not conducive to supply or price manipulation, and significant changes would need to be made to how natural gas is brought to market and sold before the GECF could have influence. Overall, global natural gas production in 2015 grew by 2.2%, which was below the 10-year average of 2.4%. The United States surpassed Russia as the world's largest natural gas producer in 2009. The success of the United States to date and the potential for further shale gas development has initiated an evaluation by most countries of their potential natural gas resources. However, outside of Canada, whose shale gas industry is developing alongside that of the United States, it is unlikely that significant commercial production will be achieved before the end of the decade in another country. Most countries looking at shale gas currently do not have the data, technology, or equipment required to evaluate their shale gas resources, let alone successfully exploit them. The price of natural gas in the United States, Canada, and the United Kingdom is set by the market, with centers or hubs providing buyers and sellers with competitive price data (see Figure 7 ). The most well-known hub in the United States is the Henry Hub in Erath, LA, where multiple interstate and intrastate natural gas pipelines interconnect. There are various prices for natural gas in the United States depending on the category of consumer. Residential consumers pay the highest price, followed by various commercial users. By 2040, the Henry Hub natural gas spot price is projected by EIA to rise to $7.85 per million British thermal units (MBtu) due to increased domestic and international demand. This would require an increase in the number of well completions in order to meet higher production levels. EIA's projection is based on existing information and does not account for significant changes in the market, such as new technologies, regulations, or discoveries. Outside the United States, Canada, and the United Kingdom, almost all wholesale natural gas is sold under long-term contracts. The price of natural gas within these contracts is commonly determined by a formula that links the natural gas price to the price of crude oil or some oil-based product. Although in many markets natural gas no longer competes as a substitute against oil-based products, this vestige of the contracts has remained. Over the last several years, the disparity between contract prices and spot prices has raised pressure on gas producers to do away with this concept. However, the recent fall in world oil prices may suspend this debate. Nevertheless, some producers have started incorporating a spot price for natural gas into their pricing formulas. The price differences reflect the regional nature of the natural gas industry and the disparity between contract and spot prices. Asia, in particular, has been willing to pay high prices to secure its natural gas supplies. Two other contract concepts are worth highlighting: take-or-pay clauses and destination clauses. With a take-or-pay clause, a buyer of natural gas must pay the seller regardless of whether it actually receives the natural gas. Typically, in contracts, buyers must purchase at least 80% of the total volume of natural gas contracted. For example, if a contract is for 100 bcf, but the buyer only needs 80 bcf, then that is all it pays for; but if the buyer only needs 50 bcf, it still must pay for an additional 30 bcf even if it cannot use it. A destination clause allows a cargo to be redirected to a different destination and buyer. Such a clause was not common until recent years and contributes to a more efficient market. Is it time for natural gas to take center stage as the world's primary energy source? That is the main question confronting the natural gas industry over the next decade. The International Energy Agency (IEA) states that natural gas is one of the fastest growing fossil fuels, with an increase in demand of approximately 60% in 2040 over 2013; natural gas is a major alternative for a world that looks to gradually decarbonize its energy system. Most of the new demand for natural gas is projected to come from non-OECD countries, primarily China and those in the Middle East. Nonetheless, the global landscape for energy is shifting; as North America continues to produce unconventional gas, the rest of the world's exploration of unconventional resources is occurring more gradually. China is typically a driver in global energy trends. Recently, China has decided to change its economic model, shifting away from an industry-heavy economy to a services-focused one. This change will require 85% less energy to generate future Chinese growth; consequently, predictions are uncertain regarding China's future in energy consumption. India, on the other hand, is projected to be a growing contributor to global energy demand, accounting for 25% of the rise in global energy use to 2040. However, meeting India's energy demand may prove to be a huge financial commitment—nearly $2.8 trillion. Natural gas comprises about 6% of India's primary energy supply, and is projected to make up less than 10% of India's energy mix in 2040. Sectorally, the U.S. electric power industry leads the growth in natural gas demand due to several factors, including relatively low prices, lower capital costs, excess natural gas generation capacity, and competitive financing of projects. Government policies, particularly in regard to carbon dioxide emissions, will be a key factor in determining the rate of growth of natural gas usage. Globally, natural gas is projected to account for 28% of total world electricity generation in 2040, with non-OECD countries representing 61% of this. Natural gas production would likely need to increase to meet the rise in demand and keep prices from dramatically rising. Production and growth is projected in every region except Europe. Unconventional gas resources —coal bed methane, shale gas, and tight gas—account for about 60% of growth in the global gas supply. However, outside of North America unconventional resource development is slower and uneven. China does have policies that encourage production, but limited water availability, geology, and population density in resource-rich areas may hinder any attempts to fully realize its capacity. Appendix A. Global Natural Gas Consumption (2015) Appendix B. Global Natural Gas Reserves (2015) Appendix C. Global Natural Gas Production (2015) Appendix D. U.S. Natural Gas Imports and Exports Appendix E. Global Natural Gas Exporters (2015) Appendix F. Major Global Gas Companies (2014) Appendix G. Select U.S. Statutes Related to Natural Gas | The role of natural gas in the U.S. economy has been a major part of the energy policy debate in the 114th Congress. This report briefly explains key aspects of global natural gas markets, including supply and demand, and major U.S. developments. Natural gas is considered by some as a potential bridge fuel to a lower-carbon economy, because it is cleaner burning than its hydrocarbon alternatives coal and oil. Natural gas combustion emits about one-half less carbon dioxide than coal and one-quarter less than oil when consumed in a typical electric power plant, although fugitive gas emissions offset some of the advantages. Natural gas combustion also emits less particulate matter, sulfur dioxide, and nitrogen oxides than coal or oil. Additionally, improved methods to extract natural gas from shale formations have significantly increased the resource profile of the United States, which has spurred other countries to try to develop shale gas. If the United States and other countries can bring large new volumes of natural gas to market, particularly unconventional natural gas, then natural gas could play a larger role in the world's economy. Several key factors will determine whether this happens, including price, technical capability, environmental concerns, and political considerations. Many countries, both producing and consuming, are watching how the development of U.S. unconventional natural gas resources evolves. Key Points Natural gas is likely to play a greater role in the world energy mix given its growing resource base and its relatively low carbon emissions compared to other fossil fuels. The world used 122,442 billion cubic feet (bcf) of natural gas in 2015, of which the United States consumed 27,463 bcf (the most of any country). World natural gas consumption in 2015 grew by 1.7%, which was below the 10-year average of 2.3% but above the 0.6% increase in 2014; U.S. consumption grew by 3%. U.S. unconventional natural gas reserves and production, particularly shale gas, have grown rapidly in recent years. The United States accounts for 89% of global shale gas production. The new shale gas resources have changed the United States' natural gas position from a net importer to a potential net exporter. Other countries are now exploring their own shale gas resources. Global trade in natural gas is increasing and new players are entering on both the supply side and the import side, making the global gas market more integrated. |
Inflation—the general rise in the prices of goods and services—is one of the differentiating characteristics of the U.S. economy in the post-World War II era. Except for 1949, 1955, and 2009, the prices of goods and services have, on average, risen each year since 1945. The cumulative effect of this inflation is staggering: the price level has risen more than 1,000% since the end of World War II. Inflation rose in the 1960s, peaked in the 1970s (it was 13.3% in 1979) and early 1980s, and has been generally low but positive since then. During the last two recessions (2001 and 2007 to 2009), policymakers have been more concerned about the threat of deflation (falling prices) than inflation. Prices fell in 2009, but have risen at a low and stable rate since. Prices did not persistently rise in the pre-World War II period. On the eve of that war, in 1941, the U.S. price level was virtually the same as in 1807. During the periods from 1846 to 1861 and 1884 to 1909, the United States experienced a near constant price level. And in the 15 years from 1865 through 1879, the price level either remained constant or declined. The principal periods of inflation between 1800 and 1941 were associated with wars and the discoveries of gold and silver both here and abroad (and with increased efficiencies in extracting both metals). Inflation can be defined as a sustained or continuous rise in the general price level or, alternatively, as a sustained or continuous fall in the value of money. Several things should be noted about this definition. First, inflation refers to the movement in the general level of prices. It does not refer to changes in one price relative to other prices. These changes are common even when the overall level of prices is stable. Second, the prices are those of goods and services, not assets. Third, the rise in the price level must be somewhat substantial and continue over a period longer than a day, week, or month. There has been practically no period in American history in which a significant change in the price level has occurred that was not simultaneously accompanied by a corresponding change in the supply of money. This has led to a widely held view that, in the long run, "inflation is always and everywhere a monetary phenomenon resulting from and accompanied by a rise in the quantity of money relative to output." Although this view is generally accepted, it is, in fact, consistent with two quite different views as to the cause of inflation—whether it is caused by "demand-side" factors influencing overall spending or "supply-side" factors influencing overall production—at any given time. In one view, inflationary pressures begin to rise when spending in the economy outpaces the economy's production. Monetary policy can be used to keep spending in line with total production, albeit imperfectly and with lags between implementation and results. Thus, a more rapid rate of money growth plays an active role in inflation and results either from mistaken policies of the Federal Reserve or because the Federal Reserve subordinates itself to the fiscal requirements of the federal government. Examples of Federal Reserve policies that are likely to produce inflation are those that fix rates of interest too low or those that support unrealistic foreign exchange values of the dollar. According to this view, the control of inflation rests with the Federal Reserve (Fed) and depends upon its willingness to limit the growth in the money supply. The relationship between changes in the money supply and changes in inflation is not stable, however. Thus, as a practical matter, economists are divided on whether inflationary trends can best be predicted by looking at the relationship between spending and production, using measures such as the output gap, or by looking at measures of monetary policy, such as growth in the money supply. Economists who are proponents of the Fed's recent use of "quantitative easing" tend to point to measures such as the large output gap to predict that deflation is a greater risk than high inflation. Some economists who are concerned that quantitative easing will lead to high inflation tend to point to the rapid growth in the portion of the money supply controlled by the Fed (called the monetary base) since 2008. To date, the overall money supply has grown more quickly than it had in recent decades, but not at a pace commensurate with the growth in the monetary base, and inflation has remained low. Nevertheless, the increase in the monetary base has the potential to be inflationary in the future, as the output gap declines. An alternative view comes in several versions. They have in common a belief that the major upward pressure on prices comes from external price shocks, which unlike overly stimulative money growth would produce a fall in real output. One candidate is the attempt by organized labor to obtain increases in real wages. Other activities include the monopolistic pricing behavior of OPEC, major crop failures, or changes in the terms of international trade produced by a decline in the foreign exchange value of the dollar. The decline in real output that these activities produce will, in general, lead to rises in unemployment. To prevent unemployment from increasing, in one version of this alternative, the Federal Reserve is seen to pump up demand by increasing the growth of money and credit. In the process it ratifies the rise in the price level. Thus, in this version, while a growth in the money supply is necessary to ratify the upward movement in the price level, it is not the cause of the rise in prices. It is interesting to speculate what would happen if the Federal Reserve refused to expand demand in the face of the rise in unemployment. Presumably, after a protracted period, the additional unemployment would lead to a fall in wages, costs, and other prices. Over the longer run, output would return to its previous level or growth path, the price level would fall back to its previous level, and only relative prices and wages would be different. Thus, while the Federal Reserve has the power to curb inflation, it is unlikely to exercise this power in the face of a large run up in unemployment. In another extreme variant, what the Federal Reserve does is really irrelevant. Should it refuse to expand what is conventionally called money to pump up demand in the presence of these developments that reduce output, money substitutes under the guise of credit will emerge that will allow demand to grow and the price increases to be ratified. This variation, interestingly, precludes excessive money growth from causing inflation, for it also holds that the Federal Reserve cannot force too much money on the economy. Inflation, then, cannot be a case in which too much money is chasing too few goods. The first two explanations for inflation find many adherents among American economists, whereas the third is more common among some British economists. In most years, inflation tends to rise when unemployment falls, and vice versa. Economic theory explains this relationship in terms of a full employment rate of unemployment, also called the natural rate of unemployment or the non-accelerating inflation rate of unemployment (NAIRU). Whenever the actual unemployment rate is above the full employment rate, total spending in the economy will fall, and the resultant slack will cause the inflation rate to fall (since there is less demand for goods and services). As the inflation rate falls, the expected rate of inflation should also fall if economic agents believe the government is sincere in its efforts to end inflation (i.e., that the government will not reverse its policy in the face of rising unemployment). As inflationary expectations fall so will wage demands, and falling wage demands will bring about a lower unemployment rate (since employers will demand more labor when labor costs fall). Ultimately, the economy will move back to full employment at a zero inflation rate or a stable price level. Thus, the important steps in the sequence are (1) convincing government policy to reduce the inflation rate to zero; (2) tolerating an above normal rate of unemployment; and (3) adjusting inflation expectations and wage demands to the lower rate of inflation. In practice, policymakers have shown a preference for stimulating the economy before inflation hits zero, so that unemployment returns to the full employment rate faster. As a result, most recessions have featured a falling but still positive inflation rate. The relationship between inflation and unemployment points to one reason that inflation can be temporarily costly in practice. Because inflationary expectations have not fallen until unemployment has risen, efforts to reduce the rate of inflation have often been associated with economic downturns. For example, the double-digit inflation of the early 1980s was reduced only through an economic downturn during which the unemployment rate rose to double digits (10.8% in late 1982) for the first time since the Great Depression of the 1930s. It is argued that a higher inflation rate in the late 1980s was a major reason why the Fed tightened monetary policy, which was also an important factor causing the recession of 1990-1991. Economists believe that expectations of future inflation play an important role in the relationship between inflation and unemployment. To illustrate why, consider the example of tightening monetary policy (raising short-term interest rates) to reduce the inflation rate. Higher interest rates reduce spending on interest-sensitive goods, such as business investment spending, consumer durables, and housing. As spending on these goods declines, so will employment in the sectors producing these goods. If inflation expectations are low, the overall decline in spending and employment will put downward pressure on prices, as discussed in the previous section. But if inflation expectations are high, prices will respond less quickly to the same decline in spending and employment. As a result, spending and employment would have to fall further and longer to produce the same decline in prices. Whether inflation expectations are high or low will depend importantly on the perceived credibility of the Fed's commitment to maintaining low inflation. If businesses and workers do not believe that the Fed will stick with a policy of tighter monetary policy when faced with higher unemployment, they may not be willing to lower their price demands and wage demands, respectively. Economists often discuss jointly the costs to an economy from unemployment and inflation because, for much of the period since the late 1950s, it was generally believed that a long-run tradeoff existed between the two. While the cost of unemployment was well articulated, the cost of inflation was relegated to "shoe leather." The high U.S.-inflation rate of the late 1960s, 1970s, and early 1980s caused economists to rethink the costs of inflation to an economy. What follows is a distillation of those efforts. Describing the costs to an economy from inflation can be confusing for several reasons. First and foremost, there is the confusion over the cost to the economy versus the cost to specific individuals. Costs to individuals may not impose a burden on the economy because they are in the nature of a redistribution of either income or wealth. What is lost by some is gained by others. Nevertheless, some of these redistributions can have real effects. Second, some of the costs of inflation are permanent in the sense that so long as the inflation continues the costs will be incurred. Others are only transitory and arise as the economy moves from one inflation rate to another or because the rate of inflation itself is variable. Third, some costs are incurred only because the inflation is unanticipated while other costs arise even when the inflation is fully anticipated. Finally, some costs occur only because of the absence for one reason or another of appropriate safeguards: for example, the absence of indexed contracts. Note that some of these costs also apply to deflation (falling prices), although they may manifest themselves in different ways. As an introduction to understanding the costs imposed on an economy by inflation, consider first an economy that is completely indexed for inflation—where every conceivable contract is adjusted for changes in the price level, including those for debt (bonds and mortgages) and wages and salaries; where taxes are imposed only on real returns to assets and tax brackets, fines, and all payments imposed by law are indexed; where the exchange rate is free to vary and there are no legal restrictions imposed on interest rates; and so on. In this economy, the distinction between anticipated and unanticipated inflation is unimportant except if the inflation rate is high and the indexed adjustments are not continuous. Then real costs can occur. However, for analytical purposes, assume that all individuals perfectly anticipated the inflation and that the indexed adjustments are continuous. In this economy, inflation can impose only two real costs: the less efficient arrangement of transactions that result from holding smaller money balances and the necessity to change posted prices more frequently (the so-called menu costs). The first of these, entailing the rearrangement of transactions due to the higher costs of holding money, is the one cost uniformly identified in the text books as "the cost of inflation." It is worth considering what is involved. Both individuals and businesses hold money balances because it allows each to arrange transactions in an optimum or least cost way (e.g., for business this involves paying employees, holding inventories, billing customers, maintaining working balances) and to provide security against an uncertain future. Holding wealth or assets in a money form, however, is not costless. A measure of the so-called opportunity cost is the expected rate of inflation, a cost that rises because wealth can be held in alternative forms whose price or value rises with inflation. When inflation occurs or when the rate of inflation rises, holding money becomes more costly. Individuals and businesses then attempt to get by with less money (for businesses this may mean billing customers more frequently, paying employees more frequently, etc.). This means that least cost transactions patterns are no longer least cost. The new patterns are less efficient—they use more time or more resources to effect a given transaction. In addition, holding smaller real money balances also reduces the security money provides against an uncertain future. The magnitude of this cost has been reduced in the United States in recent years because financial institutions can now pay interest on a variety of deposits that function as money. Thus, the primary cost of inflation on money holding applies to currency on which no interest is paid. To the extent, however, that financial institutions are slow to raise interest rates in tandem with inflation, deposit holders will economize on holding deposits and arrange transactions less efficiently, thereby imposing a short-run cost on the economy. The other cost imposed by inflation in a fully indexed economy is the so-called menu cost, which involves the extra time and resources that are used in adjusting prices more frequently in an environment where prices are rising. These additional costs are incurred mainly with goods and services that are sold in nonauction markets. It does not apply to auction markets where prices change more or less continuously in response to shifts in supply and demand. Very few economies are fully indexed, even those in which inflation is severe. In the United States, indexation is incomplete. As such, inflation can impose costs even if it is fully anticipated. A case in point involves the arrangements for levying taxes. Taxes are levied in several instances on nominal as opposed to real income. As a result, the interaction of inflation and taxation can impose real effects on an economy by altering the incentives to work, save, and invest. Several examples should suffice to explain what is involved. First, consider an individual who, in a non-inflationary period, earns a real rate of interest of 5% and who pays taxes of 30% on this income. The aftertax real rate of interest is 3.5%, that is, [5% –(30% × 5%)]. Now, assume that a 10% rate of inflation is expected over the one-year term of the loan. As a result, the market rate of interest rises to 15% (composed of a real rate of 5% and an expected inflation rate of 10%). At a tax rate of 30%, the aftertax rate of return falls to 0.5%. To the extent that saving is responsive to the real aftertax rate of return, taxing nominal yields, as is done in the United States, distorts the incentive for individuals to save. (The existing empirical evidence for the United States suggests that private sector saving is quite insensitive to the aftertax rate of return.) Second, consider what happens to the real aftertax rate of return on business capital during inflation. For tax purposes, the depreciation of business plant and equipment is based on actual or historic costs. During inflation, charging depreciation based on historic cost raises the nominal profits of businesses and the basis on which corporate profits taxes are levied. As a result, the aftertax real rate of return falls and this discourages businesses from adding to their stock of plant, equipment, and structures—the bases for future economic growth. Third, to the extent that income tax brackets are not indexed or not indexed completely, inflation in a progressive income tax system can reduce the real aftertax income for wage and salary earners over time, distorting the incentives to work. During the 1980s, the U.S. tax code was rewritten to adjust the tax brackets for inflation as well as to reduce the level and progressivity of the federal income tax. As a result, inflation has a much reduced interaction with federal taxes in reducing aftertax real income. Several private sector practices also interact with inflation to produce real economic effects. The first is the continuation of level payment nominal mortgages for financing housing. This practice front loads the real cost of a mortgage during an inflation and, as a result, it discourages the purchase of homes, especially by younger first-time buyers. Second, business firms continue to record all data in terms of the dollar even though the real purchasing power of this important unit of measure varies considerably over time. This practice has the potential for distorting the real profitability of business over time as well as the valuation of other relevant magnitudes. Because these nominal magnitudes are frequently used as the basis for borrowing and lending decisions, they have the potential for seriously distorting resource allocations. In this section, the real effects of inflation are analyzed in an environment where it is unanticipated and where the economy relies on nominal or unindexed contracts. In this situation, an important effect of inflation is to redistribute both income and wealth. It would be a mistake, however, to conclude that because gainers and losers cancel, there can be no real effects from inflation. To see one such real effect, consider what happens to the interest bearing public debt. Inflation reduces the real value of the public debt and with it the real value of the wealth of the private sector, the ultimate owners of most of that debt. Thus, inflation redistributes wealth from the private to the public sector. But who constitutes the public sector? These are the taxpayers who also happen to be the members of the private sector, some of whom own the debt. Thus, redistribution reduces the real value of the taxes needed to service this debt, and the reduction is most beneficial for the younger workers in the current population and for future generations. As a result of the fall in real tax burden, their real disposable income rises, both today and in the future. They are thus able to save more while older workers and retirees will, no doubt, have to reduce their consumption, for while they are faced with a large wealth loss, they gain very little from the reduced tax burden. Thus, the redistribution of wealth between the private and the public sectors is really redistribution between generations that could have an effect on the rate of capital formation. Perhaps the most serious effect of unanticipated inflation in a market economy is its potential to make the price system malfunction and misallocate resources. Those who live in market economies are apt to take its functioning for granted. They may fail to appreciate or understand the vital role that prices perform in such a system. As standard textbooks in economics teach, the price system determines what is produced, how it is produced, and to whom the output is distributed. For the price system to perform these functions efficiently, producers must be able to discern a change in real or relative prices from a change in nominal prices, which essentially leaves all relative prices unchanged. Only with the former will it be profitable to alter production. A similar phenomenon holds for workers. A rise in money wages may bring forth a greater quantity of labor time if workers are convinced that this is a rise in real wages, that is, money wages relative to prices. It is easier for producers and workers to discern these changes in real prices and wages if the price level is stable or if the inflation rate is constant. It is more difficult when the rate of inflation is rising or more variable. Under these circumstances market economies are apt to have "signal" problems. That is, producers and workers mistake changes in nominal prices and wages for changes in corresponding real magnitudes and act accordingly. The resulting changes in output and labor time are inefficient and would not have occurred but for the mistakes in perception. Some economists, including Fed Chairman Ben Bernanke, have argued that low and stable inflation is conducive to higher long-term economic growth. A "signal extraction" problem may not have arisen in the United States, however, since rates of inflation have been relatively low and stable. Empirical studies completed in the 1970s support the view that inflation is associated with greater uncertainty about future prices and that the degree of uncertainty rises with the rate of inflation. Rising uncertainty about future prices is believed to produce several possible "real" effects. First, individuals appear to shift from buying assets denominated in nominal terms (e.g., bonds) to so-called real assets such as residential structures, land, precious metals, art work, etc. Because some of these assets are in fairly fixed supply, the resulting capital gain produced by the shift could conceivably raise private sector wealth by a sufficient amount to cause a fall in the saving rate. Second, to compensate for the perceived greater uncertainty, lenders appear to require a greater real reward for supplying funds for investment. Third, contracts tend to be shortened. The first two developments lead to rising real interest rates, which tend to reduce the rate of investment and capital formation. The third development leads businessmen to prefer shorter lived assets. Although economic theory does not prescribe an optimal rate of inflation, many economists would support the goal of price stability, which former chairman of the Federal Reserve Alan Greenspan once defined as existing when inflation is not considered in household and business decisions. The Federal Reserve's longer-run goal of 2% inflation, announced in 2012, could be seen as consistent with that definition. A few prominent economists have broken with the mainstream view that inflation should be kept to a minimum. They have argued that moderate rates of inflation, in the 3%-5% range rather than the 1%-3% range, might be useful for smoother economic adjustment. In a downturn, economic output falls because of "price stickiness"—prices and wages cannot adjust quickly enough to maintain full employment, so total spending falls below the productive capacity of the economy. These economists argue that with a higher average rate of inflation, adjustment would happen more quickly because real wage or price cuts would be possible while avoiding nominal wage cuts. For example, a worker might resist a 2% nominal cut in his wages when inflation is zero, but accept a 3% nominal wage increase when inflation is 5%. In both cases, real wages would have adjusted downward by 2%, but the latter example would have possibly occurred more quickly. Inherent in this view is that individuals suffer from some "money illusion" at moderate rates of inflation (i.e., a 2% real wage cut is accepted because the 3% nominal increase is not seen as a cut). The existence of "money illusion" is inconsistent with anticipated inflation, and is only possible if inflation is insignificant; there is significant evidence that individuals in high inflation economies are highly sensitive to the inflation rate. Another argument made for targeting a higher (but still moderate) inflation rate is that deflation (falling prices) is a more serious problem than inflation, with Japan as an example of a country stuck in a long period of deflation and sluggish economic growth. A higher average inflation rate makes it less likely that a country would slide into deflation during a downturn. The reason that it could be hard to escape deflation is related to the "zero bound" on monetary policy. The Fed can only reduce short-term interest rates to zero when it is stimulating the economy, but sometimes, as was the case in 2008, further stimulus is needed to end a recession. With a higher average rate of inflation, average interest rates would also be expected to be higher. Higher average interest rates would be further from the zero bound on average, so that the Fed could undertake more stimulus before hitting the zero bound. This argument neglects the fact that the Fed can undertake (and has recently undertaken) unconventional monetary policy actions and expansionary fiscal policy to further stimulate the economy at the zero bound. What is the cost of inflation? It is customary in textbooks to answer this question in terms of a situation where the rate of inflation is anticipated by all market participants who can either continuously re-contract or in which everyone is protected from inflation through indexation. In this world the cost to an economy from inflation is the increased resource cost from conducting transactions with reduced holdings of money—popularly termed "shoe leather" costs. If the inflation is serious, this cost is by no means trivial. However, inflations are seldom perfectly anticipated. In this situation, perhaps the most serious real effect comes from the ability of rising prices to jam the price signals that are so important to the smooth and efficient functioning of a market economy. Evidence suggests that this may not have been a problem for the United States in the post-World War II era. In general, the cost of inflation to an economy will be larger the higher the rate of inflation, the more variable the rate, the less it is anticipated, the greater is the uncertainty it causes, and the less indexed is the economy. There is no single measurement of inflation. The rise in the general level of prices, the essence of inflation, is measured by using a price index that aggregates the price of different goods and services. Ideally, the price index used should be broad based and one in which the individual prices are weighted to indicate their importance to the economy. Many different price indexes are available in the United States that measure different types of inflation rates. For purposes of this report, two separate price indexes are used. The first is very broad based and derived from the measurement of the nation's gross domestic product (GDP), covering price changes of consumption, investment, government, and traded goods. The other is the Consumer Price Index (CPI), which prices a "market basket" of goods and services purchased by an urban family, a market basket whose individual items are weighted by how much the urban family spent on them in a base year period—currently 1982-1984. A drawback of this method is that people's consumption patterns change over time, causing the "market basket" to become outdated. Inflation rates according to the two measures are usually similar. Inflation, according to the CPI, was very low (usually below 2%) in the 1950s and early 1960s, began rising in the late 1960s, was relatively high in the 1970s and early 1980s (rising above 10% in 1974 and 1979-1981), began falling in the mid-1980s, and generally remained in the 2%-3% range in the 1990s and 2000s. Inflation tends to rise over the course of an economic expansion and decline during an economic recession, for reasons discussed above (see " The Relationship Between Inflation and Unemployment "). Current CPI data can be accessed at http://www.bls.gov/news.release/pdf/cpi.pdf . Current data for the GDP price deflator can be accessed at http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm . When comparing purchasing power over two time periods, the overall (referred to as "headline") inflation rate is the relevant measure. Comparisons over time of wages, wealth, rates of return, government transfers such as Social Security payments, and so on should all use a headline measure of inflation, because all of these concepts depend on a broad measure of inflation. Although the headline rate of inflation can provide much useful information to policymakers on the state of the economy, it can also be misleading since it responds to both systematic and random forces. The latter can be seen by reference to the food component of the CPI. An unusual cold spell in Florida in January that damages a substantial part of the fresh produce crop can send food prices and the CPI soaring. A similar effect can be produced by an unusually wet summer in the Midwest. Alternatively, an unusually good combination of rain and sunshine can produce a bountiful harvest and lower prices. Energy prices are also susceptible to such random effects associated with events such as turmoil in major oil producing nations. To minimize the confusing signals that could arise from the use of the actual rate of inflation, some economists prefer to use a price index that reflects basically only systematic forces to measure inflation. For some economists, this can be achieved by using the CPI less its food and energy components. (It should be noted that food and energy represent about 25% of the current CPI.) Others want to use a moving average either of the CPI itself or of the current CPI less its food and energy components. The use of a moving average is based on the belief that if there are random factors that influence the actual inflation rate, they have an average value of zero. Hence, the use of a moving average should minimize their influence. Others prefer a more complicated measure that trims off whatever prices have changed most in that period. Policymakers, particularly at the Federal Reserve, often refer to core inflation in their policy decisions. Some policymakers prefer to use core inflation to predict future overall inflation because food and energy price volatility makes it difficult to discern trends from the overall inflation rate. A drawback of an over-reliance on core inflation, however, is that an extended period of rapidly rising food or energy prices could cause all other prices to accelerate. A focus on core may cause policymakers to fail to react to such a rise in inflation until it is too late. This scenario may have occurred in the last decade. Since CPI less food and energy was higher than headline CPI in each year of the decade except 2002 and 2009, a focus on core inflation may have led policymakers to wait too long to tighten policy in the expansion. Furthermore, several studies have failed to find core inflation to be a good forecaster of future inflation, casting doubt on the very rationale for relying on it. Current data for the CPI less food and energy can be accessed at http://www.bls.gov/news.release/pdf/cpi.pdf . Because labor costs comprise nearly two-thirds of the value of final output, some economists believe that they are an important determinant of the rate of inflation. However, changes in the rate of growth of labor costs must be read with care. Wage increases can be driven by productivity increases, tight labor markets, inflation, or fears of inflation. One way to determine the force or forces driving wage increases is to examine what happens to per-unit labor costs. To this end, two major measures of labor cost are available, a comprehensive measure of wage and benefit costs, the employment cost index , and per-unit labor costs in the nonfarm business sector . The growth rate of both measures of labor cost generally showed a tendency to accelerate during the expansions of the 1980s and 1990s as labor markets tightened. Subsequent recessions and growing unemployment had a depressing effect on the rise in both measures. During the expansion beginning in 2002, the rate of increase in both measures was fairly comparable to the inflation rate (meaning real wage growth was low) even as the unemployment rate fell. Current data for the employment cost index can be accessed at http://www.bls.gov/news.release/pdf/eci.pdf . Current data for per unit labor costs can be accessed at http://www.bls.gov/news.release/pdf/prod2.pdf . Inflation can impose a real cost on society in terms of the efficiency with which the exchange mechanism works, by distorting the incentives to save, invest, and work, and by providing incorrect signals that needlessly alter production and work effort. Because of this, policymakers should be concerned with the ongoing rate of inflation and any tendency for it to accelerate. An additional reason for concern arises because efforts to reduce the rate of inflation have often been associated with economic downturns. For example, the double-digit inflation of the early 1980s was reduced only through an economic downturn during which the unemployment rate rose to its highest level since the Great Depression of the 1930s. Inflationary developments since the 1990 recession have been encouraging. The inflation rate has shown either no or only a modest tendency to rise as unemployment came down. Nonetheless, inflation rose modestly preceding the 2001 and 2007 recessions, illustrating that this is still an important measure to watch for evaluating the state of the economy. During the last two recessions (2001 and 2007 to 2009), policymakers have been more concerned about the threat of deflation (falling prices) than inflation, and they have pursued unconventional policies to prevent it. Prices fell in 2009, but have risen at a low and stable rate since. Given the relationship between inflation and the money supply, some economists are concerned that the rapid growth in the portion of the money supply controlled by the Fed since 2008 could cause rapid inflation. To date, those concerns have not been realized, primarily because of the large slack in the economy. | Since the end of World War II, the United States has experienced almost continuous inflation—the general rise in the price of goods and services. It would be difficult to find a similar period in American history before that war. Indeed, prior to World War II, the United States often experienced long periods of deflation. Note that the Consumer Price Index (CPI) in 1941 was virtually at the same level as in 1807. For more than two decades, the inflation rate has remained low, in contrast to the 1970s and early 1980s. This is true regardless of which of the many available official price indices is used to calculate the rate at which the price of goods and services rose. A low inflation rate is especially significant since the U.S. economy was fully employed, if not over fully employed, according to many estimates for the last three years of the 1991-2001 expansion and during 2006-2007. Yet, contrary to expectations, the inflation rate accelerated only modestly. Keeping an economy moving along a full-employment path without sparking higher inflation is a difficult policy task. During the last two recessions (2001 and 2007 to 2009), policymakers have been more concerned about the threat of deflation (falling prices) than inflation, and they have pursued unconventional policies to prevent it. Prices fell in 2009, but have risen at a low and stable rate since. Given the relationship between inflation and the money supply, some economists are concerned that the rapid growth in the portion of the money supply controlled by the Fed since 2008 could cause rapid inflation. To date, those concerns have not been realized, primarily because of the large slack in the economy. Because labor costs make up nearly two-thirds of total production costs, the rate at which they rise is often regarded as an indication of future inflation at the retail level. They tended to rise in the latter stage of the 1991-2001 expansion and to moderate during the subsequent contraction, recovery, and expansion that ended in December 2007. Rather than measure inflation by using the rate at which prices overall are rising, some economists prefer a measure that reflects primarily the systematic factors that raise prices. This yields the "underlying" or "core" rate of inflation. The overall inflation rate exceeded the core rate in eight years during the 2000s. Although economic theory does not prescribe an optimal rate of inflation, many economists would support the goal of price stability, which former chairman of the Federal Reserve Alan Greenspan once defined as existing when inflation is not considered in household and business decisions. Why should the United States be concerned about inflation? This study reports the distilled knowledge of economists on the real cost to an economy from inflation. These are remarkably more varied than the outlays for "shoe leather," long reported to be the major cost of inflation ("shoe leather" being a shorthand term for the resources that have to be expended on less efficient methods of exchanges). The costs of inflation are related to its rate, the uncertainty it engenders, whether it is anticipated, and the degree to which contracts and the tax system are indexed. A major cost is related to the inefficient utilization of resources because economic agents mistake changes in nominal variables for changes in real variables and act accordingly (the so-called signal problem). Inflation in the United States during the post-World War II era may not have been high enough for this cost to be significant. |
A commercial or depository bank is typically a corporation that obtains either a federal or state charter to accept federally insured deposits and pay interest to depositors. Commercial banks also make residential and commercial mortgage loans, consumer loans, provide check cashing and clearing services, and may underwrite securities, including U.S. Treasuries, municipal bonds, Fannie Mae and Freddie Mac issuances, and commercial paper (unsecured short-term loans to cover short-term liquid ity needs). The permissible activities of depository banks are defined by statute, namely the Glass-Steagall Act. By contrast, investment banks (or brokerage firms) are not allowed to accept federally insured deposits, and they do not make loans (i.e., a debt obligation owed to a single lending source). Instead, investment banks receive commissions to facilitate corporate mergers and corporate issuances of securities, such as corporate stocks and bonds (i.e., borrowing from the public). Congressional interest in the financial conditions of depository banks, also referred to as the commercial banking system, has increased following challenging economic conditions and changes in the regulatory environment. Specifically, the recession that began in December 2007 and ended in 2009 is frequently referred to as the Great Recession in part due to the financial crisis that unfolded. Both large and small banking institutions experienced losses related to the declining asset values (of mortgage-related assets), resulting in a substantial increase in bank failures. Consequently, higher prudential requirements for U.S. banking institutions were implemented. The Basel Committee on Banking Supervision, which provides an international consensus framework to promote internationally consistent bank prudential regulatory standards, adopted the third Basel Accord that was subsequently adopted by U.S. federal banking regulators. In addition, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( P.L. 111-203 , 124 Stat. 1376), which also contained enhanced prudential regulatory requirements for financial institutions. Hence, the challenge for the banking industry is to determine the sustainable amount of financial (lending) risk-taking while simultaneously facing higher costs associated with greater financial risk-taking (i.e., compliance with prudential regulations designed to minimize the severity of financial distress under deteriorating macroeconomic conditions). This report begins with a general overview of the banking industry. It describes how banks facilitate the financial intermediation process as well as the associated financial risks. It also explains the market structure of the banking industry, referring primarily to the asset distribution. Next, this report summarizes profitability and lending activity levels in the banking industry. Particular attention is paid to metrics related to capitalization levels, asset performance, and earnings of depository banks. Financial intermediation is the process of matching savers, who are willing to lend funds to earn a future rate of return, with borrowers, who are in need of funds to make transactions. It is expensive for savers to locate, underwrite, and monitor repayment behavior of borrowers. Similarly, it is expensive for borrowers to locate a sufficient amount of savers with funds and favorable lending terms. Hence, banks develop expertise in intermediation , or facilitating the transfer of funds from savers to borrowers. The typical intermediation transaction made by commercial banks provides loans to borrowers at higher rates than the cost to borrow the funds from savers, who provide loanable funds in the form of bank deposits. Generally speaking, banks (as well as numerous lenders or financial institution types) profit from the spread between the rates they receive from borrowers and the rates they pay to depositors. Financial intermediation, however, involves risk. Banks face the risk that borrowers will default on their loans, making it more difficult to repay depositors. In addition, banks face funding or liquidity risk stemming from more frequent movements in short-term interest rates. Banks must have access to an uninterrupted source of short-term funding (deposits) until their long-term loans are fully repaid. Consequently, greater variability in short rates may translate into variable profit spreads. Furthermore, depositors could suddenly and simultaneously decide to withdraw their deposits, perhaps due to a sudden change in economic conditions or even speculation about deteriorating economic conditions, resulting in financial distress for one bank or several banks. Hence, bank profitability and financial risk are inextricably linked. In addition to default and funding risks, financial intermediation increases borrowers' vulnerability to economic downturns. During business cycle booms, lenders may grow optimistic and increase credit availability as if the ideal economic and financial market conditions will persist. The trade-off (or costs) associated with greater lending is a greater likelihood of severe financial distress if macroeconomic conditions were to deteriorate. In other words, recessions that occur when individuals have more loan repayment obligations (or are more leveraged financially) are likely to be more arduous, in particular if these borrowers suddenly face lower income prospects (via job losses or pay cuts). Assets in the banking industry are not evenly distributed, meaning that banking firms are not identical and, for some metrics, must be analyzed separately to get a more accurate assessment of financial conditions. Using data from the Federal Deposit Insurance Corporation (FDIC), Figure 1 shows the number of U.S. banks since 2000 by size categories of bank asset holdings: less than $100 million, $100 million-$1 billion, $1 billion-$10 billion, and greater than $10 billion. Community banks have traditionally been considered institutions with total assets at or below $1 billion; however, some institutions with $10 billion in total assets may be considered community banks. At the other extreme are the large financial institutions that have $10 billion or more in assets. The number of banks with more than $10 billion in assets has remained relatively constant, ranging from 101 to 107 institutions between year-end 2000 and 2015. As of 2015, the FDIC reports that total industry assets were $15,967.92 billion. For several decades, bank assets have increased while the number of banking institutions has decreased. The smallest of the community banks, those with less than $100 million in assets, have accounted for most of the industry consolidation even prior to the 2007-2009 recession. Figure 2 shows the same bank asset categories by asset size rather than by number of institutions. Banking institutions with less than $100 million in assets collectively hold approximately 1% of all industry assets. In contrast, banks with more than $10 billion in assets collectively hold approximately 80% of all industry assets. With this in mind, it can be challenging for industry analysts to determine whether the banking industry should be viewed as one competitive industry or as numerous firms with characteristics similar to monopolists. Even though banks generally accept deposits and take loans, it is unclear the extent that small banks compete with large banks and for what types of financial services; small banks compete with each other because of their focus on specialized lending and geographical limitations; or large banks compete with each other or maintain focus on specialized financial services. Banking regulators (i.e., the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, and state banking regulators) require U.S. banking institutions that accept federally insured deposits to comply with safety and soundness regulations, which are designed to monitor and buffer against the types of financial intermediation risks that can result in financial distress for banks and the broader economy. Asset (loan) defaults are less likely to result in the inability of a bank to repay its shorter-term obligations to its creditors (and especially its insured depositors) if sufficient capital is maintained to absorb the losses. If a bank's capital falls below minimum regulatory threshold levels, it would be considered undercapitalized and faces the prospect of being shut down by its regulator, which appoints the FDIC as the receiver of the insolvent institution. Hence, compliance with regulatory capital requirements implies that capital reserves must grow proportionately with bank asset (lending) portfolios. The abatement of financial risk, however, may curb lending activity. As previously mentioned, recessions are likely to be milder when fewer loan repayment obligations are outstanding; but the trade-off may be fewer loans, translating into fewer transactions that could possibly spur more robust expansions. Consequently, determining the optimal amount of financial intermediation risk for the banking system to take while simultaneously trying not to undermine economically stimulative lending activity is often a regulatory challenge. After 2007, the banking system saw unusually high numbers of distressed institutions, with failures at rates not seen since the savings and loan crisis that began in the 1980s and lasted through the early 1990s. The number of banks that failed, or fell substantially below their minimum capital reserve requirements, increased as the financial crisis of 2008 unfolded. No banks failed in 2005 and 2006, and three bank failures occurred in 2007. In contrast, the FDIC administered 489 bank failures over the 2008-2013 period. The FDIC maintains a problem bank list, which lists banks at risk of failure because their capital reserves have fallen below regulatory minimum levels (but perhaps not yet far enough below to be shut down). The number of depository institutions on the FDIC's problem list spiked beginning in 2008 and peaked at 888 in the first quarter of 2011. Figure 3 shows the number of problem banks and the total assets of those banks relative to the total assets of the entire banking system. The chart suggests that problem banks were primarily small institutions because of the small share of total banking assets they held. The industry has returned to profitability since the recession. Return on assets (RoA) and return on equity (RoE) are commonly used metrics to gauge bank profitability. RoA is computed with net revenue (i.e., total revenue minus total expenses) in the numerator and average total assets in the denominator. The RoA measures the financial return of a bank's average assets or lending activities. Because the banking industry relies heavily upon borrowed liabilities to fund assets, the ratio's numerator would be significantly smaller than the denominator; therefore, a RoA of approximately 1% is considered profitable. RoE is computed with net income in the numerator and the total amount of common shareholder equity in the denominator. The RoE is a measure of financial return for shareholders. Unlike RoA, RoE does not have a barometer of "acceptable" performance because it can increase due to either asset profitability or depleting capital positions, making it difficult to establish a benchmark standard. Nonetheless, double-digit RoE returns such as those prior to the recession tend to be more acceptable for shareholders. The FDIC reported industry declines in both RoA and RoE during the 2007-2009 recession as the numerators of both ratios fell even faster than their denominators. The negative returns coincided with the wave of loan defaults that also occurred during the recession, which led to the deterioration of capital, increases in the number of banks on the FDIC's problem list, and increases in bank failures. The RoA and RoE measures, which are illustrated in Figure 4 , have exhibited a reversal in course since the recession. Figure 5 shows the increase in noncurrent assets (i.e., loans or bonds) and charge-offs after 2007. Non-current assets are loans or bonds that borrowers do not repay as scheduled. The allowance for loan and lease losses (ALLL) is a component of regulatory bank capital set aside for anticipated (or estimated) loan losses. Loan loss provisioning refers to increasing the amount of ALLL when loan default risks increase; decreases are referred to as charge-offs or deductions from ALLL when lenders determine that noncurrent assets will not be repaid. RoA and RoE movements are essentially related to loan and bond repayment problems. Bank regulators require banking organizations to hold capital for both anticipated and unanticipated default risks. Capital requirements pertaining to the maintenance of equity shareholder levels are designed to buffer against unanticipated losses and generally do not vary. In contrast, ALLL requirements change more frequently (quarterly) or when expected credit losses may have increased. Hence, a bank may have sufficient capital to meet unanticipated defaults, which may be associated with unforeseen events (such as a sudden increase in the unemployment rate), but it may still need to increase ALLL provisions should a borrower begin showing signs of repayment difficulties that may result in default. If banks can absorb anticipated loan losses using current income earnings, their capital will be left intact for unanticipated losses. The ratio of aggregate ALLL provisioning to total bank assets, also shown in Figure 5 , is an ALLL proxy. Loan loss provisioning matched and often exceeded the anticipated percentage of problem assets prior to 2007, which are composed of net charge-offs and noncurrent assets. The ALLL indicator suggests that the amount of loan loss provisioning since the recession covers net charge-offs. The percentage of noncurrent loans, however, must decline even more relative to the current level of ALLL provisioning (or ALLL provisioning must increase more) before the industry can fully cover its anticipated default risks. Although the ALLL indicator was constructed for illustrative purposes, the amount of loan loss allowance of noncurrent loans and leases, also referred to as the coverage ratio , is a more commonly used metric to assess the ability to absorb losses from nonperforming assets (as shown in Figure 5 ). A coverage ratio below 100% indicates that there is insufficient provisioning to cover weak loans that could go into further distress. Since the recession, regulators have required banks to increase loan-loss provisioning (as well as other components of regulatory capital) levels to better match the levels of problem loans. The asset (lending) growth rate of the banking industry is computed using two methodologies (illustrated in Figure 6 ). For both methodologies, the total assets per quarter were initially averaged for each year, arguably adjusting for seasonal movements in lending activity over the year. The asset growth rate (represented by the more volatile striped bars) is computed by simply calculating the percentage change of the average total assets from year to year. The asset growth rate (represented by the solid bars) is computed using a moving average smoothing technique that reduces short-term volatility in data. Some economists prefer analyzing smoothed data series to curtail overstating observed activity or directional change. Hence, the asset growth rate using the moving average or smoothing methodology fell below negative 2% beginning in the first quarter of 2009, which had not occurred since the 1990-1991 recession; the second and fourth quarters of 2009 also saw negative asset growth. Given the magnitude of loan repayment problems, banks grew more cautious about lending (or allowing their asset portfolios to grow) to avoid the risk of further weakening their ALLL and capital reserve positions. The bank lending rate has increased since the 2007-2009 recession. Except for the 2001 recession, the more recent growth rates are below the pre-recessionary levels. Figure 7 illustrates some of the more common types of asset holdings in the aggregate banking portfolio. Since the 2007-2009 recession, the banking system holds larger shares of cash and smaller shares of residential mortgages, which is computed in Figure 7 using 1-4 family residential mortgages and home equity lines of credit. The share of cash holdings has more than doubled since 2000 to approximately 12% of aggregate portfolio holdings. The increase in cash holdings would be consistent with the increase in regulatory capital requirements for banks as shareholders purchase bank stocks with cash. Conversely, the share of residential mortgage credit, which peaked to almost 24% in 2005, has since steadily declined (by more than 33%) to approximately 15%. The share of commercial and industrial (C&I) lending has seen a decrease of approximately 24% since 2000, but it appears to be rising since the 2007-2009 recession. As of 2015, the total asset shares represented by commercial real estate lending, consumer loans (e.g., credit cards, installment loans), and securities (e.g., state and municipal bonds, U.S. Treasury securities) approximate pre-recession levels. Lastly, a trading account holds assets that the bank would like to sell or trade. Although banks wanted to sell more assets during the recession, the share of assets for sale has returned to and has fallen below pre-recessionary levels. As previously stated, banks typically borrow funds from depositors for shorter periods of time relative to their originated loans. Banks must continuously renew their short-term borrowings until longer-term loans have been fully repaid. For example, suppose a bank originates a consumer loan that is expected to be repaid in full over two years. Over the two years that the loan is being repaid, the bank will simultaneously "fund the loan," meaning that it will treat its depositors' funds as a sequence of quarterly (for a total of eight quarters) or monthly (for a total of 24 months) short-term loans and make periodic interest payments to depositors. The spread or difference between lending long and borrowing short is known as the net interest margin . Typically, smaller banks engage in "relationship banking," meaning that they develop close familiarity with their respective customer bases and provide financial services within a circumscribed geographical area. Relationship banking allows these institutions to capture lending risks that are unique, infrequent, and localized. These institutions, which rely heavily on commercial (real estate and retail) lending and funding with deposits, typically have higher net interest margins than large banks. Funding loans with deposits is cheaper than accessing the short-term financial markets, particularly for small institutions that do not have the transaction volume or size to justify the higher costs. In contrast, large institutions typically engage in "transactional banking" or high-volume lending that employs automated underwriting methodologies that often cannot capture atypical lending risks. Large banks are not as dependent upon deposits to fund their lending activities because of their greater ability to access short-term money markets. Large banks typically have lower spreads because their large-scale activities generate large amounts of fee income from a wide range of activities, which can be used to cover the costs of borrowing in the short-term money markets. Revenues are earned by originating and selling large amounts of loans to nonbank institutions, such as government-sponsored enterprises (Fannie Mae and Freddie Mac) and non-depository institutions that hold financial assets (e.g., insurance companies, hedge funds). A large share of fees are still generated from traditional banking activities (e.g., safe deposit, payroll processing, trust services, payment services) and from facilitating daily purchase and payment transactions, in which service fees may be collected from checking, money orders, and electronic payment card (debit and credit) transactions. Hence, transactional or high-volume banking activities allow large banks to generate fee income and engage in financial transactions characterized by minimum deal size or institutional size requirements, which simultaneously act as a participation barrier for community banks. Because of the differences in the composition of bank revenue streams, the net interest margins and fee income streams are illustrated by asset size categories. Figure 8 presents the net interest margins (or spreads) by bank size. By 2009, the net interest margins had declined for small banks, but they still remained higher over time than the margins for larger banks. The net interest margins for large banks increased over the recession period as they experienced a large influx of deposits during the recession, perhaps due to uncertainty in the money market; this "flight to safety" influx resulted in a substantial drop in their funding costs. In other words, large banks were able to rely relatively less on short-term financial markets and could, instead, take advantage of cheaper funding from deposits. Although net interest margins may appear to be returning to pre-recession trends, the future performance of this spread would still be affected by a shift in the composition of asset holdings. For example, the spread may be affected by an increase in liquid asset holdings (e.g., securities backed by the U.S. federal government), perhaps due to weaker demand for more illiquid loans (e.g., mortgages, commercial loans) or lower capital requirements associated with holding more liquid loans. Banks may alter the composition of their asset portfolios, attempting to seek higher yielding lending opportunities (e.g., holding less mortgages and more credit card loans) to help maintain spreads above 3%. Bank spreads may also be affected by the amount of deposits that remain or flow out of the banking system as the economy strengthens. Hence, it has become more challenging to predict future profitability arising from more traditional lending activities. Figure 9 presents noninterest income as a percentage of assets by bank size. The overall trend of fee-generating activities has rebounded since the recession, but there appears to be more volatility in fee-income revenues of smaller institutions. Although greater reliance upon fee income as a percentage of (large) bank income suggests a reduction in exposure to credit and funding risks, it may not necessarily translate into greater stability of earnings streams. For example, banks no longer generate as much fee income by selling (mortgage) loans to private-label securitization markets, particularly those largely abandoned by investors at the beginning of the financial crisis. In other words, high-volume fee-generating transactions are still dependent upon fluctuations in investor demand for securities created from securitized (structured finance) deals, which adds variability to income. In addition, regulatory costs may reduce fee income. Recent regulation of fees that large institutions may collect from debit transactions would affect the earnings streams. Banks might respond by seeking new opportunities to provide financial services to generate new fee revenues. Hence, future fee-generating activities are still affected by financial market uncertainty. Since the 2007-2009 financial crisis, the banking industry has exhibited profitability. Net interest margins and fee income as a percentage of assets are less volatile now than when the U.S. economy was in recession, but they are still lower in comparison to 2000. The industry is still accumulating sufficient reserves to cover noncurrent assets. These factors may be influencing the asset growth rate, which has been positive since 2011, but remains below the average rate of growth observed over the past two decades. Profitability in the banking industry should not be interpreted as evidence of a return to previous lending patterns. The industry is adapting its business models to the post-recession regulatory environment in which higher overall capital requirements would be expected to increase funding costs and the choice of financial assets held in portfolios. Because large banks may be less dependent upon traditional lending activities than smaller banks, large institutions might be able to generate sufficient fee income from a wide range of other financial activities to remain profitable even if lending activity does not resemble pre-recessionary levels. Hence, profitability trends may differ for banks by size. | A commercial bank is an institution that obtains either a federal or state charter that allows it to accept federally insured deposits and pay interest to depositors. In addition, the charter allows banks to make residential and commercial mortgage loans; to provide check cashing and clearing services; to underwrite securities that include U.S. Treasuries, municipal bonds, commercial paper, and Fannie Mae and Freddie Mac issuances; and to conduct other activities as defined by statute, namely the National Banking Act. Commercial banks are limited in what they can do. For example, the Glass-Steagall Act separates commercial banking (i.e., activities that are permissible for depository institutions with a bank charter) from investment banking (i.e., activities that are permissible for brokerage firms, which do not include taking deposits or providing loans). Congressional interest in the financial conditions of depository banks, or the commercial banking industry, has increased in light of the financial crisis that unfolded in 2007-2009, which resulted in a large increase in the number of distressed institutions. Providing credit during the financial crisis was difficult for the banking system. Thus, an analysis of post-financial crisis trends that pertain to lending activity may provide some useful insights about recovery of the banking system. The financial condition of the banking industry can be examined in terms of profitability, lending activity, and capitalization levels (to buffer against the financial risks). This report focuses primarily on profitability and lending activity levels. Issues related to higher bank capitalization requirements are discussed in CRS Report R42744, U.S. Implementation of the Basel Capital Regulatory Framework, by [author name scrubbed]. The banking system generally has substantially more small banks (i.e., those with $1 billion or less in assets) relative to larger size banks. For several decades, bank assets have increased while the number of banking institutions has decreased. The banking industry continues consolidating, with more of the industry's assets held by a smaller number of institutions. Generally speaking, by most measures, the health of the banking system has improved since 2009. There are fewer problem banks since the peak in 2011, as well as fewer bank failures in comparison to the peak amount of failures in 2010. The return on assets (RoA) and return on equity (RoE) for the banking industry, expressed as percentages, have rebounded since the financial crisis. Although RoA and RoE have not returned to pre-recessionary levels, the range of percentages that should be associated with optimal performance of the banking system is subjective. The banking system currently has increased its capital reserves that have been designated to buffer against unforeseen macroeconomic and financial shocks. The banking system also has loan-loss reserves to sufficiently cover losses expected to be uncollectible. For loans that are noncurrent (delinquent) but have not yet gone into default, however, the banking system still needs to rebuild this loan-loss capacity if such loans do become uncollectible. Hence, news of industry profitability should be tempered by the news that aggregate loan-loss provisions still must increase to sufficiently buffer against noncurrent loans. |
R ecently, several states have enacted legislation intended to capture use taxes on sales made by out-of-state sellers to in-state customers. These laws are commonly referred to as "Amazon laws," in reference to the Internet retailer. A use tax is the companion to a sales tax—in general, the sales tax is imposed on the sale of goods and services within the state's borders, while the use tax is imposed on purchases made by the state's residents from out-of-state (remote) sellers. The purpose of the use tax is to dissuade residents from purchasing goods and services from out-of-state merchants in order to avoid the sales tax. Two common misconceptions exist about the ability of states to impose sales and use taxes on Internet sales. The first is that the Internet Tax Freedom Act, enacted in 1998, prevents such taxation. This is not true. The act contains a moratorium only on state and local governments imposing "multiple or discriminatory taxes on electronic commerce," as well as new taxes on Internet access services. As a result of this law, a state may not, for example, impose a tax on electronic commerce that is not imposed on similar transactions made through other means (such as traditional "brick and mortar" stores). It remains permissible, however, for a state to impose a sales or use tax that is administered equally without regard to whether the sale was face-to-face, mail order, or Internet. For more information on the act, see CRS Report R43800, Taxation of Internet Sales and Access: Legal Issues , by [author name scrubbed] and CRS Report R43772, The Internet Tax Freedom Act: In Brief , by [author name scrubbed]. The second misperception is that the U.S. Constitution prohibits states from taxing Internet sales. States have the power to tax their residents who purchase goods or services on the Internet, even when the seller is located outside the state and has no real connection with it. However, if the seller does not have a constitutionally sufficient connection ("nexus") to the state, then the seller is under no enforceable obligation to collect the tax and remit it to the state. In this situation, the purchaser is still generally responsible for paying the use tax, but few comply and the tax revenue goes uncollected. As a result of this low compliance rate and the increasing amount of Internet commerce, states have been motivated to develop new ways—"Amazon laws"—to capture uncollected use taxes, while still complying with the U.S. Constitution. The report first examines the Constitution's requirements as to state laws that impose use tax collection obligations on remote sellers. It then looks at how these requirements apply to state "Amazon laws." As discussed below (" State "Amazon Laws" "), some states have enacted legislation aimed at collecting use taxes from Internet sales by imposing tax collection or notification requirements on Internet retailers. These laws potentially implicate two provisions of the U.S. Constitution: the Fourteenth Amendment's Due Process Clause and the dormant Commerce Clause. The clauses have different purposes, and a state's imposition of tax obligations on a retailer may be acceptable under one and not the other. The focus for due process is whether imposition of the obligation or liability is fair, while the concern under the dormant Commerce Clause is whether it unduly burdens interstate commerce. Together, these clauses impose two requirements relevant for analyzing state "Amazon laws": (1) each requires there be some type of nexus between the state and remote seller before the state can impose obligations on the seller; and (2) the dormant Commerce Clause prohibits states from discriminating against out-of-state sellers. One point to make at the outset is that Congress has the authority under its commerce power to authorize state action that would otherwise violate the Commerce Clause, so long as it is consistent with other provisions in the Constitution. Before a state may impose a tax liability on an out-of-state business, a constitutionally sufficient connection or "nexus" must exist between the state and business. Nexus is required by both the Due Process Clause and the dormant Commerce Clause. Due process requires there be a sufficient nexus between the state and the seller so that (1) the state has provided some benefit for which it may ask something in return and (2) the seller has fair warning that its activities may be subject to the state's jurisdiction. The dormant Commerce Clause requires a nexus in order to ensure that the state's imposition of the liability does not impermissibly burden interstate commerce. The nexus standard for sales and use tax collection liability is not the same under both clauses. In the 1992 case Quill v. North Dakota , the Supreme Court ruled that, absent congressional action, the standard required under the dormant Commerce Clause is the seller's physical presence in the state, while due process imposes a lesser standard under which the seller must have directed purposeful contact at the state's residents. The Court reasoned that physical presence was required under the dormant Commerce Clause because otherwise collecting the tax would impermissibly burden interstate commerce in light of the country's numerous taxing jurisdictions. With respect to the Fourteenth Amendment, the Court explained that while it had previously found physical presence to be necessary for due process, its jurisprudence had evolved so that physical presence was not necessary so long as the seller had directed sufficient action toward the state's residents. The Court found such purposeful contact existed in Quill since the seller had "continuous and widespread solicitation of business" within the state. As mentioned, Congress has the authority under its commerce power to authorize state action that would otherwise violate the Commerce Clause, so long as it is consistent with other provisions in the Constitution. Thus, Congress could change the "physical presence" standard, so long as the new standard complied with due process. Congress has not used this authority, although legislation has been introduced in the 114 th Congress ( S. 698 , Marketplace Fairness Act; H.R. 2775 , Remote Transactions Parity Act of 2015). For more information on the acts, see CRS Report R43800, Taxation of Internet Sales and Access: Legal Issues , by [author name scrubbed]. The Supreme Court has not revisited the issue of when states may impose use tax obligations on remote sellers since Quill . Nonetheless, several pre- Quill cases provide guidance on determining when a state may impose tax collection responsibilities on out-of-state retailers. Clearly, a state can impose such responsibilities on a company with a "brick and mortar" retail store or offices in the state. This seems to be the case even if the in-state offices and the sales giving rise to the tax liability are unrelated to one another. For example, the Court held that a state could require a company to collect use taxes on mail order sales to in-state customers when the company maintained two offices in the state that generated significant revenue, even though the offices were used to sell advertising space in the company's magazine and had nothing to do with the company's mail-order business. The Court firmly rejected the argument that there needed to be a nexus not only between the company and the state, but also between the state and the sales activity. It reasoned that there was a sufficient connection between the state and company as the two in-state offices had enjoyed the "advantage of the same municipal services" whether or not they were connected to the mail-order business. Absent some type of physical office or retail space in the state, it also seems that having in-state salespeople or agents is sufficient contact. In several cases pre-dating Quill , the Court upheld the power of the state to impose use tax collection liabilities on remote sellers when the sales were arranged by local agents or salespeople. In Scripto, Inc. v. Carson , the Court held that a state could impose use tax collection liability on an out-of-state company that had no presence in the state other than 10 "independent contractors" who solicited business for the company. These individuals had limited power and had no authority to make collections or incur debts on behalf of the company. They merely forwarded the orders they solicited to the company's out-of-state headquarters, where the decision to fill the order was made. Finding their status as independent contractors rather than employees to be constitutionally insignificant, the Court held that there was a constitutionally sufficient nexus between the company and the state because the individuals had conducted "continuous local solicitation" in the state on behalf of the company. The Court later described this case as "represent[ing] the furthest constitutional reach to date" of a state's ability to impose use tax collection duties on a remote seller. In addition to requiring nexus, the Commerce Clause prohibits state laws that discriminate against interstate commerce. A state law that "regulates even-handedly to effectuate a legitimate local public interest" and has "only incidental" effect on interstate commerce is constitutionally permissible "unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." On the other hand, a state law that facially discriminates against out-of-state sellers is "virtually per se invalid." Traditionally, such laws have only been permissible if they meet the high standard of "advanc[ing] a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." Thus, a state law that subjected remote sellers to tax-related burdens not imposed on in-state sellers would appear to be facially discriminatory and subject to a high level of judicial scrutiny. In light of consumers' low compliance with state use tax laws and the increasing amount of Internet commerce, some states have enacted legislation that attempts to capture uncollected use taxes from online sales. Two primary approaches have developed: "click-through nexus" and notification requirements. This section first examines these approaches by focusing on the laws in the first states to enact legislation: New York's click-through nexus statute, enacted in 2008, and Colorado's 2010 required notification law. It then examines whether these laws violate the U.S. Constitution. One approach adopted by some states is "click-through nexus." This term arises from the "click-throughs"—online referrals—that some Internet retailers solicit through programs where an individual or business (called an associate or affiliate) places a link on its website directing Internet users to an online retailer's website. The associate or affiliate receives compensation for their referral, which is typically based on the sales that occur when users click through from one of these links and purchase goods and services. "Click-through nexus" statutes require an online retailer to collect use taxes on sales to customers located in the taxing state based on the physical presence in that state of the retailer's associates or affiliates. An example of such a law is the one enacted by New York in 2008. New York requires vendors to collect sales and use taxes, with vendors defined to include any entity which "solicits business" through "employees, independent contractors, agents or other representatives." The 2008 law added a statutory presumption that sellers of taxable property and services meet this requirement "if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the seller." The presumption may be rebutted by proof that the resident "did not engage in any solicitation in the state on behalf of the seller that would satisfy the [Constitution's] nexus requirement" during the preceding four sales and use tax quarterly periods. Guidance issued by the state tax agency provides that the presumption is not triggered by placing an advertisement. The guidance also discusses how to rebut the presumption. The second approach requires remote retailers to provide information to the state and customers, rather than requiring the retailers to collect the use taxes themselves. This approach is illustrated by Colorado's law, which was enacted in 2010. Among other things, Colorado's law imposes three duties on any "retailer that does not collect Colorado sales tax." Retailers must (1) inform Colorado customers that a sales or use tax is owed on certain purchases and that it is the customer's responsibility to file a tax return; (2) send each Colorado customer a year-end notice of the date, amount, and category of each purchase made during the previous year, as well as a reminder that the state requires taxes be paid and returns filed for certain purchases; and (3) provide an annual statement to the Colorado department of revenue for each in-state customer showing the total amount paid for purchases during the year. Unless the retailer can show reasonable cause, each failure to notify a customer about the duty to file a state use tax return carries a $5 penalty, while each failure of the other two duties carries a $10 penalty. State "Amazon laws" potentially implicate the dormant Commerce Clause and the Fourteenth Amendment's Due Process Clause. In fact, both the New York and Colorado laws have been challenged on these grounds. As discussed below, it appears Colorado's notification law is the more constitutionally problematic approach. With respect to click-through nexus laws such as New York's, it might be argued that the law complies with Quill by targeting only Internet retailers whose affiliate programs create some degree of physical presence in the state and whose affiliates solicit (i.e., do more than merely advertise) on the retailer's behalf. Examined in this light, the law might be characterized as similar to the one at issue in Scripto , where the Court upheld the power of the state to require use tax collection by a remote seller whose sales were arranged by local independent contractors who forwarded the orders they solicited to the company's out-of-state headquarters. In that case, the Court made clear that the individuals' title was unimportant, as was the fact that they had no authority over the sales (e.g., could not approve them). Rather, the key factor in the Court's decision was that the individuals had conducted "continuous local solicitation" in the state on behalf of the company. By targeting those affiliates that solicit in the state, it seems the argument could be made that the New York law is within the Court's Scripto holding and, therefore, is constitutional with respect to affiliates with sufficient solicitation activities. On the other hand, it might be argued there is reason to question whether linking on a website is substantively similar to the "continuous local solicitation" conducted by the salespeople in Scripto . It might be argued that the Scripto salespeople's ongoing activities are distinguishable from the one-time action of placing a link on a website. A court examining whether this difference is constitutionally significant might be particularly hesitant about extending Scripto's holding since the Court later referred to it as "represent[ing] the furthest constitutional reach to date" of a state's ability to require use tax collection by a remote seller. Another question may be whether a court would find a click-through nexus law to be unconstitutionally burdensome because it requires remote sellers to potentially monitor thousands of affiliates in order to determine whether the nexus requirement has been met. In 2012, New York's highest court rejected facial challenges to the law on both Commerce Clause and Fourteenth Amendment grounds. The plaintiffs—Amazon and Overstock.com—appealed the decision to the U.S. Supreme Court, but the Court declined to hear it. Before the New York court, Overstock and Amazon asserted that the New York law was facially unconstitutional under the Commerce Clause because it applied to sellers without a physical presence in the state. In rejecting this argument, the court noted it had previously held that the physical presence required under Quill did not have to be "substantial," but rather "demonstrably more than a slightest presence" and could be met if economic activities were performed in the state on the seller's behalf. Applying that standard, the court found it was met since the law was based on "[a]ctive, in-state solicitation that produces a significant amount of revenue." The court also noted, that while not dispositive, sellers did not pay these taxes themselves, but rather "are collecting taxes that are unquestionably due, which are exceedingly difficult to collect from the individual purchasers themselves, and as to which there is no risk of multiple taxation." With respect to the Due Process Clause, the court found that "a brigade of affiliated websites compensated by commission" was clearly sufficient to meet Quill's standard of "continuous and widespread solicitation of business within a State." The court also rejected the plaintiffs' argument that the law violated due process because the presumption that retailers were required to collect use tax if they entered into an online referral agreement with a state resident was irrational and essentially irrebuttable. The court determined that the presumption (1) was reasonable because it presumed that affiliate website owners would solicit in-state acquaintances in order to increase referrals and therefore their compensation and (2) was rebuttable, as evidenced by the state tax agency guidance that discussed the methods and information needed to rebut it. While other states have adopted laws similar to New York's, it does not appear that any court has examined the constitutionality of those laws. Colorado's notification requirements appear to raise potentially significant constitutional concerns. This is because they apply only to companies that do not collect Colorado sales and use taxes, which would appear to be primarily those retailers without a substantial nexus to the state. In other words, the law applies to companies that do not have a physical presence in the state. The first question is whether this violates due process. While the law targets companies without physical presence in the state, it applies to "retailers" who, by definition, must be "doing business" in the state. This means the notification law applies only to retailers who have some type of contact with the state. However, there may be retailers for whom the "doing business" standard would not result in the requisite minimum connection with the state. Additionally, the Colorado statute raises two issues under the Commerce Clause. First, since the law applies to companies that do not have a physical presence in the state, it would appear that the notification requirements would have to be distinguishable from the use tax collection responsibilities at issue in Quill in order to be permissible. While some might attempt to distinguish between them since the notification law does not actually impose any tax collection obligation, they are arguably functionally similar since all are intended to increase use tax collection. As such, it might be argued that the notification requirements are at least as burdensome as tax collection obligations since both require similar types of recordkeeping and, unlike collection responsibilities, the notification law also involves reporting information to the consumer. A court adopting this characterization of the notification duties would likely find them to be an impermissible burden on interstate commerce. Second, by targeting remote sellers that do not have a physical presence in the state, the law imposes duties on out-of-state business that are not similarly imposed on Colorado businesses. Thus, it appears to be a facially discriminatory law. As discussed above, such laws are "virtually per se invalid" and only permissible if they meet the high standard of "advanc[ing] a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." Whether the Colorado law would survive this strict scrutiny is open to question. While collecting use tax on purchases made to in-state customers seems an obvious legitimate government purpose, some might argue that there are other alternatives to Colorado's approach, such as collecting use tax from state residents on the state income tax form. In 2012, a federal district court struck down the law, examining both of the above arguments. The court found that the notification requirements were "inextricably related in kind and purpose" to the tax collection responsibilities at issue in Quill and therefore subject to the physical presence standard, which the law plainly did not meet. The court further found that the law only applied to, and thus discriminated against, out-of-state vendors and determined that it failed to survive strict scrutiny. While there were legitimate governmental interests involved (e.g., improving tax collection and compliance), the court determined that the state had not provided evidence to show that these interests could not be served by reasonable nondiscriminatory alternatives, such as collecting use tax on the resident income tax return and improving consumer education . However, in August 2013, the Tenth Circuit Court of Appeals dismissed the case after finding that the Tax Injunction Act (TIA) prohibits federal courts from hearing it. The act is a federal law that provides, The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State. In March 2015, the Supreme Court held that the TIA does not apply to this suit. The Court concluded that the notice and reporting requirements were not an act of "assessment, levy, or collection" within the specific meaning of those terms as used in tax law, and that the suit could not be said to "restrain" the assessment, levy, or collection of a tax if it "merely inhibits," rather than stops, those activities. While holding that the TIA did not enjoin federal courts from hearing the suit, the Court left open the possibility that it might be barred by the comity doctrine, under which federal courts refrain from interfering with state fiscal operations "in all cases where the Federal rights of the persons could otherwise be preserved unimpaired." The Court instructed the Tenth Circuit to determine if the doctrine applied to this suit. The Court's opinion was unanimous. Notably, Justice Kennedy wrote a concurrence in which he raised the possibility that Quill was wrongly decided and should be reconsidered in light of technological advances and the development of the Internet. Characterizing the Quill holding as "tenuous" and "inflicting extreme harm and unfairness on the States," he stated that "[i]t should be left in place only if a powerful showing can be made that its rationale is still correct." | As more purchases are made over the Internet, states are looking for new ways to collect taxes on online sales. There is a common misperception that the U.S. Constitution prohibits states from taxing Internet sales. This is not true. States may impose sales and use taxes on such transactions, even when the retailer is outside the state. However, if the seller does not have a constitutionally sufficient connection ("nexus") to the state, then the seller is under no enforceable obligation to collect the tax and remit it to the state. The purchaser is still generally responsible for paying the tax, but few comply and the tax revenue goes uncollected. Nexus is required by two provisions of the U.S. Constitution: the Fourteenth Amendment's Due Process Clause and the Commerce Clause. In the 1992 case Quill v. North Dakota, the Supreme Court held that the dormant Commerce Clause requires that a seller have a physical presence in a state before the state may impose tax collection obligations on it, while due process requires only that the seller have purposefully directed contact at the state's residents. Notably, under its power to regulate commerce, Congress may choose a different standard than physical presence, so long as it is consistent with other provisions of the Constitution, including due process. Congress has not used this authority to provide a different standard, although legislation has been introduced in the 114th Congress (S. 698, Marketplace Fairness Act; H.R. 2775, Remote Transactions Parity Act of 2015). In recent years, some states have enacted laws, often called "Amazon laws" in reference to the Internet retailer, to try to capture uncollected taxes on Internet sales and yet still comply with the Constitution's requirements. States have used two basic approaches. The first is enacting "click-through nexus" statutes, which impose the responsibility for collecting tax on those retailers who compensate state residents for placing links on their websites to the retailer's website (i.e., use online referrals). The other is requiring remote sellers to provide information about sales and taxes to the state and customers. New York was the first state to enact click-through nexus legislation, in 2008. In 2010, Colorado was the first to pass a notification law. "Amazon tax laws" have received significant publicity, in part due to questions about their constitutionality and whether they impermissibly impose duties on remote sellers without a sufficient nexus to the state. Both the New York and Colorado laws have been challenged on constitutional grounds. While the New York click-through nexus law was upheld by the state's highest court against facial challenges on due process and Commerce Clause grounds, Colorado's notification law was struck down by a federal district court as impermissible under the Commerce Clause for applying to sellers without a physical presence in the state and discriminating against out-of-state retailers. However, the Tenth Circuit Court of Appeals subsequently determined that federal courts do not have jurisdiction to hear the Colorado challenge due to the federal Tax Injunction Act. In March 2015, the U.S. Supreme Court held in Direct Marketing Association v. Brohl that the Tax Injunction Act did not apply to this suit. However, the Court left open the possibility that the suit might be barred under the comity doctrine and instructed the Tenth Circuit to determine if the doctrine applied. Notably, Justice Kennedy wrote a concurrence in which he suggested that Quill was wrongly decided and should be reconsidered in light of technological advances and the development of the Internet. |
During the 110 th Congress, several House and Senate committees have engaged in oversight activities, including hearings and requests for expeditious production of documents and information regarding the Administration's warrantless foreign intelligence surveillance programs, as possible changes to the Foreign Intelligence Surveillance Act of 1978, as amended, were explored. In July 2007, an unclassified summary of the National Intelligence Estimate on "The Terrorist Threat to the U.S. Homeland" was released. It expressed the judgment, in part, that the U/S. Homeland will face a persistent and evolving threat over the next three years, the main threat coming from Islamic terrorist groups and cells, particularly Al Qaeda. On August 2, 2007, the Director of National Intelligence (DNI) released a statement on "Modernization of the Foreign Intelligence Surveillance Act." In his statement, Admiral McConnell viewed such modernization as necessary to respond to technological changes and to meet the Nation's current intelligence collection needs. He deemed it essential for the Intelligence Community to provide warning of threats to the United States. He perceived two critically needed changes. First, he stated that a court order should not be required for gathering foreign intelligence from foreign targets located overseas, although he did agree to court review of related procedures after commencement of the needed collection. Second, he contended that liability protection was needed for those who furnished aid to the government in carrying out its foreign intelligence collection efforts. On August 5, 2007, the Protect America Act of 2007, P.L. 110-55 , was enacted into law with a 180 day sunset provision, providing a temporary solution to concerns raised by the Director of National Intelligence. Both the House and the Senate have considered or are considering possible legislation to provide a longer-term statutory approach to these concerns. On November 15, 2007, the House of Representatives passed H.R. 3773 , the Responsible Electronic Surveillance That is Overseen, Reviewed, and Effective Act of 2007 or the RESTORE Act of 2007. On October 26, 2007, Senator Rockefeller reported S. 2248 , the Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2007 or the FISA Amendment Act of 2007, an original bill, from the Senate Select Committee on Intelligence. S. 2248 was referred to the Senate Judiciary Committee on November 1, 2007. On November 16, 2007, S. 2248 was reported out of the Senate Judiciary Committee by Senator Leahy with an amendment in the nature of a substitute. On December 14, 2007, Senator Reid made a motion to proceed with consideration of S. 2248 , and presented a cloture motion on the motion to proceed. The motion to proceed was then withdrawn. On December 17, 2007, the Senate considered the motion to proceed with the measure. Cloture on the motion to proceed was invoked by a vote of 76-10, Record Vote Number 435. After some debate in the closing hours before the Senate broke for the holidays, a decision was made to revisit the measure when the Members returned in January. Senate floor activities on S. 2248 resumed on January 23 and 24, 2008. A modified version of the Senate Judiciary Committee's amendment in the nature of a substitute to S. 2248 was tabled. Senator Reid sought unanimous consent for consideration of the House-passed bill, H.R. 3773 , but Senator McConnell objected. Senator Rockefeller, for himself and Senator Bond, proposed an amendment in the nature of a substitute to S. 2248 ( S.Amdt. 3911 ). On January 28, 2008, a cloture motion by Senator McConnell on this amendment failed to pass. A cloture motion on an amendment proposed by Senator Reid to S. 2248 to extend the sunset on the Protect America Act for an additional 30 days ( S.Amdt. 3918 ) also fell short of the required votes. Other amendments to S. 2248 have been proposed. On January 29, 2008, both the House and the Senate passed H.R. 5104 , a 15-day extension to the sunset for the Protect America Act, to allow further time to consider, pass, and go to conference on proposed legislation to amend FISA, while ensuring that the intelligence community would have the authority it needed in the intervening period. Pursuant to an agreement and order of January 31, 2008, S.Amdts. 3909, as modified; 3932, as modified; 3960, as modified; and S.Amdt. 3945 were agreed to, while other amendments were scheduled for floor debate. In the ensuing floor consideration to date, S.Amdt. 3941 was agreed to, while S.Amdts. 3913 and 3915 failed to pass on February 7, 2008. S.Amdt. 3930 fell short of the requisite 60 votes and was withdrawn on February 6, 2008. Still pending are S.Amdts. 3938, as modified, 3911, 3907, 3927, 3919, 3920, and 3910. Floor debate is anticipated to continue early next week, with additional votes expected on Tuesday, February 12, 2008. H.R. 3773 , S. 2248 and the Senate amendment in the nature of a substitute to S. 2248 , each includes amendments to the Foreign Intelligence Surveillance Act. This report provides a side by side comparison of the provisions of these three measures, using H.R. 3773 as the basis for the comparison. As title I of FISA defines a number of key terms critical to understanding the import of the bills' language, a glossary of FISA terms as defined in section 101 of FISA, 50 U.S.C. § 1801 is attached to assist in understanding the effect of these measures. Senator Reid introduced two additional FISA bills on December 10, 2007, S. 2440 and S. 2441 , which were read twice the following day and placed on the Senate Legislative Calendar as Numbers 529 and 530, respectively. S. 2402 was introduced by Senator Specter on December 3, 2007, and referred to the Senate Judiciary Committee. In Committee markup on December 13, 2007, an amendment in the nature of a substitute to S. 2402 was adopted by unanimous consent. Then, by a vote of 5-13, the Committee rejected S. 2402 , as amended. The proposal would have permitted substitution of the government for electronic communication service providers in law suits where certain criteria were met. These bills will not be included in this side-by-side comparison. As used in title I of FISA, 50 U.S.C. § 1801 et seq .: (a) "Foreign power" means— (1) a foreign government or any component thereof, whether or not recognized by the United States; (2) a faction of a foreign nation or nations, not substantially composed of United States persons; (3) an entity that is openly acknowledged by a foreign government or governments to be directed and controlled by such foreign government or governments; (4) a group engaged in international terrorism or activities in preparation therefor; (5) a foreign-based political organization, not substantially composed of United States persons; or (6) an entity that is directed and controlled by a foreign government or governments. (b) "Agent of a foreign power" means— (1) any person other than a United States person, who— (A) acts in the United States as an officer or employee of a foreign power, or as a member of a foreign power as defined in subsection (a)(4) of this section; (B) acts for or on behalf of a foreign power which engages in clandestine intelligence activities in the United States contrary to the interests of the United States, when the circumstances of such person's presence in the United States indicate that such person may engage in such activities in the United States, or when such person knowingly aids or abets any person in the conduct of such activities or knowingly conspires with any person to engage in such activities; or (C) engages in international terrorism or activities in preparation therefore; or (2) any person who— (A) knowingly engages in clandestine intelligence gathering activities for or on behalf of a foreign power, which activities involve or may involve a violation of the criminal statutes of the United States; (B) pursuant to the direction of an intelligence service or network of a foreign power, knowingly engages in any other clandestine intelligence activities for or on behalf of such foreign power, which activities involve or are about to involve a violation of the criminal statutes of the United States; (C) knowingly engages in sabotage or international terrorism, or activities that are in preparation therefor, for or on behalf of a foreign power; (D) knowingly enters the United States under a false or fraudulent identity for or on behalf of a foreign power or, while in the United States, knowingly assumes a false or fraudulent identity for or on behalf of a foreign power; or (E) knowingly aids or abets any person in the conduct of activities described in subparagraph (A), (B), or (C) or knowingly conspires with any person to engage in activities described in subparagraph (A), (B), or (C). (c) "International terrorism" means activities that— (1) involve violent acts or acts dangerous to human life that are a violation of the criminal laws of the United States or of any State, or that would be a criminal violation if committed within the jurisdiction of the United States or any State; (2) appear to be intended— (A) to intimidate or coerce a civilian population; (B) to influence the policy of a government by intimidation or coercion; or (C) to affect the conduct of a government by assassination or kidnapping; and (3) occur totally outside the United States, or transcend national boundaries in terms of the means by which they are accomplished, the persons they appear intended to coerce or intimidate, or the locale in which their perpetrators operate or seek asylum. (d) "Sabotage" means activities that involve a violation of chapter 105 of title 18, or that would involve such a violation if committed against the United States. (e) "Foreign intelligence information" means— (1) information that relates to, and if concerning a United States person is necessary to, the ability of the United States to protect against— (A) actual or potential attack or other grave hostile acts of a foreign power or an agent of a foreign power; (B) sabotage or international terrorism by a foreign power or an agent of a foreign power; or (C) clandestine intelligence activities by an intelligence service or network of a foreign power or by an agent of a foreign power; or (2) information with respect to a foreign power or foreign territory that relates to, and if concerning a United States person is necessary to— (A) the national defense or the security of the United States; or (B) the conduct of the foreign affairs of the United States. (f) "Electronic surveillance" means— (1) the acquisition by an electronic, mechanical, or other surveillance device of the contents of any wire or radio communication sent by or intended to be received by a particular, known United States person who is in the United States, if the contents are acquired by intentionally targeting that United States person, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes; (2) the acquisition by an electronic, mechanical, or other surveillance device of the contents of any wire communication to or from a person in the United States, without the consent of any party thereto, if such acquisition occurs in the United States, but does not include the acquisition of those communications of computer trespassers that would be permissible under section 2511(2)(i) of title 18; (3) the intentional acquisition by an electronic, mechanical, or other surveillance device of the contents of any radio communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes, and if both the sender and all intended recipients are located within the United States; or (4) the installation or use of an electronic, mechanical, or other surveillance device in the United States for monitoring to acquire information, other than from a wire or radio communication, under circumstances in which a person has a reasonable expectation of privacy and a warrant would be required for law enforcement purposes. (g) "Attorney General" means the Attorney General of the United States (or Acting Attorney General), the Deputy Attorney General, or, upon the designation of the Attorney General, the Assistant Attorney General designated as the Assistant Attorney General for National Security under section 507A of title 28, United States Code. (h) "Minimization procedures," with respect to electronic surveillance, means— (1) specific procedures, which shall be adopted by the Attorney General, that are reasonably designed in light of the purpose and technique of the particular surveillance, to minimize the acquisition and retention, and prohibit the dissemination, of nonpublicly available information concerning unconsenting United States persons consistent with the need of the United States to obtain, produce, and disseminate foreign intelligence information; (2) procedures that require that nonpublicly available information, which is not foreign intelligence information, as defined in subsection (e)(1) of this section, shall not be disseminated in a manner that identifies any United States person, without such person's consent, unless such person's identity is necessary to understand foreign intelligence information or assess its importance; (3) notwithstanding paragraphs (1) and (2), procedures that allow for the retention and dissemination of information that is evidence of a crime which has been, is being, or is about to be committed and that is to be retained or disseminated for law enforcement purposes; and (4) notwithstanding paragraphs (1), (2), and (3), with respect to any electronic surveillance approved pursuant to section 1802(a) of this title, procedures that require that no contents of any communication to which a United States person is a party shall be disclosed, disseminated, or used for any purpose or retained for longer than 72 hours unless a court order under section 1805 of this title is obtained or unless the Attorney General determines that the information indicates a threat of death or serious bodily harm to any person. (i) "United States person" means a citizen of the United States, an alien lawfully admitted for permanent residence (as defined in section 1101(a)(20) of title 8), an unincorporated association a substantial number of members of which are citizens of the United States or aliens lawfully admitted for permanent residence, or a corporation which is incorporated in the United States, but does not include a corporation or an association which is a foreign power, as defined in subsection (a)(1), (2), or (3) of this section. (j) "United States," when used in a geographic sense, means all areas under the territorial sovereignty of the United States and the Trust Territory of the Pacific Islands. (k) "Aggrieved person" means a person who is the target of an electronic surveillance or any other person whose communications or activities were subject to electronic surveillance. (l) "Wire communication" means any communication while it is being carried by a wire, cable, or other like connection furnished or operated by any person engaged as a common carrier in providing or operating such facilities for the transmission of interstate or foreign communications. (m) "Person" means any individual, including any officer or employee of the federal government, or any group, entity, association, corporation, or foreign power. (n) "Contents," when used with respect to a communication, includes any information concerning the identity of the parties to such communication or the existence, substance, purport, or meaning of that communication. (o) "State" means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Trust Territory of the Pacific Islands, and any territory or possession of the United States. | On November 15, 2007, the House of Representatives passed H.R. 3773, the RESTORE Act of 2007. On October 26, 2007, Senator Rockefeller reported S. 2248, the Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2007 or the FISA Amendment Act of 2007, an original bill, from the Senate Select Committee on Intelligence. On November 16, 2007, S. 2248 was reported out of the Senate Judiciary Committee by Senator Leahy with an amendment in the nature of a substitute. On December 17, 2007, the Senate considered a motion to proceed with consideration of S. 2248. Cloture on the motion to proceed was invoked by a vote of 76-10, Record Vote Number 435. After some debate in the closing hours before the Senate broke for the holidays, a decision was made to revisit the measure when the Members returned in January. Senate floor activities on S. 2248 resumed on January 23 and 24, 2008. A modified version of the Senate Judiciary Committee's amendment in the nature of a substitute to S. 2248 was tabled. Senator Reid sought unanimous consent for consideration of the House-passed bill, H.R. 3773, but Senator McConnell objected. Senator Rockefeller, for himself and Senator Bond, proposed an amendment in the nature of a substitute to S. 2248 (S.Amdt. 3911). A cloture motion by Senator McConnell on this amendment did not pass. On January 29, 2008, both the House and the Senate passed H.R. 5104, a 15-day extension to the sunset for the Protect America Act, to allow further time to consider, pass, and go to conference on proposed legislation to amend FISA, while ensuring that the intelligence community would have the authority it needed in the intervening period. Pursuant to an agreement and order of January 31, 2008, S.Amdt. 3909, as modified, 3932, as modified, 3960, as modified, and S.Amdt. 3945 were agreed to, while other amendments were scheduled for floor debate. In the ensuing floor consideration to date, S.Amdt. 3941 was agreed to, while S.Amdts. 3913 and 3915 failed to pass on February 7, 2008. S.Amdt. 3930 fell short of the requisite 60 votes and was withdrawn on February 6, 2008. Still pending are S.Amdts. 3938, as modified, 3911, 3907, 3927, 3919, 3920, and 3910. Floor debate is anticipated to continue early next week, with additional votes expected on Tuesday, February 12, 2008. H.R. 3773, S. 2248, and the Senate Judiciary Committee's amendment in the nature of a substitute to S. 2248 each includes amendments to the Foreign Intelligence Surveillance Act. This report provides a side by side comparison of the provisions of these three measures. A glossary of FISA terms from section 101 of FISA, 50 U.S.C. § 1801 is attached. Other FISA bills have also been introduced, such as S. 2440, S. 2441, and S. 2402. These bills are not included in this side-by-side comparison. |
Social Security is financed primarily by payroll and self-employment taxes, as well as by a portion of the proceeds from the income taxation of Social Security benefits. The revenues are deposited in the U.S. Treasury. Social Security benefits and administrative expenses are also paid from the U.S. Treasury. By law, if Social Security revenues exceed expenditures, the "surplus" is credited to the Social Security trust funds in the form of U.S. government securities. The money itself, however, is used to pay for whatever other expenses the government may have at the time. There is no separate pool of money set aside for Social Security purposes. That is not to say that the trust funds are ephemeral—as long as the trust funds show a positive balance, they represent the authority and an obligation for the U.S. Treasury to issue benefit payments during periods when the program's expenditures exceed revenues. At the end of calendar year 2013, the trust funds were credited with holdings of $2.8 trillion. Section 201 of the Social Security Act provides the following guidelines for trust fund investment. 1. Funds not immediately in demand for benefits or administrative expenses are to be invested in interest-bearing obligations guaranteed as to both principal and interest by the United States. 2. Obligations are to be purchased at issue at the issue price or at the market price for outstanding obligations. 3. The Managing Trustee of the Social Security trust funds (the Secretary of the Treasury) is required to invest in special "nonmarketable" federal public-debt obligations—special issues to the trust funds that are not available to the general public—except where he or she determines that the purchase of marketable federal securities is "in the public interest." 4. Special issues shall have maturities fixed with due regard for the needs of the trust funds and will pay a rate of interest, calculated at the time of issue, equal to the average market yield on all marketable interest-bearing obligations of the United States that are not due or callable (redeemable) for at least four years. 5. Marketable federal securities purchased by the trust funds may be sold at the market price and special issue obligations may be redeemed at par plus accrued interest (without penalty for redemption before maturity). The Treasury Department has determined that the purchase of marketable federal securities (i.e., public issues) would be in the public interest only when it might serve to stabilize the market for Treasury issues. Because an "unstable market" would be characterized by falling bond prices, purchases of marketable federal securities at these times would appear to be advantageous for the trust funds. In practice, however, open market purchases have been rare. Although the trust funds have held public issues in the past, the trust funds currently hold special issues only. The interest earned on these holdings is credited to the trust funds semiannually (on June 30 and December 31); it is done by issuing additional federal securities to the trust funds. In calendar year 2013, net interest totaled $102.8 billion, representing 12% of total trust fund income. The effective annual rate of interest earned on all obligations held by the trust funds in calendar year 2013 was 3.8%. The interest rate earned on special issues purchased by the trust funds in August 2014 is 2.375%. The maturity dates of newly issued special issues are set by a standardized procedure. Revenues are invested immediately in short-term issues called certificates of indebtedness, which mature on the next June 30. On June 30 of each year, certificates of indebtedness that have not been redeemed are reinvested in longer-term special issue bonds. Generally, the maturities of these bonds range from 1 to 15 years; the goal is to have about one-fifteenth of them mature each year, depending on the needs of the trust funds. While some critics have questioned whether the current investment policy has constrained the earnings of the trust funds, over the years various advisory councils, congressional committees, and other groups generally have endorsed it. It has been justified as a way to ensure safety of principal and stability of interest, and as a way to avoid intrusion into private markets. It also has been regarded as a way to avoid the political influences that would be inherent in investing outside the U.S. government. Generally, the goal espoused has been to place the trust funds in the same position as any long-term investor seeking a safe rate of return by investing in U.S. securities, and neither advantage nor disadvantage the trust funds relative to these investors or other parts of the government. For most of the program's history, interest income to the trust funds has not been a major factor in program financing. In recent years, however, the increasing role of interest income, as well as interest by some policy makers in preventing any surplus Social Security tax revenues from being used for other government spending purposes, have focused attention on alternative investment practices. For example, there have been proposals to replace the special issues held by the trust funds with marketable federal securities, as well as proposals to allow any surplus Social Security tax revenues or a portion of trust fund reserves to be invested in assets other than U.S. government obligations, including equities. | The Social Security Act has always required surplus Social Security revenues (revenues in excess of program expenditures) to be invested in U.S. government securities (or U.S. government-backed securities). In recent years, attention has been focused on alternative investment practices in an effort to increase the interest earnings of the trust funds, among other goals. This report describes Social Security trust fund investment practices under current law. |
The Paris Club is the major forum where creditor countries renegotiate official sector debts. Official sector debts are those that have been issued, insured, or guaranteed by creditor governments. A Paris Club 'treatment' refers to either a reduction and/or renegotiation of a developing country's Paris Club debts. The Paris Club includes the United States and 21 other permanent members, the major international creditor governments. Besides the United States, the permanent membership is composed of Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Netherlands, Norway, Russia, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. Other creditors are allowed to participate in negotiations on an ad-hoc basis. The entry of Brazil into the Paris Club is notable since they are the first developing country to join in two decades. By contrast, the London Club, a parallel, informal group of private firms, meets in London to renegotiate commercial bank debt. Unlike the Paris Club, there is no permanent London Club membership. At a debtor nation's request, a London Club meeting of its creditors may be formed, and the Club is subsequently dissolved after a restructuring is in place. The Paris Club does not exist as a formal institution. It is rather a set of rules and principles for debt relief that have been agreed on by its members. To facilitate Paris Club operations, the French Treasury provides a small secretariat, and a senior official of the French Treasury is appointed chairman. The current Paris Club chairman is Jean-Pierre Jouyet, Under-Secretary of the French Treasury. In addition to representatives from the creditor and debtor nations, officials from the international financial institutions (IFIs) and the regional development banks are represented at Paris Club discussions. The IFIs present their assessment of the debtor country's economic situation to the Paris Club. To date (July 2017), the Paris Club has reached 433 agreements with 90 debtor countries. The total amount of debt covered in Paris Club agreements—rescheduled or reduced—is approximately $583 billion. Since the first debt restructuring took place in 1956, the terms, rules, and principles of the Paris Club have evolved to their current shape. This evolution occurred primarily through the G7/8 Summits. Five 'principles' and four 'rules' currently govern 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 major international creditor countries, they determine its practices. The five Paris Club 'principles' stipulate the general terms of all Paris Club treatments. They are (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 clearly need debt relief, as evidenced by implementing an International Monetary Fund (IMF) program and its requisite economic policy conditionality ; (4) solidarity is required in that all creditors will implement 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 creditor country cannot grant to a debtor country a treatment on more favorable terms than the consensus reached by Paris Club members. While Paris Club 'principles' are general in nature, its 'rules' specify the technical details of Paris Club treatments. The 'rules' detail (1) the types of debt covered - Paris Club arrangements cover only medium and long-term public sector debt and credits issued prior to a specified "cut-off" date; (2) the flow and stock treatment; (3) the payment terms resulting from Paris Club agreements; and (4) provisions for debt swaps. Since the Paris Club is an informal institution, the outcome of a Paris Club meeting is not a legal agreement between the debtor and the individual creditor countries. Creditor countries that participate in the negotiation sign a so-called 'Agreed Minute.' The Agreed Minute recommends that creditor nations collectively sign bilateral agreements with the debtor nation, giving effect to the multilateral Paris Club agreement. By recommending that the United States renegotiate or reduce debts owed to it, congressional involvement is necessary to implement any Paris Club agreement. There are four types of Paris Club treatments depending on the economic circumstances of the distressed country. They are, in increasing degree of concessionality: Classic Terms , the standard terms available to any country eligible for Paris Club relief; Houston Terms , for highly-indebted lower to middle-income countries; Naples Terms , for highly-indebted poor countries; and Cologne Terms , for countries eligible for the IMF and World Bank's Highly Indebted Poor Countries Initiative (HIPC). Classic and Houston terms offer debt rescheduling while Naples and Cologne terms provide debt reduction. Classic terms are the standard terms for countries seeking Paris Club assistance. They are the least concessional of all Paris Club terms. Debts are rescheduled at an appropriate market rate. Houston terms were created at the 1990 G-7 meeting in Houston, Texas so the Paris Club could better accommodate the needs of lower middle-income countries. Houston terms offer longer grace and repayment periods on development assistance than do Classic terms. Naples Terms, designed at the December 1994 G-7 meeting in Naples, Italy, are the Paris Club's terms for cancelling and rescheduling the debts of very poor countries. Countries may receive Naples terms treatment if they are eligible to receive loans from the World Bank's concessional facility, the International Development Agency (IDA). A country is eligible for IDA loans if it has a per-capita GDP of less than $755. According to Naples Terms, between 50% and 67% of eligible debt may be cancelled. The Paris Club offers two methods for countries to implement the debt reduction. Countries can either completely cancel the eligible amount, and reschedule the remaining debts at appropriate market rates (with up to 23-year repayment period and a six-year grace period); or they can reschedule their total eligible debt at a reduced interest rate and with longer repayment terms (33 years). Cologne terms were created at the June 1999, G-8 Summit in Cologne, Germany. Cologne terms were created for countries that are eligible for the World Bank and IMF 1996 Highly Indebted Poor Countries Initiative (HIPC). They allow for higher levels of debt cancellation than Naples Terms. Under Cologne terms, 90% of eligible debts can be cancelled. On October 8, 2003, Paris Club members announced a new approach that would allow the Paris Club to provide debt cancellation to a broader group of countries. The new approach, named the "Evian Approach" introduces a new strategy for determining Paris Club debt relief levels that is more flexible and can provide debt cancellation to a greater number of countries than was available under prior Paris Club rules. Prior to the Evian Approach's introduction, debt cancellation was restricted to countries eligible for IDA loans from the World Bank under Naples Terms or HIPC countries under Cologne terms. Many observers believe that strong U.S. support for Iraq debt relief was an impetus for the creation of the new approach. Instead of using economic indicators to determine eligibility for debt relief, all potential debt relief cases are now divided into two groups: HIPC and non-HIPC countries. HIPC countries will continue to receive assistance under Cologne terms, which sanction up to 90% debt cancellation. (The United States and several other countries routinely provide 100% bilateral debt cancellation.) Non-HIPC countries are assessed on a case-by-case basis. Non-HIPC countries seeking debt relief first undergo an IMF debt sustainability analysis. This analysis determines whether the country suffers from a liquidity problem, a debt sustainability problem, or both. If the IMF determines that the country suffers from a temporary liquidity problem, its debts are rescheduled until a later date. If the country is also determined to suffer from debt sustainability problems, where it lacks the long-term resources to meet its debt obligations and the amount of debt adversely affects its future ability to pay, the country is eligible for debt cancellation. The United States began participating in Paris Club debt forgiveness in 1994, under authority granted by Congress in 1993 (Foreign Operations Appropriations, §570, P.L. 103-87 ). Annually reenacted since 1993, this authority allows the Administration to cancel various loans made by the United States. These can include U.S. Agency for International Development (USAID) loans, military aid loans, Export-Import Bank loans and guarantees, and agricultural credits guaranteed by the Commodity Credit Corporation. The procedure for budgeting and accounting for any U.S. debt relief is based on the method used to value U.S. loans and guarantees provided in the Federal Credit Reform Act of 1990. The act, among other things, provides for new budgetary treatment of and establishes new budgetary requirements for direct loan obligations. Since passage of the act, U.S. government agencies are required to value U.S. loans, such as bilateral debt owed to the United States, on a net present value basis rather than at their face value, and an appropriation by Congress of the estimated amount of debt relief is required in advance of any debt relief taking place. Prior to the passage of the act, neither budget authority nor appropriations were required for official debt relief and bilateral debt (and other federal commitments) were accounted for on a cash-flow basis, which credits income as it is received and expenses as they are paid. Determining the net present value is a complex calculation involving several factors, including the terms of loan (whether it is concessional or at market rates), as well as the financial solvency of the debtor and their likelihood of repayment. Following the passage of the act, a working group of executive branch agencies, the Inter-Agency Country Risk Assessment System (ICRAS), was created to maintain consistent assessments of country risk across the many U.S. agencies that make foreign loans. ICRAS operates as a working group. The Office of Management and Budget chairs ICRAS. The U.S. Export-Import Bank provides country risk assessments and risk rating recommendations, which must be agreed on by all the ICRAS agencies. OMB is then responsible for determining the expected loss rates associated with each ICRAS risk rating and maturity level. Each sovereign borrower or guarantor is rated on an 11-category scale, ranging from A to F-. Some analysts, including the Government Accountability Office (GAO), raise concerns about the official process for estimating the cost of foreign loans to the United States, and thus the cost needed to forgive U.S. debt. OMB's current methodology uses rating agency corporate default data and interest rate spreads in a model it developed to estimate default probabilities and makes assumptions about recoveries after default to estimate expected loss rates. According to GAO, the method that OMB employs may calculate lower loss rates than may be justified for the sovereign debt of emerging economies. In 2004, GAO recommended that the Director of OMB provide affected U.S. agencies and Congress with technical descriptions of its current expected loss methodology and update this information when there are changes. GAO also recommended that the OMB Director arrange for independent review of the methodology and ask U.S. international credit agencies for their most complete, reliable data on default and repayment histories, so that the validity of the data on which the methodology is based can be assessed over time. In their response, OMB made no commitment to increase transparency or engage the private sector rating community. | The Paris Club is a voluntary, informal group of creditor nations who meet approximately 10 times per year to provide debt relief to developing countries. Members of the Paris Club agree to renegotiate and/or reduce official debt owed to them on a case-by-case basis. The United States is a key Paris Club Member and Congress has an active role in both Paris Club operations and U.S. policy regarding debt relief overall. The Federal Credit Reform Act of 1990 stipulates that Congress must be involved in any official foreign country debt relief and notified of any debt reduction and debt renegotiation. |
The President submitted his budget for FY2000 on February 1, 1999. In it was $22.0 billion for energyand water development programs. The request was $800million larger than the FY1999 appropriation of $21.2 billion. The Senate Subcommittee marked up the bill, S. 1186 , on May 25. As reported outby the full Appropriations Committee May 27 ( S.Rept. 106-58 ), the bill's appropriation totaled $21.7 billion. TheSenate passed S. 1186 on June 16. The House Appropriations Committee reported out a $20.4 billion bill on July 20. The House passed the bill( H.R. 2605 ) July 27. House-SenateConference reached an agreement to spend $21.3 billion (including scorekeeping adjustments of $450 million) September 24. The bill was signed ( P.L. 106-60 )by the President September 29, 1999. Table 1. Status of Energy and Water Appropriations,FY2000 The Energy and Water Development appropriations bill includes funding for civil projects of the Army Corpsof Engineers, the Department of the Interior'sBureau of Reclamation, most of the Department of Energy (DOE), and a number of independent agencies, includingthe Tennessee Valley Authority (TVA) andthe Nuclear Regulatory Commission (NRC). The Administration requested $22 billion for these programs forFY2000, compared with $21.2 billion appropriatedfor FY1999. As with other FY2000 appropriations bills, the Energy and Water Subcommittees had difficulty meeting the spending allocations assigned them under Section 302(b) of the Budget Act. In the Senate, the allocation was $21.28 billion; the House limit originally was significantlylower at $19.39 billion, but by the time theHouse bill was reported out by the Appropriations Committee the allowance was increased about $800 million. For the Corps of Engineers, the Administration requested $3.9 billion in FY2000, about the same as appropriated in FY1999. The Senate bill, S. 1186 , would have reduced this figure to $3.76 billion, with most of the reductions in the construction budget. TheHouse bill ( H.R. 2605 )recommended raising the Corps appropriation to $4.19 billion. The Bureau of Reclamation would have receivedan increase of more than 10% (excluding offsets),to $857 million. The Senate bill would have reduced this to $761 million, below the FY1999 level. The Houserecommendation was $785 million. The Houseand Senate Conference settled on $4.14 billion for the Corps of Engineers and $769.3 million for the Bureau ofReclamation. DOE programs funded by the Senate bill would have risen about 4% to $17.1 billion, about what the Administration requested. The major activities in the DOEbudget are research and development on energy and general science, environmental cleanup, and nuclear weaponsprograms. The House would have reducedfunding for these programs to $15.6 billion, with most of the cuts coming in the cleanup and weapons programs. The House and Senate Conference agreed tofund DOE programs at $16.6 billion. The remaining $1.2 billion of DOE's FY2000 net appropriations request (forfossil fuels programs, energy efficiency, andenergy statistics) is included in the Interior and Related Agencies appropriations bill. Table 2. Energy and Water Development Appropriations, FY1993 to FY2000 (budget authority inbillions of current dollars) * *These figures represent current dollars, exclude permanent budget authorities, and reflect rescissions. Table 2 includes FY2000 budget request figures and budget totals for energy and water appropriations enacted for FY1993 to FY1999. Tables 3-7 provide budgetdetails for Title I (Corps of Engineers), Title II (Department of the Interior), Title III (Department of Energy) andTitle IV (independent agencies) for FY1998 -FY2000. The Clinton Administration was seeking a slight increase for civil projects of the Army Corps of Engineers inFY2000, in contrast to the substantial cuts proposedduring the previous two budget cycles that were largely rejected by Congress. The $3.9 billion request would havefunded 19 new construction starts involvingport improvements, navigation, flood control, and environmental projects. The Senate approved $3.7 billion, whilethe House supported $4.2 billion. Theconference agreement funds the Corps of Engineers for $4.14 billion. Major initiatives in the Corps request included a proposed $951 million Harbor Services Fund for port improvements and harbor maintenance, and $25 million forthe "Challenge 21" river restoration and flood mitigation program. A $10 million increase was proposed for theFormerly Utilized Sites Remedial ActionProgram (FUSRAP), which was transferred from DOE in FY1998. The program cleans up contamination at oldindustrial sites that processed nuclear materialsfor defense purposes. Table 3. Energy and Water Development Appropriations Title I: Corps of Engineers (in millions ofdollars) Funding for Corps of Engineers civil programs is often a contentious issue between the Administration and the Congress, with final appropriations bills typicallyfunding more projects than requested. For FY1998, for example, the Congress added $270 million (7%) to the$3.63 billion requested by the Administration. Similarly, the FY1999 bill as passed included a total of $3.86 billion for the Corps, $638 million (20%) more thanrequested. The Administration's FY2000 Corps request was somewhat less controversial. At $3.9 billion it was slightly above the last year's appropriation, and it provided$80 million for 19 new construction starts (including numerous port improvements, navigation, flood control andenvironmental projects) and the proposedChallenge 21 River Restoration and Flood Mitigation initiative at $25 million. A newly-proposed Harbor Services Fund would have provided for both port improvements and harbor maintenance -- $693 million requested under the operationand maintenance account, and $258 million requested for construction. The Harbor Services Fund would havereplaced the existing Harbor Maintenance TrustFund with a new fund from a proposed Harbor Services User Fee (which would replace the existing HarborMaintenance Tax, part of which was declaredunconstitutional by the Supreme Court in 1998). The Senate bill reduced Corps funding by more than $200 million below the Administration's request. Most of the cuts would have come in the constructionbudget. The Senate Appropriations Committee report said it was attempting to provide continuity of previouslyfunded construction with specified "stretchingout" in contracting or completion schedules. The Senate also declined to initiate the Challenge 21 proposal; nor didit modify harbor maintenance through theappropriations language. The House bill increased the Corps funding by more than $280 million above the Administration's request, including increases in most of the Corps programs. However, the House also declined to initiate the Challenge 21 proposal and did not modify harbor maintenancethrough appropriations language. Policy issues related to wetlands regulatory programs were addressed in the final bill. As approved by the House on July 27, the bill included two such provisions. One would require the Corps to modify a recently-established administrative appeals process for certain Corpsregulatory decisions to allow unsuccessfulappellants to directly challenge the decisions in court. The Administration supported creation of an administrativeappeals process but opposed this provision,saying that it would impose excessive burdens on the Corps and the courts. Landowner and developer groupsfavored it. The conference report ( H.Rept. 106-336 )deleted the House language that would have made certain administrative decisions appealable to federal courts priorto a final permit decision. It included Senatelanguage providing that $5 million in additional funds for the Corps' regulatory program in FY2000 shall be usedto establish an administrative process forappeals of jurisdictional determinations by the Corps (i.e., whether an area contains wetlands that are subject toCorps permitting requirements). The House bill also included a provision to require the Corps to submit a study on the workload impact andcompliance costs of replacement permits for"nationwide permit 26" (NWP 26) 30 days prior to publication of the final permits, but no later than December 30,1999. The NWP 26 program permits certainactivities to fill wetlands of less than 3 acres and has been highly controversial with environmental and conservationgroups. The Corps has proposed programchanges to restrict use of NWP 26 which are due to take effect by December 30, 1999. Landowner and developergroups supported the House-passed provision,but the Administration opposed it, saying that the study was unnecessary and, even with a Dec. 30 deadline, wouldincrease wetlands loss in the nation by delayingissuance of replacement permits. The conference report on H.R. 2605 modified the House-passed languageby directing the Corps to study theworkload impacts and costs of compliance of proposed replacement permits, but dropped language that would haverequired submission of a report to Congressbefore publication of final permits. (For more information, see CRS Issue Brief IB97014, WetlandIssues , and CRS Report 97-223 , Nationwide Permits forWetlands Projects: Permit 26 and Other Issues and Controversies .) For the Department of the Interior, the Energy and Water Development bill provides funding for the Bureau of Reclamation and the Central Utah ProjectCompletion Account. The Administration's FY2000 request for the Bureau of Reclamation was up more than 10%from the FY1999 appropriation (excluding a$37 million offset involving the Central Valley Project Restoration Fund). The Administration proposed and thefinal bill included no new funding for thecontroversial Animas-La Plata water supply project in Colorado, and instead proposed allocating $3 million (witha recommendation of $2 million) from previousappropriations for preconstruction activities. Table 4. Energy and Water Development Appropriations Title II: Central Utah Project CompletionAccount (in millions of dollars) * Includes funds available for Utah Reclamation Mitigation and Conservation Commission activities and $5million for the contribution authorized by �402(b)(2)of the Central Utah Project Completion Act ( P.L. 102-575 ). Table 5. Energy and Water Development Appropriations Title II: Bureau of Reclamation (in millions ofdollars) * Does not reflect appropriations derived from transfer of $25.8 million from the Working Capital Fund, butdoes include $1.5 million in supplementalappropriations ( P.L. 106-31 ). ** The Office of Management and Budget and the Congressional Budget Office disagree as to whether thereis an offset for this fund. Most of the large dams and water diversion structures in the West were built by, or with the assistance of, the Bureau of Reclamation (Bureau). Whereas theCorps built hundreds of flood control and navigation projects, the Bureau's mission was to develop water suppliesand to reclaim arid lands in the West, primarilyfor irrigation. Today, the Bureau manages more than 600 dams in 17 western states, providing water toapproximately 10 million acres of farmland and 31 millionpeople. The Bureau has undergone many changes in the last 15 years, turning from largely a dam construction agency to a self-described water resource managementagency. The agency describes the "intent" of its programs and projects as follows: to operate and maintain all facilities in a safe, efficient, economical, and reliable manner; to sustain the health and integrity of ecosystems while addressing the water demands of a growing west; and to assist states, tribal governments, and local communities in solving contemporary and future water and related resource problems in anenvironmentally, socially, and fiscally sound manner. In practice, however, the agency is limited in how it can address new demands and new priorities because of numerous federal, state and local statutes, compacts,and existing contracts, which together govern the delivery of water to project users. Consequently, any proposalto change Bureau water allocation or watermanagement policies often becomes difficult to implement and extremely controversial. The Administration requested an appropriation of $856.6 million for the Bureau for FY2000 (gross current budget authority), approximately $80 million morethan enacted for FY1999 (excluding the $37.1 million offset to the CVP Restoration Fund). The Senate billincluded $761.2 million, $95.4 million less thanrequested and $19.3 million less than enacted for FY1999 (excluding offsets). Appropriations for water projectswere recommended to be $40.4 million less thanrequested, with reductions for many projects and increases for a few. The House bill included $784.7 million, $71.9million less than requested, but $2.7 millionmore than enacted for FY1999 (excluding offsets) and $23.5 million more than in the Senate bill. The final billappropriated $769.3 million for FY2000,approximately $85 million less than requested and $11 million more than enacted for FY1999. One major difference between the House and Senate bills was funding for the California Bay-Delta Ecosystem Restoration program (CALFED). (Funding forCALFED is requested in the Bureau's budget, but the appropriation will be allocated among several federal agencies. The majority of funding is expected to go tothe Bureau and the Corps.) The FY2000 request for CALFED is $95.0 million, $43.3 million less than the FY1999request, but $20 million more than enacted forFY1999. The Senate bill figure is $50 million for FY2000, $45 million less than requested and $25 million less thanenacted for FY1999. In addition, the Senatebill has $37.3 million for the Central Valley Project Restoration Fund, $4.2 million more than enacted for FY1999,but $10 million less than the Administrationrequested for FY2000. The House Appropriations Committee recommended $75.0 million for CALFED, matchingthe FY1999 funding, but $20.0 million lessthan requested for FY2000 and $25.0 million more than recommended in the Senate. The House Committee alsorecommended the full amount requested for theCentral Valley Project Restoration fund, $47.3 million. P.L. 106-60 appropriates $60 million for CALFED, $15million less than requested, and $42 million forthe Central Valley Project Restoration fund ($5.3 million less than requested). The Energy and Water Development bill includes all but $1.2 billion of DOE's $17.8 billion FY2000 netappropriations request (including about $700 million inoffsets). Major DOE activities in the bill include research and development on renewable energy and nuclear power,general science, environmental cleanup, andnuclear weapons programs. The Administration's FY2000 request would boost DOE programs in the bill by about4% to $17.1 billion. The remainder of DOE'sFY2000 budget request -- for fossil fuels programs, energy efficiency, and energy statistics -- is included in theInterior and Related Agencies appropriationsbill. Table 6. Energy and Water Development Appropriations Title III: Department of Energy (in millions ofdollars) Research and Development Programs. For FY2000, DOE requested $3.48 billion for civilian R&D within thejurisdiction of this bill, an increase of 5.4% over the comparable FY1999 appropriation. For national securityprograms, DOE requested $3.40 billion for R&D,4.7% above FY1999. While not as large as the changes from FY1998 to FY1999, 7.5% and 8.6% respectively,requested increases for FY2000 were well abovethe year-to-year average received by DOE for all R&D in the 1990s. Renewable Energy. "The solar and renewable energy program is a major component of the Administration'sactivities to address global climate change," according to the Appendix to the U.S. Government's FY2000 Budget(p. 397). In accordance with that policy, DOEproposed to boost solar and renewables funding to $398.9 million (net) -- an increase of $62.9 million (19%) overthe FY1999 level. Within DOE's Office ofEnergy Efficiency and Renewable Energy (EERE), this includes $21.1 million more for photovoltaics, $19.2 millionmore for biomass, $10.8 million more forwind, and $10 million more for solar program support. Also, DOE's request sought $47.1 million for renewableenergy-related research programs under theOffice of Science (OS). In passing S. 1186 on June 16, the Senate voted to reject most of the requested increase, recommending $353.9 million for DOE's renewable energyprograms. A Jeffords floor amendment (No. 648) to increase funding by $70 million failed due to a technical flawand a parliamentary maneuver to block itscorrection. The Senate-approved figure covers $306.8 million for EERE programs (including $33.5 million forelectric energy systems and storage) and $47.1million for OS programs. The figure for EERE is $92.1 million less than the request and $11.2 million less thanthe FY1999 appropriation. The House Appropriations Committee also voted to reject the Administration-proposed increase. It recommended $326.5 million for FY2000, including $279.4million for EERE programs (including $38.0 million for electric energy systems and storage) and $47.1 million forOS programs. The figure for EERE is $119.6million, or 27%, less than the request; including $26.3 million less for photovoltaics, $21.6 million less for biomass,$20.6 million less for wind, and $8 millionless for solar program support. Also, the Committee recommendation is $39.5 million, or 11%, less than theFY1999 appropriation. In a July 20 letter tocommittee leaders, the Office of Management and Budget expressed strong opposition to the bill as approved bythe House Appropriations Committee, partly dueto the cuts proposed for renewable energy. The House-passed bill included a floor amendment (#350) that added$30 million more for renewable energy that wasoffset by a reduction for DOE contractor travel expenses. The Conference-approved total of $362.2 million covers $315.1 million for EERE (including $38.4 million for Electric Energy Systems and Storage) and $47.1million for DOE's OS Programs. The figure for EERE is $84.3 million, or 21%, less than the request and it is $3.4million, or 1%, less than the FY1999appropriation. Compared to the request, the Conference figure seeks $26.3 million less for Photovoltaics, $20.4million less for Biomass, $12.6 million less forWind, and $5 million less for Solar Program Support. A new $1 million Electricity Restructuring Program included in the bill would provide technical assessments of policy concepts and programs such as renewableportfolio standards (RPS), public benefits funds, consumer information and disclosure provisions, "green power"marketing programs, and distributed generationconcepts. Also, a new $1 million Competitive Solicitation Program is to support cost-shared field verificationprojects, including data on generation and system outages, to address market barriers arising from a lack of cost and operational information. Nuclear Energy. For nuclear energy programs -- including research and development, space power systems,closing of surplus facilities, and uranium programs -- DOE was appropriated $288.7 million for FY2000, a boostof nearly $20 million from the Administration'srequest. Funding was increased for a program begun in FY1999 to support innovative nuclear energy researchprojects, the "nuclear energy research initiative"(NERI), from $19 million to $22.5 million. The energy and water bill also provides DOE's full request --$5 million-- for a separate research program rejectedby Congress in FY1999 to improve the economic competitiveness of existing nuclear power plants, called "nuclearenergy plant optimization" (NEPO). Funding for NEPO was identified by DOE as part of the Administration's "Climate Change Technology Initiative." To be matched by industry, the NEPOfunding would focus on research to extend the operating lives of existing reactors and to allow them to operate moreefficiently and reliably. Because nuclearplants directly emit no carbon dioxide, greater production of nuclear power from existing reactors could help theUnited States reduce its total "greenhouse gas"emissions. "Continued operation of existing nuclear power plants avoids over 620 million tons of carbon dioxideannually," according to the DOE budgetjustification. However, opponents have criticized DOE's nuclear energy research programs as providing wastefulsubsidies to a failing industry. Controversy has also been generated by the "electrometallurgical treatment" of DOE spent fuel, a process in which metal fuel is melted and highly radioactiveisotopes are electrochemically separated from uranium and plutonium. DOE contends that such treatment may bethe best way to render certain types of spent fuel-- particularly from the closed Experimental Breeder Reactor II in Idaho -- safe for long-term storage and disposal. DOE received $40 million in FY1999 tocomplete a demonstration program for the technology. According to the DOE budget justification, a decision will be made in FY2000 on whether to proceed with a full-scale electrometallurgical treatment program, and$10.7 million was requested to maintain the necessary facilities in case the option is pursued. The HouseAppropriations Committee report specified that $40million under nuclear facility "termination costs" be provided for the program in FY2000, including $20 millionfor demonstration activities. The ConferenceReport boosts "termination costs" by $15 million over the Administration request but does not specify how muchshould be spent for electrometallurgicaltreatment. Opponents contend that such treatment is unnecessary and that the process could be used for separating plutonium to make nuclear weapons. They note that theprocess uses much of the same technology and equipment developed for the plutonium-fueled Integral Fast Reactor,or Advanced Liquid Metal Reactor, whichwas canceled by Congress in 1993 partly because of concerns about nuclear weapons proliferation. The final bill also includes $9 million under the category "civilian research and development" for research into the use of particle accelerators to transmutelong-lived elements in radioactive waste into shorter-lived elements for safer disposal. Science. For the Science programs, DOE requested an increase of $116.9 million over FY1999, or about 4.3%. Most of this increase consists of two items: $84 million (65%) for continued construction of the Spallation NeutronSource (SNS) and $70 million for thescientific simulation initiative (SSI). The former is to be a major user facility providing a new source of neutronsfor a wide variety of research goals. The latter isdesigned to develop very high speed computational capability for use in simulating complex physical andbiomedical problems such as global climate change andgenome structure and to carry out such simulations. While both of these efforts have much support in the scientificcommunity, the extent of the increaserequested for these two activities would be to leave funding for the rest of the DOE Science research somewhatlower than FY1999. The Senate appropriated $2.73 billion for Science for FY2000, 3.7% below the request, but 0.4% above the FY1999 level. The Senate approved $169.0 millionfor SNS construction, which, it stated, would amount to full funding given delays that have taken place in thatproject. The Senate did not, however, provide anyfunding for the SSI project. Most of the other programs would receive small reduction, which, the Senate noted,were primarily the result of constrained budgetresources. The House recommended $2.72 billion for Science for FY2000, 4.5% below the request and nearly equal to the FY1999 level. Included in the House bill is $51million in contractor travel and other directed reductions. The House bill increases funding for High Energy Physicsand Nuclear Physics over the request. It didnot provide any funding for the SSI program arguing that it could not support two supercomputer developmentprograms within DOE given the existence of theAccelerated Strategic Computing Initiative (ASCI) within the DOE weapons activities. The House also provided$50 million for SNS construction, stating thatproject management problems needed to be resolved before full construction funding could be provided. The Housebill directs DOE to meet a series ofconditions to demonstrate such resolution. The final appropriations bill provides $2.80 billion for Science programs for FY2000, a reduction of 1.1% from the request but 3.0% above the FY1999 level. This amount includes $31.8 million in general reductions for contractor travel and other purposes. The confereesprovided $117.9 million for SNS constructionbut no funds for the SSI. The report contained language expressing strong support for the DOE supercomputerprograms -- both civilian and defense. Theconferees, however, did urge DOE to submit a comprehensive plan for a civilian supercomputing program. Congress is providing $250 million for the FusionEnergy Science program, an increase of nearly $28 million over the request. The conferees expressed their approvalof the program's reviews recently completedby the Secretary of Energy's Advisory Board and the Fusion Energy Science Advisory Committee. Stockpile Stewardship. The primary element of DOE's national security R&D request is the stockpilestewardship program, aimed at developing the science and technology to maintain the nation's nuclear weaponsstockpile in the absence of nuclear testing. Themain focus of the program is the development of computational capabilities that can simulate weapons explosionsand perform other important computations. ForFY2000, DOE requested $542.5 million for this element, the Accelerated Strategic Computing Initiative(ASCI)/Stockpile Computing. That sum is 23.7% of theentire stockpile stewardship request, and is 12.2% above the FY1999 appropriation. The Senate appropriated $2.352 billion for Stockpile Stewardship, 2.9% above the request and 10.6% above the FY1999 level. The Senate repeated its concernthat DOE is not requesting sufficient funding for this program. It considers Stockpile Stewardship to be "criticallyimportant" particularly in view of the cessationof underground testing. The Senate directed DOE to take steps to improve management of the weapons activitiesin order to operate effectively in the restrictedbudget environment. The Senate also noted its concern with the rate of growth of the ASCI project, but it didprovide DOE with its full request for the project. Further, the Senate commended DOE on its achievements so far and recommended that the project speed up to reachthe 100 teraflop goal. A set of strategicactions now under study by DOE was noted by the Senate which approved an additional $35 million to the coreStockpile Stewardship program to begin thoseactions. The Senate also provided an additional $10 million for the Inertial Confinement Fusion program to assistthe National Ignition Facility (NIF) project toavoid delays in reaching ignition once completed. The House approved about $2 billion for Stockpile Stewardship for FY2000, 12.1% below the request and 5.4% below the FY1999 level. Included in therecommendation are $88.2 million in contractor travel and other reductions that are assumed to be this program'sshare of the $180 million reductionrecommended by the Committee for all DOE weapons activities. Nearly all of the reduction from the request wouldtake place in the core stockpile stewardshipactivity, which the bill would fund at the FY1999 level. Within that activity, the House bill provides the ASCI efforta $6.1 million increase over FY1999. TheCommittee argued that cost efficiencies could be achieved throughout the weapons complex that would permit theserecommendations. The Inertial ConfinementFusion (ICF) activity would receive an additional $10 million above the request and the NIF would be fully fundedfor FY2000. The House bill directs that $10million be made available to further high-average-power laser development. For the technology transfer andeducation activities, the House recommended $14million compared to a request of $52 million. The House argued that budget constraints make it necessary toconcentrate available funds on the weapons mission. In the report accompanying its recommendations, the House noted the security problems reported about the DOE weapons labs. In particular, it cited the report bythe President's Foreign Intelligence Advisory Board that argued for a restructuring of the DOE national securityprograms as the only way to deal with thoseproblems, which, the Board found, were very serious. The House has concluded that an independent agency willbe needed. It argued that even a separate agencywithin DOE would not suffice because no significant staffing changes would take place. In order to ensure thataction will take place, the House recommended aprovision that would delay $1 billion in obligations for DOE until after June 30, 2000, in order to give time forCongress "to craft careful, bipartisan legislation"addressing the problem. Provisions reorganization the weapons program into a semi-autonomous agency withinDOE were included in the FY2000 DefenseAuthorization Act ( S. 1059 , P.L. 106-65 ), signed into law October 5, 1999. The final appropriations bill provides $2.252 billion for Stockpile Stewardship for FY2000, $3.6 million above the request. The conferees directed DOE to reducefunding for weapons activities by $64.8 million. It is likely that some of that reduction will be applied to theStockpile Stewardship program, which makes upabout 50% of the weapons activities budget. Therefore, the actual amount available for the program will probablybe less than the $2.252 billion. The confereesprovided $316 million for the ASCI program, $25 million below the request. Also, the additional $10 millionappropriated by the House for high-average-powerlaser development remains in the final bill. The conference report contained language expressing strongdisappointment about news that the NIF cost estimate hasincreased, and the conferees ordered DOE to submit a certified cost estimate to the Appropriations Committees byJune 1, 2000. If that is not possible, theconferees directed DOE to submit a project termination cost estimate. Nonproliferation and National Security Programs. The Administration's FY2000 request for these programswas $747 million, about $70 million over FY1999. The House bill included $691 million funding, and the Senatebill $822 million. The bill as passedappropriated $745 million for nonproliferation and national security programs (which are included in the "OtherDefense Activities" listed in Table 6). Much of the requested increase was aimed at helping Russia and other former Soviet states deal with the cutbacks of their nuclear weapons activities. Among theprograms are the Nuclear Cities Initiative (NCI), to help unemployed nuclear weapons designers find civilian jobs,and the Initiative for Proliferation Prevention(IPP), to help develop new non-defense technologies in the Former Soviet Union. NCI's budget would have beendoubled to $30 million and IPP received $25million in the FY2000 request. The bill as passed included $7.5 million for NCI and $22.5 million for IPP. For theMaterials Protection, Control and Accounting(MPCA) program, aimed at improving security and accounting systems at Russian nuclear weapons facilities, therequest was $145 million, a $5 million increaseover FY1999. The bill as passed appropriated $150 million. Environmental Management. DOE's Environmental Management Program (EM) is responsible for cleaning upenvironmental contamination and disposing of radioactive waste at DOE nuclear sites. The FY2000 appropriationfor the program totals $6.32 billion, including$189 million for the "privatization" of several DOE waste management projects, such as the solidification ofhigh-level radioactive waste at Hanford, Washington,and $250 million for the uranium enrichment decontamination and decommissioning fund. The total EMappropriation is about $35 million below theAdministration's request but $93 million above the FY1999 funding level. The FY2000 EM budget is based on the program's accelerated cleanup strategy, which attempts to maximize the number of sites that can be completely cleanedup by the end of FY2006. DOE managers contend that substantial long-term savings can be gained by focusing oncompleting work at those sites, allowing theearliest possible termination of infrastructure costs. Major sites scheduled for completion during that period areincluded in the "Defense Facilities ClosureProjects" account, for which about $1 billion was provided in FY2000 -- about the same level as in FY1999. Thelargest facilities under that account are theRocky Flats site in Colorado and the Fernald site in Ohio. Nearly half of EM's FY2000 privatization funding request would go for Phase 1 of the Hanford Tank Waste Remediation System, consisting of a pilotvitrification plant that would turn liquid high-level waste into radioactive glass logs for eventual disposal. Othermajor privatized projects include a facility totreat "mixed" radioactive and hazardous waste at the Idaho National Engineering and Environmental Laboratory,and waste treatment, storage, and disposalfacilities at Oak Ridge, Tennessee. The EM privatization effort is intended to reduce costs by increasing competition for cleanup work and shifting a portion of project risks from the federalgovernment to contractors. Profits to contractors would depend on their success in meeting project schedules andholding down costs; potentially, profits could besubstantially higher or lower than under traditional DOE contracting arrangements. In a typical non-privatized DOE project, a contractor would be hired to build and operate a facility with government funds. DOE would approve and pay all thecontractor's costs, and then award the contractor a profit based on performance. Under the privatization initiative,a contractor would be expected to raise almostall funding for necessary facilities and equipment for a project. The contractor would recover that investment andearn a profit by charging previously negotiatedfees to DOE for providing services under the contract, such as solidification of radioactive waste. The contractorcould earn higher profits by reducing costs, butthe contractor could lose money if project costs were higher than expected or the required services were notdelivered. For non-defense environmental management, the House recommended elimination of all funding -- $3.7 million -- for the DOE National Low-Level WasteProgram. The program provides technical assistance to states and interstate compacts in managing commerciallow-level waste. "Over $80,000,000 has beenprovided for the low-level waste program over the past two decades, and State expertise is now mature enough thatFederal funding is no longer required,"according to the House Committee report. The Conference Report specifies that $595,000 be provided to theprogram in FY2000 for maintaining federallow-level waste data bases. An additional $10 million was provided for cleanup activities at DOE's uranium enrichment plants at Paducah, Kentucky, and Portsmouth, Ohio, which arecurrently leased to a private firm. Recent controversy has focused on environmental hazards posed by the plants,particularly contamination resulting from thepast enrichment of reprocessed uranium at Paducah. Civilian Nuclear Waste Disposal. DOE requested $409 million for the civilian nuclear waste program inFY2000, an increase of $51 million over the level provided for FY1999. Of that increase, $39 million would havecome from unspent funds appropriated inFY1996 for an interim waste storage program that has yet to receive congressional authorization. Because the $39million has already been appropriated, the useof that funding reduced the program's FY2000 net appropriation request to $370 million. The FY2000 Energy andWater Development bill provides $352.5million for the program but does not release the previously appropriated funding sought by DOE. The Civilian Nuclear Waste Program is focused almost entirely on studying a proposed permanent underground repository for highly radioactive waste at YuccaMountain, Nevada. DOE's budget justification contends that the $409 million proposal for FY2000 is the minimumrequired to keep the waste disposal programon its current schedule. The major program efforts planned for FY2000 are completion of the final EnvironmentalImpact Statement for the proposed YuccaMountain repository, preparation of a site recommendation report to be submitted to the President in FY2001, anda license application to be sent to NRC in 2002. If any of those "critical near-term milestones" are missed, DOE says it might not be able to open the repository in2010 as planned. Although DOE did not receive its full request for the waste program, the final amount was substantially more than the level approved by the House. Citing"severe budget constraints," the House Appropriations Committee had voted to cut total appropriations for the wasteprogram to $281 million and directed DOEto "review all cost components to see what savings can be achieved in fiscal year 2000." The final appropriationincludes $240.5 million from the Nuclear WasteFund, which consists of fees paid by nuclear utilities, and $112 million from the defense nuclear waste disposalaccount. The 2010 target for opening a permanent repository is 12 years later than a statutory deadline of January 31, 1998, for DOE to begin taking waste from nuclearplant sites. Nuclear utilities and state utility regulators, upset over DOE's failure to meet the 1998 disposal deadline,have won two federal court decisionsupholding the Department's obligation to meet the deadline and to compensate utilities for any resulting damages. Utilities have also won several cases in theU.S. Court of Federal Claims, although specific damages have not yet been determined. For FY1999, Congress provided $4 million from general revenues to pay for research on treating high-level radioactive waste with advanced particle accelerators. Such treatment would be intended to transmute long-lived radioactive waste into shorter-lived isotopes. DOE didnot request further funding for the effort inFY2000, but the energy and water bill provides $9 million for the program under nuclear energy research anddevelopment. DOE requested the restoration of funding for the State of Nevada to monitor the Yucca Mountain Project in FY2000, totaling $12.3 million for the state and nearby units of local government. For FY1999, Congress rejected all but $250,000 of DOE's nearly $5 millionrequest for funds for Nevada, because of concernsthat the state was using the money to fight the waste program, while providing $5.5 million to local governments. The Senate voted to provide $10.1 million forNevada and affected local governments in FY2000, but the House recommended no state and local funding. Theconference agreement provides $500,000 forDOE reimbursement of state oversight costs, and $5.4 million for affected local governments. Power Marketing Administrations. DOE's four Power Marketing Administrations (PMAs) developed out ofthe construction of dams and multi-purpose water projects during the 1930s that are operated by the Bureau ofReclamation and the Army Corps of Engineers. The original intention behind these projects was conservation and management of water resources, includingirrigation, flood control, recreation and otherobjectives. However, many of these facilities generated electricity for project needs. The PMAs were establishedto market the excess power; they are theBonneville Power Administration (BPA), Southeastern (SEPA), Southwestern (SWPA), and Western Area PowerAdministration (WAPA). The power is sold at wholesale to electric utilities and federal agencies "at the lowest possible rates ... consistent with sound business practice," and priority onPMA power is extended to "preference customers," which include municipal utilities, co-ops and other "public"bodies. The PMAs do not own the generatingfacilities, but they generally do own transmission facilities, except for Southeastern. The PMAs are responsible forcovering their expenses and repaying debt andthe federal investment in the generating facilities. The 104th Congress debated sale of the PMAs and did, in 1995, authorize divestiture of one PMA, the Alaska Power Administration. Sale of the remaining PMAshas not since been an issue, pending decisions yet to be made about the treatment of public power in the broadercontext of electric utility restructuring. BPA receives no annual appropriation. The Administration's request for the PMAs for FY2000 was $200 million, a reduction of 15.8% from the FY1999appropriation. The savings stemmed from the Administration's proposal that, beginning in FY2000, customers of SEPA, WAPA, and SWPA would beresponsible for making their own power purchases and transmission arrangements from any suppliers other thanthe PMA to satisfy their needs. Under thePurchase Power and Wheeling Program (PPW), the PMAs have purchased electricity and transmission capability,which is repaid by PMA customers, tosupplement federal generation. The premise behind the proposed elimination of the PPW program was thatderegulation should make it less expensive and lesscomplicated for PMA customers to make these arrangements. Another possible reason is that the moneyappropriated to the PMAs under PPW is repaid to theTreasury rather than to DOE. This means that the PPW appropriation is fully scored against the caps ondiscretionary domestic spending with which DOE mustcomply. Bipartisan groups in both the House and Senate found this feature of the budget request controversial. The Senate passed the bill with the PPW program maintained and more than $80 million restored. In its report, the Senate Appropriations Committee said it"disagrees" with the Department's proposal. However, the House supported the Administration proposal andrequested levels. The Senate position prevailed inconference and in the enacted bill. Independent agencies that receive funding from the Energy and Water Development bill include the NuclearRegulatory Commission (NRC), the TennesseeValley Authority (TVA), and the Appalachian Regional Commission. TVA, which pays for most of its activitieswith electricity revenues, requested only a smallcongressional appropriation for FY2000 for its land management activities. Table 7. Energy and Water Development Appropriations Title IV: Independent Agencies (in millions ofdollars) Tennessee Valley Authority. The Tennessee Valley Authority (TVA) was established as a federal corporationin 1933 to bring electricity and development to a region encompassing all of Tennessee and portions of Kentucky,Virginia, North Carolina, Georgia, Alabama,and Mississippi. The agency's electric power operations are self-supporting and receive no appropriation. TVA is also responsible for certain non-power functions intended to further the agency's mission to develop and conserve the region's natural resources. Theseinclude flood control, recreation, navigation, and an Environmental Research Center. TVA operates more than 50dams and reservoirs and a 170,000-acrerecreational area in Kentucky and Tennessee, Land Between the Lakes (LBL). These non-power programs representroughly 2% of TVA's total budget and havebeen supported by congressional appropriation. However, critics of TVA have argued in recent years that TVAshould absorb the cost for these programs andcould do so with the savings that could be realized from more efficient operation. In recent years, the congressional appropriation for the TVA non-power programs has been declining. The appropriation for the non-power programs was $106million for FY1997. The conferees on the FY1998 Energy and Water Appropriations bill recommended anappropriation of $70 million, but stipulated that TVAwould thereafter absorb the entire cost of these programs through "internally generated revenues and savings." Nonetheless, the Administration requested $77million for TVA non-power programs for FY1999. The House held to the intent of the prior year's conference reportwhile the Senate proposed appropriating $70million again to TVA for FY1999. The House position prevailed in the enacted Energy and Water Appropriations( P.L. 105-245 ). However, shortly before the end of the 105th Congress conferees restored $50 million to TVA for the non-power programs in an omnibus spending bill ( P.L.105-277 ). The conferees also authorized TVA to refinance $3.2 billion of its debt to the Federal Financing Bank(FFB) without prepayment penalty. It wasexpected that the refinancing would save TVA $100 million annually. This, it was further argued, should give TVAsufficient annual cost savings to support thenon-power programs without further appropriations. The legislation also stipulated that if LBL were not provided$7 million by Congress in future annualappropriations, administration of LBL would be transferred from TVA to the Forest Service. In line with these enactments in the 105th Congress, the Administration requested only $7 million specifically for the operation of LBL for FY2000. The Senateconcurred; the House did not. House Appropriations recommended no funding for TVA, commenting in thecommittee report that "final year appropriations forthe non-power programs" were provided in FY1999. The conferees authorized TVA to spend $3 million frompreviously appropriated funds for administration ofTVA, pending transfer of LBL to the Forest Service, and for expenses relating to the transition in stewardship. Nuclear Regulatory Commission. The Nuclear Regulatory Commission (NRC) requested $471 million forFY2000, an increase of $1.6 million over FY 1999. Major activities conducted by NRC include safety regulationof commercial nuclear reactors, licensing ofnuclear waste facilities, and oversight of nuclear materials users. The funding request also included about $6 millionfor the NRC inspector general's office. Theconference report provides nearly all of the NRC request, although the funding request for the inspector general wascut by $1 million. The House and Senate Appropriations Committees sharply criticized NRC last year for allegedly failing to overhaul its regulatory system in line withimprovements in nuclear industry safety. The committees contended, among other problems, that NRC's regionaloffices were inconsistent with one another, thatNRC was inappropriately interfering with nuclear plant management, and that numerous NRC review processeswere outdated and unnecessary. NRC's FY2000budget justification asserted that sufficient funding was included to address those concerns The Senate expressed satisfaction with NRC's response to last year's criticism and granted the agency's full request for FY2000. "The Commission as a whole,the five Commissioners individually, and the Commission staff deserve a great deal of credit for the Commission'saccomplishments in the last year," theCommittee report says. The House echoed that statement, but, on the grounds that the changes at NRC would resultin reduced budget requirements, it cut NRC'srequest by $10 million, a cut that was reversed in conference. To ensure that NRC's budget will continue to be mostly offset by fees on nuclear power plants and other licensed entities, the FY2000 Energy and Water billincludes a one-year extension of the agency's current fee-collection authority. The nuclear power industry has longcontended that the existing fee structurerequires nuclear reactor owners to pay for a number of NRC programs, such as foreign nuclear safety efforts, fromwhich they do not directly benefit. As in thepast, DOE is to reimburse NRC for oversight of DOE's high-level nuclear waste disposal program. CRS Issue Brief IB92059 . Civilian Nuclear Waste Disposal. CRS Issue Brief IB97031. Renewable Energy: Key to Sustainable Energy Supply? CRS Issue Brief IB91039. The DOE Fusion Energy Science Program. CRS Issue Brief IB10036. Restructuring DOE and Its Laboratories: Issues in the 106th Congress. CRS Report RL30307(pdf) . Department of Energy Programs: Programs and Reorganization Proposals. CRS Report 97-464. The National Ignition Facility and Stockpile Stewardship. CRS Report 96-212. Civilian Nuclear Spent Fuel Temporary Storage Options. CRS Report RL30054. Research and Development Budget of the Department of Energy for FY2000: Description and Analysis . Return to CONTENTS section of this Long Report. | The Energy and Water Development appropriations bill includes funding for civil projects of the Army Corps of Engineers, the Department of the Interior'sBureau of Reclamation (BuRec), most of the Department of Energy (DOE), and a number of independent agencies. The Administration requested $22 billion forthese programs for FY2000. The House and Senate approved $21.3 billion. Low allocations under Section 302 (b) of the Budget Act created difficulties for Appropriations Committees in both Houses. The Senate Committee responded bycutting water projects for the Corps and BuRec, and keeping DOE funding about at the requested level. The HouseAppropriations Committee increased moneyfor the Corps and cut about $1.5 billion from DOE, much of it in the weapons program. The Senate passed the bill( S. 1186 ) June 16, 1999. TheHouse passed its version of the bill ( H.R. 2605 ) July 27, 1999. The House-Senate Conference Committeereported out its agreement on September24, 1999, with some of the Senate cuts to the Corps, and some of the House cuts to DOE, restored. The bill wassigned by the President on September 29, 1999( P.L. 106-60 ). Other key issues involving Energy and Water Development appropriations programs included: Policy issues related to wetlands regulatory programs involving the Corps; the Bureau of Reclamation's controversial Animas-La Plata project in Colorado, a large irrigation and tribal projects with likely controversialenvironmental impacts, for which the Administration requested no new appropriations in FY2000; a pending decision by DOE on the electrometallurgical treatment of nuclear spent fuel for storage and disposal, a process that opponentscontend raises nuclear nonproliferation concerns; proposed funding increases for DOE's accelerated computer simulation efforts to simulate nuclear weapons explosions and other importantaspects of the nuclear weapons stockpile; increased funding for DOE's Nuclear Cities Initiative in Russia, to find alternative work for unemployed Russian nuclear weaponsdesigners; NRC's plans to overhaul its regulatory system for nuclear power plant safety, as urged by the House and Senate AppropriationsCommittees; The ongoing controversy over interim civilian nuclear waste storage; and DOE's "privatization" program for nuclear waste cleanup. Key Policy Staff Division abbreviation: RSI = Resources, Science, and Industry. |
According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the U.S. economy was in recession from December 2007 to June 2009. Congress passed and the President signed an economic stimulus package, the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), in February 2009. The $787 billion package included $286 billion in tax cuts to help stimulate the economy. Among the tax reductions, many were tax incentives directed to business. The estimated revenue losses of the business tax incentives are $40 billion for FY2009, $36 billion for FY2010, and $6 billion for FY2009-FY2019 (because of estimated revenue gains in the out years). The business tax incentives included a temporary expansion of the work opportunity tax credit, a temporary increase of small business expensing, a temporary extension of bonus depreciation, and a five-year carry back of 2008 net operating losses for small businesses. Many were subsequently extended by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). The preliminary estimate of fourth quarter real gross domestic product (GDP) growth is 5.9%; the unemployment rate, a lagging indicator, averaged 9.6% in the third quarter and 10.0% in the fourth quarter of 2009. Federal Reserve Chairman Ben Bernanke expected the economy to continue growing at a modest pace, but predicted that bank lending will remain constrained and the job market remain weak into at least 2010. To further assist unemployed workers, help business, and stimulate housing markets, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009 (signed by the President on November 6, 2009, P.L. 111-92 ). Many observers have advocated further business tax incentives to spur investment and employment. Recent op-ed contributors have proposed tax credits to encourage businesses to hire. The Obama Administration has proposed tax incentives for small businesses to encourage investment and hiring. The House and Senate passed the Hiring Incentives to Restore Employment (HIRE) Act, which includes an employment tax credit. The President signed the act into law on March 18, 2010. In December 2010, P.L. 111-312 extended and expanded the business tax provisions. Some proposals would expand the reduction in payroll taxes for individuals and to extend it to employers. While a payroll tax on the individual side expands demand in the same way as other income tax cuts, the employer tax forgiveness is similar to an employer-side wage subsidy, which acts through a different mechanism. The reduction in payroll taxes for individuals expired at the end of 2012. The need for tax incentives to boost economic activity depends on the state of the economy. One measure that has tracked economic activity fairly well in the past is the Federal Reserve Board's industrial production index, which is used by NBER in its determination of the economy's turning points. Figure 1 and Figure 2 show the monthly industrial production index for the five past recessions. The index is followed from the beginning of each recession (month 0 in the figures) and for the next 36 months. Figure 1 compares the trend in the industrial production index for the previous two recessions (the 1990-1991 recession and 2001 recession) with the recently ended recession (the 2007-2009 recession—the dashed line). The first two recessions lasted for eight months according to NBER; the industrial production index in both cases started to track upward eight months after the recession started. In the 2007-2009 recession, however, the industrial production index was still declining eight months after the recession started and continued to trend downward for the next 10 months. Figure 2 compares the 2007-2009 recession with the 1973-1975 and 1981-1982 recessions. The latter recessions lasted for 16 months according to NBER, and the industrial production index bottomed out at the end of each recession. The trend in index for the 2007-2009 recession appears to approximately track the trend over the other two recessions. In the current recession, the index declined between December 2007 and June 2009, before turning up. The data on real GDP growth and industrial production suggest that economic activity (that is, output) began increasing in July 2009; NBER determined that the recession lasted for 18 months. The December 2012 industrial production index was still below the December 2007 index. The tax incentives to enhance economic activity being discussed, however, do not target output. Rather, they target investment and employment. Investment spending by firms tends to decrease in a recession. Figure 3 displays the quarterly growth rates for real nonresidential gross investment (i.e., business investment) for the quarter in which the recession started and the subsequent 10 quarters for five recessions. Each recession is different, but generally by the third quarter after the start of the recession real investment growth is negative and remains negative for the next four quarters. During the 2007-2009 recession, the decline in real investment spending was particularly severe in the fourth and fifth quarters compared with the other four recessions. Not all gross investment is used to add to the capital stock; some is used to replace worn-out capital goods (i.e., consumption of fixed capital or depreciation). In 2011, about 85% of gross investment spending replaced the value of worn-out fixed assets (this percentage has varied between 57% and 83% over the past 40 years); the other 15% increased the capital stock. The consumption of fixed assets as a percentage of gross nonresidential investment stood at 60% in 1970; it increased by 25 percentage points between 1970 and 2011. Overall, net nonresidential investment as a percentage of GDP has been trending downward—falling from 4.1% in 1970 to 3.0% in 2008 to 1.1% in 2011. Employment fell for 22 months after the start of the 2007-2009 recession in December 2007. Figure 4 and Figure 5 show employment for the first month of the recession and the subsequent 36 months for the 2007-2009 recession and four other recessions. Employment is shown as an employment index (i.e., as the percentage of employment in the first month of the recession). Employment typically lags the recovery in output by a few months in part because employers are likely to restore the hours worked by employees still on their payrolls before recalling those laid off or hiring new workers. The 2007-2009 recession is compared with the previous two recessions—the 1990-1991 and 2001 recessions—in Figure 4 . Although the previous two recessions were relatively mild and short (lasting for eight months), employment levels were either stagnant (the 1990-1991 recession) or declining (the 2001 recession) for several months after the end of the recession. For example, employment hit bottom 21 months after the 2001 recession ended. In the 2007-2009 recession, employment levels declined slightly over the first 9 months of the recession and then fell sharply over the next 12 months. Employment stood at 94% of the December 2007 employment level 25 months after the start of the recession. Employment started to turn up 8 months after the end of the recession. Figure 5 compares the employment levels during the recently ended recession with employment levels during the 1973-1975 and 1981-1982 recessions. These latter two recessions were relatively deep and prolonged—lasting for 16 months. For these two recessions, the employment level began increasing within a month or two after the end of the recession (the end of these recessions is denoted by the vertical line in the figure). In the 2007-2009 recession, employment levels began to rise eight months after the recession ended. The December 2012 employment level, however, is still below the December 2007 level. Weakness in the labor market is further indicated by the proportion of the labor force who have been unemployed for at least six months (the long-term unemployed). Figure 6 displays the monthly unemployment and long-term unemployment rates since 1948. The long-term unemployment rate has generally tracked the unemployment rate over the business cycle. Over a business cycle, the long-term unemployment rate is at its lowest point at or near the beginning of a recession and then reaches a peak a few months after the end of the recession (typically within six to eight months). Like the unemployment rate, the long-term unemployment rate is a lagging indicator—the labor market does not begin to recover from a recession until sometime after the official end of the recession. After the 1990-1991 and 2001 recessions, however, the long-term unemployment rate did not reach its peak until 15 and 19 months, respectively, after the recession ended. The long-term unemployment rate is currently higher than at any time over the past 62 years—throughout the recovery, over 3% of the labor force (about 40% of the unemployed) had been out of work for six months or more. The two most common measures to provide tax incentives for new investment are investment tax credits and accelerated deductions for depreciation. Investment tax credits provide for a credit against tax liability for a portion of the purchase price of assets and are often proposed as a counter-cyclical or economic stimulus measure. Accelerated depreciation speeds up the rate at which the cost of an investment is deducted. The investment tax credit was originally introduced in 1962 as a permanent subsidy, but it came to be used as a counter-cyclical device. It was temporarily suspended in 1966-1967 (and restored prematurely) as an anti-inflationary measure; it was repealed in 1969, also as an anti-inflationary measure. The credit was reinstated in 1971, temporarily increased in 1975, and made permanent in 1976. After that time, the credit tended to be viewed as a permanent feature of the tax system. At the same time, economists were increasingly writing about the distortions across asset types that arose from an investment credit. The Tax Reform Act of 1986 moved toward a system that was more neutral across asset types and repealed the investment tax credit while lowering tax rates. Accelerated depreciation tends not to be used for counter-cyclical purposes. At least one reason for not using accelerated depreciation for temporary, counter-cyclical purposes is because such a revision would add considerable complexity to the tax law if used in a temporary fashion, since different vintages of investment would be treated differently. An investment credit, by contrast, occurs the year the investment is made and, when repealed, only requires firms with carry-overs of unused credits to compute credits. An exception to the problem with accounting complexities associated with accelerated depreciation is partial expensing (that is, allowing a fraction of investment to be deducted up front and the remainder to be depreciated). This partial expensing approach also is neutral across all assets it applies to, but the cash flow effects are more concentrated in the present (and revenue is gained in the future). A temporary partial expensing provision, allowing 30% of investments in equipment to be expensed over the next two years, was included in H.R. 3090 in 2002 and expanded to 50% and extended through 2004 in tax legislation enacted in 2003. It expired in 2004. The Economic Stimulus Act of 2008 ( P.L. 110-185 ) included temporary bonus depreciation for 2008, which was extended for 2009 by the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ). The Obama Administration recently proposed 100% expensing for qualified capital investments through the end of 2011. In December 2010, P.L. 111-312 extended and expanded the business tax provisions by allowing 100% expensing in 2011 and 50% in 2012. Bonus depreciation was extended to the end of 2013 by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). On September 8, 2011, the President proposed a fiscal stimulus that largely related to payroll taxes, but also proposed to increase expensing to 100% in 2012. This expensing provision was also included in H.R. 3630 , the House Republican proposal that also extended the payroll tax and made other revisions. This legislation was adopted by the House but not passed. A two-month extension of payroll tax relief was adopted and was extended to the end of 2012 by the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ). The extent to which these business tax breaks are a successful counter-cyclical stimulus hinges on the effectiveness of investment subsidies in inducing spending. It is difficult to determine the effect of a business tax cut and the timing of induced investment. A business tax cut is aimed at stimulating investment largely through changes in the cost (or price) of capital. If there is little marginal stimulus or if investment is not responsive to these price effects in the short run, then most of the cut may be saved: either used to pay down debt or paid out in dividends, although some of the latter might eventually be spent after a lag. That is, if a tax cut simply involved a cash payment to a firm, most of it might be saved, particularly in the short run. Business tax cuts (of most types) also have effects on rates of return that increase the incentive to invest, and it is generally for that reason that investment incentives have been considered as counter-cyclical devices. Investment incentives through expensing for small businesses, however, are usually phased-out. As a result, these provisions produce a disincentive to investment over the phase-out range. Consequently, the overall incentive effect is ambiguous. Despite attempts to analyze the effect of the investment tax credit, considerable uncertainty remains. Time series studies of aggregate investment using factors such as the tax credit (or other elements that affect the tax burden on capital or the "price" of capital) as explanatory variables tended to find little or no relationship. A number of criticisms could be made of this type of analysis, among them the possibility that tax subsidies and other interventions to encourage investment were made during periods of economic slowdown. A recent study using micro data found an elasticity (the percentage change in investment divided by the percentage change in the user cost of capital) for equipment of -0.25. A widely cited study by Cummins, Hassett, and Hubbard used panel data and tax reforms as "natural experiments" and found effects that suggest a price elasticity of -0.66 for equipment. Although the second estimate is higher, both are considered inelastic (less than a unitary elasticity) implying that induced spending is less than the cost. This last estimate is a higher estimate than had previously been found and reflects some important advances in statistical identification of the response. Yet, it is not at all clear that this elasticity would apply to stimulating investment in the aggregate during a downturn when firms have excess capacity. That is, firms may have a larger response on average to changes in the cost of capital during normal times or times of high growth, when they are not in excess capacity. Certainly, the response might be expected to be smaller in low growth periods. An additional problem is that the timing of the investment stimulus may be too slow to stimulate investment at the right time. If it takes an extensive period of time to actually plan and make an investment, then the stimulus will not occur very quickly compared to a cut in personal taxes that stimulates consumption immediately. Indeed, the stimulus to investment could even occur during the recovery when it is actually undesirable. Some evidence suggests that the temporary bonus depreciation enacted in 2002 had little or no effect on business investment. A study of the effect of temporary expensing by Cohen and Cummins at the Federal Reserve Board found little evidence to support for a significant effect. They suggested several potential reasons for a small effect. One possibility is that firms without taxable income could not benefit from the timing advantage. In a Treasury study, Knittel confirmed that firms did not elect bonus depreciation for about 40% of eligible investment, and speculated that the existence of losses and loss carry-overs may have made the investment subsidy ineffective for many firms, although there were clearly some firms that were profitable that did not use the provision. Cohen and Cummins also suggested that the incentive effect was quite small (largely because depreciation already occurs relatively quickly for most equipment), reducing the user cost of capital by only about 3%; that planning periods may be too long to adjust investment across time; and that adjustment costs outweighed the effect of bonus depreciation. Knittel also suggested that firms may have found the provision costly to comply with, particularly because most states did not allow bonus depreciation. A recent study by House and Shapiro found a more pronounced response to bonus depreciation, given the magnitude of the incentive, but found the overall effect on the economy was small, which in part is due to the limited category of investment affected and the small size of the incentive. Their differences with the Cohen and Cummins study reflect in part uncertainties about when expectations are formed and when the incentive effects occur. Cohen and Cummins also reported the results of several surveys of firms, where from two-thirds to over 90% of respondents indicated bonus depreciation had no effect on the timing of investment spending. Overall, bonus depreciation did not appear to be very effective in providing short-term economic stimulus. A study by Hulse and Livingstone found mixed results on the effectiveness of bonus depreciation, which they interpret as weakly supportive of an effect. There are reasons to expect that tax incentives for equipment might have limited effects in stimulating investment in the short run, primarily because of planning lags and because of the slowness of changing the technology of production. Essentially, there are two reasons that firms may increase investment. First, they may expect output to increase. This response, called the accelerator, is a result of other forces that increase aggregate demand thus requiring making more of the same type of investment (along with hiring more workers). The second reason is that the cost of investment has fallen. Part of this effect may be an output effect since the overall cost of investment is smaller, output can be sold at a lower price with an expectation that sales will rise in the future. Also part of this effect has to do with encouraging more use of capital relative to labor. This analysis suggests that a business tax subsidy may not necessarily be the best choice for fiscal stimulus, largely because of the uncertainty of its success in stimulating aggregate demand. If such subsidies are used, however, the most effective short-run policy is probably a temporary investment subsidy. Permanent investment subsidies may distort the allocation of investment in the long run. The objective of investment subsidies is to increase spending which, in turn, should lead to increased employment (first in the capital goods manufacturing sector, and then in the economy as a whole through multiplier effects). Investment subsidies could also, however, have a direct effect on employment within the firm receiving the subsidy because they change relative prices. Capital and skilled labor (i.e., more educated workers) tend to be complements, that is, they are used together in the production process. Consequently, increasing the amount of capital tends to increase the demand for skilled labor. Furthermore, capital and unskilled labor (i.e., less-educated workers) tend to be substitutes. Thus, increasing investment could reduce the demand for less-skilled labor. These labor market effects could show up in one of two ways: changes in wages or employment levels. Unfortunately, there are no studies estimating the direct impact of investment incentives on employment. One study examined the effect of investment subsidies on the prices of capital goods and wages of workers in the capital goods producing industry. Goolsbee found that benefit of investment tax incentives generally went to the producers of capital equipment through higher capital prices and somewhat higher wages for workers in the capital goods industry. Overall, it appears that investment incentives could reduce the demand of less-educated workers (a group with a relatively high unemployment rate), and increase the demand for highly educated workers (a group with a relatively low unemployment rate) and workers in capital goods producing industries. It is not clear, however, whether these effects would occur in a slack economy. Employment and wage subsidies are designed to increase employment directly by reducing a firm's wage bill. A firm's wage bill for labor includes wages and salaries paid to employees, the cost of fringe benefits (e.g., health insurance and pensions), hiring costs, and taxes paid such as the employer's share of the payroll tax. These subsidies can take many forms. For example, earnings or time spent working can be subsidized. Furthermore, the subsidies can be incremental or non-incremental—that is, new hires are subsidized or all workers are subsidized. The subsidies can be targeted to certain groups of workers such as disadvantaged individuals, or can be available for any worker. The tax system is a frequently used means for providing employment subsidies. Currently, the Work Opportunity Tax Credit (WOTC), a nonrefundable credit, is available to employers who hire individuals from 11 targeted disadvantaged groups. Another example of an employment tax credit is the New Jobs Tax Credit (NJTC) from 1977 and 1978. It was an incentive to business to hire employees in excess of a base amount. Most of the business tax incentives for hiring discussed in the 111 th Congress were modeled somewhat on the NJTC. The NJTC was an incremental jobs tax credit in that the employer had to increase the Federal Unemployment Tax Act (FUTA) wage base above at least 102% of the FUTA wage base in the previous year. The credit was 50% of the increase in the FUTA wage base (the wage base consisted of wages paid up to $4,200 per employee). The employer's income tax deduction for wages, however, was reduced by the amount of the credit. Consequently, the effective maximum credit for each new employee ($2,100 minus the additional tax due from the reduced deduction) ranged from $1,806 for taxpayers in the 14% tax bracket to $630 for taxpayers in the 70% tax bracket. Furthermore, the total credit could not exceed $100,000, which in effect limited the size of the subsidized employment expansion at any one firm to 47. The credit was nonrefundable but could be carried back for three years and forward for seven years. Employment and wage subsidies have been analyzed since at least the 1930s, but few of the analyses include empirical estimates of the effects of the subsidies. In an early theoretical analysis of a nonincremental wage subsidy, Arthur Pigou concluded that a wage subsidy could increase employment but "in practice it is probable that the application of such a system would be bungled." Nicholas Kaldor, however, in another theoretical analysis, argued that a temporary incremental wage subsidy to deal with cyclical unemployment could be very effective. In a more recent theoretical analysis, Richard Layard and Stephen Nickell also argue that a temporary incremental wage subsidy could be effective in increasing employment when unemployment is high. In the United States, employment subsidies have often been offered through the tax system. Two major tax programs to subsidize employment that have been evaluated are the NJTC and the Targeted Jobs Tax Credit (TJTC); the TJTC was a targeted hiring subsidy that was replaced by the WOTC. The NJTC was explicitly designed to be a counter-cyclical employment measure to boost employment after the 1973-1975 recession. The NJTC was enacted in May 1977 at a time when the economy had begun to recover from the recession and was already growing. The credit was incremental in that it applied only to employment greater than 102% of the previous year's employment level. For each new eligible worker hired, a firm received a tax credit of 50% of wages paid up to $4,200 (the maximum gross credit for each new employee, therefore, was $2,100). The credit had an aggregate $110,000 cap so that the majority of benefits went to small firms. Once the cap was reached, the firm received no subsidy for hiring additional workers. Thus very large firms whose employment grew substantially more than 2% may not have had a marginal incentive. In addition, the credit was allowed against income tax liability and firms without adequate tax liability were not able to use all (or in some cases, any) of the credit. The first evaluation of the NJTC used responses from a federal survey of for-profit firms. Jeffrey Perloff and Michael Wachter compared employment growth of firms that knew about the tax credit to firms that did not know about the credit. They find that employment at the firms with knowledge of the credit grew about 3% faster than at the other firms. They note, however, that only 34% of the firms knew about the tax credit and these firms were probably not randomly drawn—it is possible that the firms most likely to hire workers were also more likely to seek out tax benefits. They caution that their results may overstate the NJTC's employment effect. A second evaluation by John Bishop focused on the employment effects of the NJTC in the construction and distribution industries. Bishop's key explanatory variable is the proportion of firms in the industry that knew about the tax credit. He estimates that the NJTC was responsible for 150,000 to 670,000 of the 1,140,000 increase in employment in these industries. The estimated effect, however, varies dramatically from industry to industry and sometimes from one empirical specification to another for the same industry. The results of both Perloff and Wachter, and Bishop suggest that the NJTC may have been somewhat successful in increasing employment, but showing a relationship between knowledge of the NJTC and employment gains does not mean that one caused the other. Not all evaluations of the NJTC were positive. Robert Tannenwald analyzed data from a survey of private firms in Wisconsin and concludes that the NJTC did not live up to expectations. He estimates that the per job cost of the NJTC was greater than public service employment programs. Over half of the firms that did not expand employment in response to the tax credit said that consumer demand for their product determines the level of employment. Some firms reported they were reluctant to take advantage of the tax credit because of its complexity. Emil Sunley argues that there was a gap between the time of the hiring decision and the time eligibility for the credit was determined. He notes that because the capital stock is essentially fixed in the short run, an increase in employment will only come about because of an increase in product demand. Furthermore, it automatically favors firms that are already growing, which could increase geographic differentials in job creation. A report on the NJTC commissioned by Congress from the Department of Labor and the Department of Treasury also was skeptical of the effectiveness of the subsidy. In a mail survey, only about one-third of firms knew about the credit (although these firms covered 77% of employees). About 20% both knew about the credit and qualified for it (covering 58% of employees). However, when firms were asked, only 2.4% of firms indicated that they made a conscious effort to hire because of the subsidy. Similar effects were found in a survey of the National Federation of Independent Businesses (NFIB), which covers smaller employers. Their survey results indicated that from 1.4% to 4.1% of employers were affected by the subsidy. The Labor/Treasury study also raised questions about the studies by Perloff and Wachter, and by Bishop. They noted that the former study used data for 1977 and the credit was not enacted until May 1977. They questioned the latter author's lack of tests for significance of the wage variable. In addition, because the credit came at a time when the economy was already growing, it is possible that the credit may have shifted employment from one sector to another rather than increased aggregate employment. Evaluation of other employment tax credit programs also yield mixed results. The TJTC provided a wage subsidy to firms for hiring eligible workers (e.g., welfare recipients, economically disadvantaged youth, and ex-offenders). One study by Kevin Hollenbeck and Richard Willke found that the TJTC improved employment outcomes for nonwhite youth but not for other eligible individuals. Bishop and Mark Montgomery estimate that the TJTC induced some new employment, but at least 70% of the tax credits were claimed for hiring workers who would have been hired even in the absence of the tax credit. Dave O'Neill concludes that programs targeted to narrow socioeconomic groups are unlikely to "achieve the desired effect of significantly increasing the employment level of the target group." Taken together, the results of the various studies suggest that incremental tax credits have the potential of increasing employment, but in practice may not be as effective in increasing employment as desired. There are several reasons why this may be the case. First, jobs tax credits are often complex (so as to subsidize new jobs rather than all jobs) and many employers, especially small businesses, may not want to incur the necessary record-keeping costs. Second, since eligibility for the tax credit is determined when the firm files the annual tax return, firms do not know if they are eligible for the credit at the time hiring decisions are made. Third, many firms may not even be aware of the availability of the tax credit until it is time to file a tax return. In addition, the person making the hiring decision is often unaware of tax provisions and the tax situation of the firm. Lastly, product demand appears to be the primary determinant of hiring. The Obama Administration proposed a $5,000 business tax credit against payroll taxes for every net new employee they hire in 2010; the credit would have a $500,000 aggregate cap per firm. In addition, small businesses that increase wages or expand hours would get a credit against added payroll taxes. The proposals tried to overcome some of the limitations of the NJTC. For example, the proposal would have allowed firms to claim the credits on a quarterly rather than an annual basis. All firms would have qualified for the tax credit since it would have been allowed against payroll taxes rather than income taxes (over half of all firms were not eligible for the full 1977-1978 NJTC because of insufficient income tax liability). The credit would have also been available for nonprofits and startups would be eligible for half the credit. The Administration estimated that this proposal would cost $33 billion. Senators Baucus and Grassley (the chairman and ranking minority Member of the Senate Finance Committee, respectively) proposed the Hiring Incentives to Restore Employment (HIRE) Act on February 11, 2010. Their proposal included two tax incentives for hiring and retaining unemployed workers. This proposal was enacted in the HIRE Act ( P.L. 111-147 ), which was signed by the President on March 18, 2010. It is estimated that the tax incentives would cost $13 billion over 10 years. The first tax incentive in the HIRE Act was forgiveness of the employer's share of the 2010 payroll tax (6.2% of the worker's earnings) for qualified workers hired in 2010 after enactment of the proposal. A qualified worker is an individual who was unemployed for at least 60 days and does not replace another worker at the firm unless the replaced worker left voluntarily or for cause. Verifying that these conditions were met was difficult. Furthermore, an employer could not take advantage of both the payroll tax forgiveness and WOTC; consequently, employers may have hired the long-term unemployed rather than individuals from other disadvantaged groups. Firms with no or little income tax liability (including nonprofits) were eligible for the payroll tax forgiveness and the benefits were received on a quarterly rather than annual basis. The second tax incentive was a business credit for retention of newly hired qualified workers. Employers are allowed a $1,000 business tax credit for each qualified worker who remains employed for 52 weeks at the firm. Since this is an income tax credit, the employer does not receive the benefits of retaining workers until they file their 2011 income returns in early 2012. Furthermore, firms with little or no tax liability (including nonprofits) cannot take full advantage of this incentive since the credit is nonrefundable. Another proposal for a job creation tax credit was also modeled partially on the NJTC and, like the Administration's proposal, tried to correct some of the flaws that may have limited the effectiveness of the NJTC. The credit would have been equal to 15% of additional taxable payroll (i.e., payroll subject to Social Security taxes) in 2010 and to 10% of additions to taxable payroll in 2011. This tax credit would have been refundable so both unprofitable firms and non-profits could take advantage of the credit. Furthermore, the benefits of the credit would have been received on a quarterly basis rather than annually when the firm files an income tax return. Bartik and Bishop estimated that the tax credit could create 2.8 million jobs in 2010 and 2.3 million jobs in 2011. They further estimated that the budgetary cost would be no more than $15 billion per year. Their estimates assumed 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 did not rest on a study of the 1977-1978 credit, but rather predicted the effect on jobs based on a central tendency labor demand elasticity. They also estimated that if the labor demand elasticity were 0.15, then 1.4 million jobs would be created in 2010 and 1.1 million jobs in 2011. Note that this estimate is a general demand elasticity, and might not necessarily be as high during a recession, when business is slack. President Obama proposed a new set of tax cut and spending programs on September 8, 2011. The proposed package totals $447 billion, with slightly over half of the package in tax cuts and the remainder in spending increases. This package is 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 ). Although most of the tax cuts ($175 billion) would provide an extension and increase in the payroll tax reduction for 2011, business investment and employment tax subsidies would also be provided. One provision cuts the employer payroll tax in half for the first $5 million in wages, a proposal targeting small business. Another provision eliminates the payroll tax for growth in employer payrolls, up to $50 million. These two provisions together would cost $65 billion, slightly under 15% of the total. An additional $5 billion would be 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 has 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 (negligible cost). There is more disagreement about the effectiveness of these types of tax incentives discussed in the following section. S. 1917 proposed payroll tax changes similar to the President's proposal, including the cut in payroll taxes and a hiring credit. This bill was defeated on the Senate floor on December 1. While a payroll tax on the individual side expands demand in the same way as other income tax cuts, the employer tax forgiveness is an employer-side wage subsidy. This type of subsidy is not incremental and it would not be subject to some of the administrative complications of other credits. At the same time, the "bang for the buck" would likely be smaller, and whether companies would hire people on a temporary basis during a time of slack demand is uncertain. Subsequent payroll tax proposals ( S. 1931 and S. 1944 ) did not contain an employer side tax benefit, although news reports indicate a proposal by Senators Collins and McCaskill would extend the 2 percentage point employee reduction and allow it on the employer side up to $10 million. Similarly, the House proposal, H.R. 3630 did not contain employer side provisions for the payroll tax cut. Ultimately the employee side payroll relief was extended for two months and then extended to the end of 2012; it was allowed to expire as scheduled. The evidence suggests that investment and employment subsidies are not as effective as desired in increasing economic activity, especially employment. Economic theory indicates that a deficit-financed fiscal stimulus designed to increase aggregate demand would have the maximum impact on employment in the short term. Such policies could include increases in federal government spending for goods and services, federal transfers to state and local governments, and tax cuts for low and middle income taxpayers. The short-term benefits of higher deficits, however, could be outweighed by the long-term costs if deficits are not reduced when unemployment falls. Additional fiscal stimulus that increases the deficit arguably should be considered in the context of 2009 and 2010 deficits that were larger relative to the size of the economy than all but a handful of previous wartime years. The 2009 and 2010 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—eventually investors will refuse to continue financing it because they no longer believe that the government would be capable of servicing it. | According to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the U.S. economy was in recession from December 2007 to June 2009. Congress passed and the President signed an economic stimulus package, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), in February 2009. The $787 billion package included $286 billion in tax cuts to help stimulate the economy. Among the tax reductions, many were tax incentives directed to business. The preliminary estimate of fourth quarter real gross domestic product (GDP) growth is 5.9%; the unemployment rate, a lagging indicator, averaged 9.6% in the third quarter and 10.0% in the fourth quarter of 2009. Federal Reserve Chairman Ben Bernanke expected the economy to continue growing at a modest pace, but predicted that bank lending will remain constrained and the job market will remain weak into at least 2010. To further assist unemployed workers, help business, and stimulate housing markets, Congress passed the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92). The Obama Administration has advocated further business tax incentives to spur investment and employment, especially for small business. The House and Senate passed the Hiring Incentives to Restore Employment (HIRE) Act, which includes an employment tax credit. The President signed the act into law on March 18, 2010. In December 2010, P.L. 111-312 extended and expanded the business tax provisions, among other provisions, including a temporary reduction in the employee's portion of the payroll tax. Many of the business tax provisions were extended by the American Taxpayer Relief Act of 2012 (P.L. 112-240); the reduction in the employee's portion of the payroll tax expired at the end of 2012. While a payroll tax on the individual side expands demand in the same way as other income tax cuts, the employer tax forgiveness is similar to an employer-side wage subsidy, which acts through a different mechanism. The two most common measures to provide business tax incentives for new investment are investment tax credits and accelerated deductions for depreciation. The evidence, however, suggests that a business tax subsidy may not necessarily be the best choice for fiscal stimulus, largely because of the uncertainty of its success in stimulating aggregate demand. If such subsidies are used, however, the most effective short-run policy is probably a temporary investment subsidy. Permanent investment subsidies may distort the allocation of investment in the long run. Employment and wage subsidies are designed to increase employment directly by reducing a firm's wage bill. The tax system is a frequently used means for providing employment subsidies. Most of the business tax incentives for hiring currently under discussion are modeled partially on the New Jobs Tax Credit (NJTC) from 1977 and 1978. Evidence provided in various studies suggests that incremental tax credits have the potential of increasing employment, but in practice may not be as effective in increasing employment as desired. There are several reasons why this may be the case. First, jobs tax credits are often complex and many employers, especially small businesses, may not want to incur the necessary record-keeping costs. Second, because eligibility for the tax credit is determined when the firm files the annual tax return, firms do not know if they are eligible for the credit at the time hiring decisions are made. Third, many firms may not even be aware of the availability of the tax credit until it is time to file a tax return. Lastly, product demand appears to be the primary determinant of hiring, and this issue would affect the effectiveness of a payroll tax holiday on the employer side. |
Title V of the Housing Act of 1949 authorized the Department of Agriculture (USDA) to make loans to farmers to enable them to construct, improve, repair, or replace dwellings and other farm buildings to provide decent, safe, and sanitary living conditions for themselves or their tenants, lessees, sharecroppers, and laborers. USDA was also authorized to make grants or combinations of loans and grants to those farmers who could not qualify to repay the full amount of a loan, but who needed the funds to make the dwellings sanitary or to remove health hazards to the occupants or the community. While the act was initially targeted toward farmers, over time it has been amended to enable USDA to make housing loans and grants to owners of real estate in rural areas in general. Currently, the USDA housing programs are administered by the Rural Housing Service (RHS). The housing programs are generally referred to by the section number under which they are authorized in the Housing Act of 1949, as amended. Descriptions of the rural housing programs are presented below in the order of the sections under which they are authorized in the Housing Act of 1949. Note that most of the programs involve direct loans from USDA, while others involve USDA-insured loans from private lenders. USDA is one of the few government agencies that makes direct loans to borrowers. The report concludes with a discussion of funding problems for the guaranteed home loan program. At the end of the report, tables are presented that show funding for various rural housing programs since FY1980. Section 502 of the Housing Act of 1949 gave USDA authority to make housing loans to farm owners to construct or repair farm dwellings and other buildings, for themselves or their tenants, sharecroppers, and laborers. The Housing Act of 1949 was amended in 1961 to make nonfarm properties eligible for the Section 502 loans. Amendments by the Housing and Urban Development Act of 1965 authorized the loans to be used for the purchase and repair of previously-occupied dwellings as well as the purchase of building sites. Amendments in 1968 enabled borrowers to receive interest credits to reduce the interest rate to as low as 1%. The Housing and Urban Development Act of 1970 enabled Section 502 loans to be made for homes on leased land as long as the remaining term of the lease extends beyond the repayment period of the loan. As amended, today's Section 502 program enables borrowers to obtain loans for the purchase or repair of new or existing single-family housing in rural areas. The loans can also be used to purchase new manufactured homes. In effect, there are now two Section 502 home loan programs—one in which borrowers receive direct home loans from USDA, and one in which borrowers receive USDA-guaranteed home loans from private lenders. Borrowers with income levels at or below 80% of the area median may be eligible for direct loans from USDA. The loans can be used to build, repair, renovate, or relocate homes, or to purchase and prepare building sites, including providing water and sewage facilities. Section 502 loans may also be used to refinance debts when necessary to avoid losing a home through foreclosure or when a loan of $5,000 or more is necessary for repairs to correct major deficiencies and make the dwelling safe and sanitary. In a given fiscal year, at least 40% of the funds for this program must be made available only to families or individuals with incomes below 50% of the area median. Borrowers must have the means to repay the loans but be unable to secure reasonable credit terms elsewhere. There is no downpayment requirement. In general, the loans are repayable over a 33-year period. The loan term may be extended to 38 years for borrowers with incomes below 60% of the area median, and who cannot afford the property based on the 33-year payments. The loan term is limited to 30 years on manufactured homes. Applicants must apply for and obtain Certificates of Eligibility from USDA, which indicate the USDA underwriting process has determined that they qualify for and can afford to repay Section 502 mortgages. The borrower's monthly contribution for principal, interest, property taxes, and insurance (PITI) is set at the higher of (1) 24% of the borrower's adjusted annual income; or (2) principal and interest calculated at 1% on the Section 502 loan plus property taxes and insurance. The borrower's income is verified annually, and the borrower's required payments may be increased or reduced based on changes in income. Housing financed under the Section 502 program must be modest in size, design, and cost. Each USDA Rural Development State Office can choose between two ways of setting a cost limit to define modest housing in its state: (1) a State Office can adopt the limit established by its state housing agency; or (2) a State Office can adopt a limit calculated according to USDA's regulations that takes cost and market value into account. The Housing and Community Development Act of 1987 directed USDA to carry out a three-year demonstration program under which moderate income borrowers could obtain loans from private lenders for the purchase of single-family homes in rural areas and the loans would be guaranteed by USDA under Section 502 (42 U.S.C. 1472). A permanent guaranteed loan program was authorized in 1990 by the Cranston-Gonzalez National Affordable Housing Act. Borrowers with income of up to 115% of the area median may purchase homes in rural areas with USDA-guaranteed loans from private lenders. Priority is given to first-time homebuyers, and USDA may require that borrowers complete a homeownership counseling program. USDA uses two formulas to determine a family's ability to undertake the responsibility of a mortgage: (1) the PITI must be 29% or less of gross monthly income; and (2) the total of all monthly debts (including the mortgage payment) must be 41% or less of gross monthly income. Section 502 guaranteed loans must be from lending institutions that have been approved by USDA. Loans have 30-year terms and fixed market-level interest rates. Loans may be for up to 100% of the home's appraised value or the sales price, whichever is less. The maximum loan amount is what the homeowner can afford based on the above criteria. Loans may include closing costs, legal fees, title services, the cost of establishing an escrow account, and other prepaid items as long as the appraised value is higher than the sales price. The American Homeownership and Economic Opportunity Act of 2000 authorized USDA to guarantee loans made to refinance existing Section 502 home loans. The interest rate on the new loan must be fixed and the rate may not exceed the interest rate on the loan being refinanced. The property being refinanced must be owned and occupied by the borrower as the principal residence, and the new loan may not exceed the remaining balance of the refinanced loan plus any authorized closing costs. The USDA charges the lender a one-time guarantee fee of 2% of the loan amount, and the lender may choose to pass this charge along to the borrower by adding it to the mortgage. The guarantee fee for refinance transactions is 0.5% of the loan amount. USDA guarantees the loan at 100% of the loss for the first 35% of the original loan, and the remaining 65% of the loan is guaranteed at 85% of loss. The maximum loss payable by USDA cannot exceed 90% of the original loan amount. No private mortgage insurance is required of the borrower. There are no restrictions on the size or design of homes financed with Section 502 guaranteed loans. Typical amenities, such as garages, central air conditioning, basements, and extra bathrooms, are allowed. In-ground swimming pools are permitted as long as loan funds are not used to finance the contributory value of the pool. In other words, the loan amount may not include the value that the pool adds to the appraised value of the property. Manufactured homes must be new and permanently installed. The major differences between the Section 502 direct loan and guaranteed loan programs are as follows: The lender and servicer for the direct program is USDA. The lender for Section 502 guaranteed loans is a private lender that also handles all the loan servicing. Income levels for participants in the direct program must not exceed 80% of the median income for the area. Income levels for participants in the Section 502 guaranteed program may not exceed 115% of the area median income. Borrowers in the direct loan program may receive subsidies to bring the interest rate as low as 1%. No interest rate subsidy is available to borrowers in the guaranteed loan program, so loans are at market interest rates. The size of homes may be restricted under the direct loan program, while there is no size restriction under the guaranteed loan program. Borrowers under the direct loan program must be unable to secure reasonable credit terms elsewhere, while there is no "credit elsewhere" test for borrowers under the guaranteed loan program. For farmers without sufficient income to qualify for a Section 502 loan, Section 504 of the Housing Act of 1949 (42 U.S.C. 1474) authorized loans, grants, or combinations of loans and grants to make farm dwellings safe and sanitary or to remove health hazards. Low-income nonfarm homeowners became eligible for the program in 1961. Eligibility was extended to leasehold property in 1970. The 1983 Housing Act made the program available to very low-income homeowners only. The act also eliminated congressionally mandated loan and grant limits for individual homeowners and gave USDA the authority to set those limits. Under current regulations, rural homeowners with incomes of 50% or less of the area median may qualify for USDA direct loans to repair their homes. Loans are limited to $20,000, and have a 20-year term at a 1% interest rate. Owners who are aged 62 or more may qualify for grants of up to $7,500 to pay for needed home repairs. To qualify for the grants, the elderly homeowners must lack the ability to repay the full cost of the repairs. Depending on the cost of the repairs and the income of the elderly homeowner, the owner may be eligible for a grant for the full cost of the repairs, or for some combination of a loan and a grant that covers the repair costs. The combination loan and grant may total no more than $20,000. Section 504 of the Housing and Community Development Act of 1977 added Section 509(c) to the Housing Act of 1949 (42 U.S.C. 1479). Under Section 509(c), USDA is authorized to receive and resolve complaints concerning construction of Section 502 housing by contractors. If a contractor refuses or is unable to honor a warranty, the borrower may be eligible for a grant for the cost of correcting the defects. The borrower must begin the process within 18 months of the completion of the home. Related costs, such as temporary living expenses, may be included in the grant. The Cranston-Gonzalez National Affordable Housing Act amended Section 509 by adding subsection (f) which mandates set asides of some USDA lending authority. In each fiscal year, USDA is required to designate 100 counties and communities as "targeted underserved areas" that have severe unmet housing needs. The USDA must set aside 5% of each fiscal year's lending authority under Sections 502, 504, 515, and 524, and reserve it for assistance in targeted underserved areas. Colonias, however, are given priority for assistance with the reserved funds. The USDA must also set aside sufficient Section 521 rental assistance that may be used with the Section 514 and Section 515 programs. (See " Rental Assistance and Interest Subsidy (Section 521) ," below.) Subsection (f) also created the Housing Application Packaging Grant (HAPG) program under which nonprofit organizations, community development organizations, state or local governments, or their agencies may receive grants from USDA to help low-income families and individuals prepare applications for USDA housing loans in targeted underserved areas and colonias. The Housing Act of 1961 added Section 514 to the Housing Act of 1949 (42 U.S.C. 1484). Under Section 514, loans are made to farm owners, associations of farm owners, or nonprofit organizations to provide "modest" living quarters, basic household furnishings, and related facilities for domestic farm laborers. The loans are repayable in 33 years and bear an interest rate of 1%. To be eligible for Section 514 loans, applicants must be unable to obtain financing from other sources that would enable the housing to be affordable by the target population. Individual farm owners, associations of farmers, nonprofit organizations, federally recognized Indian tribes, and agencies or political subdivisions of local or state governments may be eligible for loans from USDA to provide housing and related facilities for domestic farm labor. Applicants who own farms or who represent farm owners must show that the farming operations have a demonstrated need for farm labor housing, and the applicants must agree to own and operate the property on a nonprofit basis. Except for state and local public agencies or political subdivisions, the applicants must be unable to provide the housing from their own resources and unable to obtain the credit from other sources on terms and conditions that they could reasonably be expected to fulfill. The applicants must be unable to obtain credit on terms that would enable them to provide housing to farm workers at rental rates that would be affordable to the workers. The USDA state director may make exceptions to the "credit elsewhere" test when (1) there is a need in the area for housing for migrant farm workers and the applicant will provide such housing, and (2) there is no state or local body or nonprofit organization that, within a reasonable period of time, is willing and able to provide the housing. Applicants must have sufficient capital to pay the initial operating expenses. It must be demonstrated that, after the loan is made, income will be sufficient to pay operating expenses, make capital improvements, make payments on the loan, and accumulate reserves. In 1964, the 1949 Housing Act was amended to add Section 516 (42 U.S.C. 1486). The Section 516 program permitted qualified nonprofit organizations, Indian tribes, and public bodies to obtain grants for up to two-thirds of the development cost of farm labor housing. Applicants must demonstrate that there is a need for such housing, and that there is reasonable doubt that the housing would be built without USDA assistance. Grants may be used simultaneously with Section 514 loans if the necessary housing cannot be provided by financial assistance from other sources. The section was amended in 1970 to permit grants of up to 90% of the development cost of the housing. The 1983 Housing Act provides that in decisions on approving applications under these two sections, USDA shall consider only the needs of farm laborers and make the determination without regard to the extent or nature of other housing needs in the area. The act also requires that, in a given fiscal year, up to 10% of the funds available under Section 516 shall be made available to assist eligible nonprofit agencies in providing housing for domestic and migrant farm workers. Nonprofit organizations, Indian tribes, and local or state agencies or subdivisions may qualify for Section 516 grants to provide low-rent housing for farm labor. The organizations must be unable to provide the housing from their own resources, and be unable to secure credit (including Section 514 loans) on terms and conditions that the applicant could reasonably be expected to fulfill. Applicants must contribute at least 10% of the total development costs from their own resources or from other sources, including Section 514 loans. The housing and related facilities must fulfill a "pressing need" in the area, and there must be reasonable doubt that the housing can be provided without the grant. The Housing and Community Development Act of 1987 redefined "domestic farm labor" to include persons (and the family of such persons) who receive a substantial portion of their income from the production or handling of agricultural or aquacultural products. They must be United States citizens or legally admitted for permanent residence in the United States. The term includes retired or disabled persons who were domestic farm labor at the time of retiring or becoming disabled. In selecting occupants for vacant farm labor housing, USDA is directed to use the following order of priority: (1) active farm laborers, (2) retired or disabled farm laborers who were active at the time of retiring or becoming disabled, and (3) other retired or disabled farm laborers. Farm labor housing loans and grants to qualified applicants may be used to buy, build, or improve housing and related facilities for farm workers, and to purchase and improve the land upon which the housing will be located. The funds may be used to install streets, water supply and waste disposal systems, parking areas, and driveways, as well as for the purchase and installation of appliances such as ranges, refrigerators, and clothes washers and dryers. Related facilities may include a maintenance workshop, recreation center, small infirmary, laundry room, day care center, and office and living quarters for a resident manager. Section 514 loans are available at 1% interest for up to 33 years. Section 516 grants may not exceed the lesser of (1) 90% of the total development cost of the project, or (2) the difference between the development costs and the sum of (a) the amount the applicant can provide from its own resources, and (b) the maximum loan the applicant can repay given the maximum rent that is affordable to the target tenants. The Senior Citizens Housing Act of 1962 amended the Housing Act of 1949 by adding Section 515 (42 U.S.C. 1485). The law authorized USDA to make loans to provide rental housing for low- and moderate-income elderly families in rural areas. Amendments in 1966 removed the age restrictions and made low- and moderate-income families, in general, eligible for tenancy in Section 515 rental housing. Amendments in 1977 authorized Section 515 loans to be used for congregate housing for the elderly and handicapped. Loans under Section 515 are made to individuals, corporations, associations, trusts, partnerships, and public agencies. The loans are made at a 1% interest rate and are repayable in 50 years. Except for public agencies, all borrowers must demonstrate that financial assistance from other sources will not enable the borrower to provide the housing at terms that are affordable to low- and moderate-income borrowers. There are restrictions on the amount of rent borrowers may charge to occupants. Subject to USDA approval, borrowers set project rents based on the debt service for the loans and reasonable operating and maintenance expenses. The Housing and Community Development Act of 1987 amended the Housing Act of 1949 to state that occupancy of Section 515 housing, which has been allocated low-income housing tax credits (LIHTC), may be restricted to those families whose incomes are within the limits established for the tax credits. If, however, USDA finds that some of the units have been vacant for at least six months and that their continued vacancy will threaten the financial viability of the project, then higher-income tenants will be authorized to occupy the units. In 1968, Section 521 was added to the Housing Act of 1949 (42 U.S.C. 1490a). Section 521 established an interest subsidy program under which eligible low- and moderate-income purchasers of single-family homes (under Section 502) and nonprofit developers of rental housing (under Section 515) may obtain loans with interest rates subsidized to as low as 1%. Section 521 was amended in 1974 to authorize USDA to make rental assistance payments to owners of USDA-financed rental housing (Sections 515 or 514) on behalf of tenants unable to pay the USDA-approved rent with 25% of their income. Amendments in the 1983 Housing Act provide that rent payments by eligible families would equal the greater of (1) 30% of monthly adjusted family income, (2) 10% of monthly income, or (3) for welfare recipients, the portion of the family's welfare payment that is designated for housing costs. The rental assistance payments, which are made directly to the borrowers, make up the difference between the tenants' payments and the USDA-approved rent for the units. Borrowers must agree to operate the property on a limited profit or nonprofit basis. The term of the rental assistance agreement is 20 years for new construction projects and five years for existing projects. Agreements may be renewed for up to five years. An eligible borrower who does not participate in the program may be petitioned to participate by 20% or more of the tenants eligible for rental assistance. The Housing and Urban Development Act of 1968 added Section 523 to the Housing Act of 1949 (41 U.S.C. 1490c). Under Section 523, nonprofit organizations may obtain two-year loans to purchase and develop land that is to be subdivided into building sites for housing to be built by the mutual self-help method (groups of low-income families who are building their own homes). The interest rate is 3% for these loans. Applicants must demonstrate a need for the proposed building sites in the locality. Nonprofit sponsors may also obtain technical assistance (TA) grants to pay for all or part of the cost of developing, administering, and coordinating programs of technical and supervisory assistance to the families who are building their own homes. Each family is expected to contribute at least 700 hours of labor in building homes for each other. Participating families generally have low income and are unable to pay for homes built by the contract method. Applicants must demonstrate that (1) there is a need for self-help housing in the area, (2) the applicant has or can hire qualified people to carry out its responsibilities under the program, and (3) funds for the proposed TA project are not available from other sources. The program is generally limited to very low- and low-income families. Moderate-income families may be eligible to participate, provided they are unable to pay for homes built by contractors. TA funds may not be used to hire construction workers or to buy real estate or building materials. Private or public nonprofit corporations, however, may be eligible for two-year site loans under Section 523. The loans may be used to purchase and develop land in rural areas. The land is subdivided into building sites and sold on a nonprofit basis to low- and moderate-income families. Generally, a loan will not be made if it will not result in at least 10 sites. The sites need not be contiguous. Sites financed through Section 523 may only be sold to families who are building homes by the mutual self-help method. The homes are usually financed through the Section 502 program. In 1979, Section 524 was added to the Housing Act of 1949 (42 U.S.C. 1490d). Under Section 524, nonprofit organizations and Indian tribes may obtain direct loans from USDA to purchase and develop land that is to be subdivided into building sites for housing low- and moderate-income families. The loans are made for a two-year period. Sites financed through Section 524 have no restrictions on the methods by which the homes are financed or constructed. The interest rate on Section 524 site loans is the Treasury cost of funds. The Rural Housing Amendments of 1983 amended the Housing Act of 1949 by adding Section 533 (12 U.S.C. 1490m). This section authorizes USDA to make grants to organizations for (1) rehabilitating single-family housing in rural areas that is owned by low- and very low-income families, (2) rehabilitating rural rental properties, and (3) rehabilitating rural cooperative housing that is structured to enable the cooperatives to remain affordable to low- and very low-income occupants. Applicants must have a staff or governing body with either (1) the proven ability to perform responsibly in the field of low-income rural housing development, repair, and rehabilitation; or (2) the management or administrative experience that indicates the ability to operate a program providing financial assistance for housing repair and rehabilitation. The homes must be located in rural areas and be in need of housing preservation assistance. Assisted families must meet the income restrictions (income of 80% or less of the median income for the area), and must have occupied the property for at least one year prior to receiving assistance. Occupants of leased homes may be eligible for assistance if (1) the unexpired portion of the lease extends for five years or more, and (2) the lease permits the occupant to make modifications to the structure and precludes the owner from increasing the rent because of the modifications. USDA is authorized to provide grants to eligible public and private organizations. The grantees may in turn assist homeowners in repairing or rehabilitating their homes by providing the homeowners with direct loans, grants, or interest rate reductions on loans from private lenders. A broad range of housing preservation activities are authorized: (1) the installation and/or repair of sanitary water and waste disposal systems to meet local health department requirements; (2) the installation of energy conservation materials such as insulation and storm windows and doors; (3) the repair or replacement of heating systems; (4) the repair of electrical wiring systems; (5) the repair of structural supports and foundations; (6) the repair or replacement of the roof; (7) the repair of deteriorated siding, porches, or stoops; (8) the alteration of a home's interior to provide greater accessibility for any handicapped member of the family; and (9) the additions to the property that are necessary to alleviate overcrowding or to remove health hazards to the occupants. Repairs to manufactured homes or mobile homes are authorized if (1) the recipient owns the home and site, and has occupied the home on that site for at least one year, and (2) the home is on a permanent foundation or will be put on a permanent foundation with the funds to be received through the program. Up to 25% of the funding to any particular dwelling may be used for improvements that do not contribute to the health, safety, or well-being of the occupants; or materially contribute to the long-term preservation of the unit. These improvements may include painting, paneling, carpeting, air conditioning, landscaping, and improving closets and kitchen cabinets. USDA is also authorized to make Section 533 grants to organizations that will rehabilitate rental and cooperative housing. The Section 538 program was added in 1996 (42 U.S.C. 1490p-2). Under this program, borrowers may obtain loans from private lenders to finance multi-family housing, and USDA guarantees to pay for losses in case of borrower default. Section 538 guaranteed that loans may be used for the development costs of housing and related facilities that (1) consist of five or more adequate dwelling units, (2) are available for occupancy only by renters whose income at time of occupancy does not exceed 115% of the median income of the area, (3) would remain available to such persons for the period of the loan, and (4) are located in a rural area. Eligible lenders include the following: (1) any lender approved by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or the Federal Housing Administration (FHA), and currently active in their multi-family housing guaranteed lending programs; (2) state or local housing finance agencies; (3) members of the Federal Home Loan Bank System; and (4) other lenders that demonstrate to USDA that they have knowledge and experience with multi-family lending. In any case, the lenders must apply to USDA for permission to participate in the program. Eligibility must be verified every year. Eligible borrowers include public agencies, Indian tribes, individuals, general partnerships (if formed for a term at least equal to the loan term), limited partnerships, for-profit corporations, nonprofit corporations, limited liability companies, and trusts. In addition, borrowers must meet the following requirements: (1) be a creditworthy single-asset entity or have received prior written approval from USDA; (2) not be in default under any other agency housing program, or have performed well for six months in an approved workout plan; (3) be able to and intend to operate and maintain the project in accordance with program requirements; (4) be in legal and regulatory compliance with respect to any federal debt; (5) be a U.S. citizen or legal resident, a U.S.-owned corporation, or a limited liability corporation (LLC) or a partnership where the principals are U.S. citizens or permanent legal residents. Borrowers must contribute initial operating capital equal to at least 2% of the loan amount. The eligible uses of loan proceeds include new construction; moderate or substantial rehabilitation and acquisition when related to the rehabilitation; acquisition of existing buildings for special needs; acquisition and improvement of land; development of essential on- and off-site improvements; development of related facilities; on-site management and maintenance offices; appliances; parking development and landscaping; limited commercial space costs; professional and application fees; technical assistance and packaging fees to and by nonprofit entities; board of director education fees for cooperatives; interest on construction loans; relocation assistance when applicable; developers fees; and refinancing applicant debt when authorized in advance to pay for eligible purposes prior to loan closing and approved by RHS. The program may not be used for transient or migrant housing, health care facilities, or student housing. Unless granted an exception by USDA, refinancing is not an authorized use of funds. The interest rates on Section 538 loans must be fixed. The maximum allowable interest rate is as specified in each year's Notification of Funding Availability (NOFA). In order to help the Section 538 program serve low- and moderate-income tenants, however, at least 20% of Section 538 loans made each year must receive interest credit subsidy sufficient to reduce the effective interest rate to the Applicable Federal Rate (AFR) defined in Section 42(I)(2)(D) of the Internal Revenue Code. The Housing and Community Development Act of 1992 added Section 542 (42 U.S.C. 1490r) to the Housing Act of 1949. Owners of complexes financed through the USDA Section 515 program receive subsidized loans, and agree to rent only to low-income residents. The rental rates are controlled. When the mortgage is paid off, the owner has the right to raise rents to what the local economy can bear. Rural Housing Vouchers are made available to residents to cover the difference between the tenant's rent contribution and the new rental rate. Tenants may use the voucher at their current property or any other rental unit that passes Housing and Urban Development (HUD) housing quality standards, and where USDA vouchers are accepted. Use of the vouchers is prohibited at HUD Section 8 or other federally assisted public housing projects. In November 2004, USDA released a report on the Section 515 program. The purpose of the report was to assess the status of the Section 515 portfolio in terms of prepayment options and long-term rehabilitation needs. While few health and safety issues were found, the report found that no properties had adequate reserves or sufficient cash flow to do needed repairs and for adequate maintenance over time. The report concluded that the USDA portfolio of Section 515 projects represented a federal investment of nearly $12 billion; that the projects serve some of the poorest and most underserved families in rural communities; and that the location, physical condition, and tenant profile of the properties suggest that the public interest is best served by revitalizing most of the housing for long-term use by low- and moderate-income tenants. The report recommended a revitalization program for USDA multi-family housing. In response to the report, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act of 2006, P.L. 109-97 , included a provision that created a demonstration program for the preservation and revitalization of multi-family rental housing properties. The program is referred to as the Multi-Family Housing Preservation and Revitalization (MPR) program. The purpose of the MPR program is to preserve Section 515 and Section 514/516 projects in order to provide safe and affordable housing for low-income residents. Expectations are that properties selected to participate will be able to be revitalized and extend affordable use without displacing or impacting tenants because of increased rents. Under MPR, the USDA has authority to use funds to restructure existing loans using such tools as reducing or eliminating interest; deferring loan payments; subordinating, reducing, or re-amortizing loan debt; and making loan advances. In its FY2011 Budget for USDA, the Administration proposed no funding for the MPR program. The Administration argues that the program has been operating since 2006, that the most cost-effective and justified repairs have been achieved, and that continued funding could be seen as over-subsidizing multi-family property owners. Instead, the Administration proposed an increase in funding for the Section 515 program to $95 million instead of the $70 million approved for FY2010. Title VIII of the Housing Preservation and Tenant Protection Act of 2010, H.R. 4868 , would authorize continuing finding for the MPR program. The bill was passed by the House Financial Services Committee but has not been considered in the full House. No companion bill was introduced in the Senate. Since no appropriations legislation was enacted before the beginning of FY2011, the 111 th Congress enacted a series of continuing resolutions (CR) to continue funding at the FY2010 level for most accounts in the federal budget (including all of the accounts in USDA's budget). The latest CR ( P.L. 111-322 ) is slated to expire at the earlier of March 4, 2011, or enactment of FY2011 appropriations legislation. Since the collapse of the mortgage market in 2007, prospective homebuyers have found that lenders typically require either a 20% downpayment or a 10% downpayment and the purchase of private mortgage insurance. This has resulted in an increased demand for loans insured or guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the USDA, since these programs require smaller downpayments, and in the case of VA and USDA, no downpayments. The use of the Section 502 guaranteed loan program increased from 32,481 loans in FY2007 to 56,745 loans in FY2008, an increase of nearly 75%. In FY2009, there were 119,826 Section 502 guaranteed loans issued, an increase of more than 111%. The high demand for the program has continued, and on March 9, 2010, USDA sent a notice to USDA State Directors noting that the FY2010 funding for the Section 502 guaranteed loan program was expected to be exhausted by the end of April. This is not the first time that the USDA would have exhausted its loan authority prior to the end of the fiscal year. However, this year was the first time that the agency would be exhausting its funds with so much of the fiscal year remaining. On May 11, 2010, USDA provided guidance to lenders on how to proceed with loans when FY2010 funds for the Section 502 loan guarantee program were exhausted. In the guidance, USDA estimated that funds would be exhausted on May 12, 2010, or soon thereafter. Lenders could resume making Section 502 guaranteed loans but the USDA guarantee on the loans would be "subject to the availability of funds and Congressional authority to charge a 3.5% guarantee fee for purchase loans and a 2.25% guarantee fee for refinance loans." Lenders would assume all loss default risk for the loans until funds are available for USDA to obligate and USDA issues the Loan Note Guarantees to lenders. As enacted on July 29, 2010, the 2010 Supplemental Appropriations Act, P.L. 111-212 , provided additional appropriations for Section 502 guaranteed loans for the remainder of FY2010. The act also permits USDA to charge lenders a guarantee fee of up to 3.5% of the mortgage amount. In addition, lenders may be charged an annual fee of 0.5% of the mortgage balance for the life of the loan. These changes in the guarantee fees are intended to enable the Section 502 guaranteed home loan program to operate with little or no need for positive credit subsidies in FY2011 and beyond. The latest continuing resolution, P.L. 111-322 , funds the program at the FY2010 level until the earlier of March 4, 2011, or enactment of FY2011 appropriations legislation for USDA. | Title V of the Housing Act of 1949 authorized the Department of Agriculture (USDA) to make loans to farmers to enable them to construct, improve, repair, or replace dwellings and other farm buildings to provide decent, safe, and sanitary living conditions for themselves or their tenants, lessees, sharecroppers, and laborers. USDA was also authorized to make grants or combinations of loans and grants to those farmers who could not qualify to repay the full amount of a loan, but who needed the funds to make the dwellings sanitary or to remove health hazards to the occupants or the community. While the act was initially targeted toward farmers, over time the act has been amended to enable USDA to make housing loans and grants to rural residents in general. Currently, the USDA housing programs are administered by the Rural Housing Service (RHS). The housing programs are generally referred to by the section number under which they are authorized in the Housing Act of 1949, as amended. The rural housing programs include loans for the purchase, repair, or construction of single-family housing; loans and grants to remove health and safety hazards in owner-occupied homes; loans and grants for the construction and purchase of rental housing for farmworkers; loans for the purchase and construction of rental and cooperative housing for the elderly and for rural residents in general; rental assistance payments to make rental housing more affordable; interest subsidies to make homeownership loans more affordable and to enable production of rental housing that is affordable for the target population; and loans for developing building sites upon which rural housing is to be constructed. The collapse of the mortgage market in 2007 has resulted in an increased demand for home loans that are insured or guaranteed by the federal government, including the USDA Section 502 guaranteed home loans. By May 2010, the FY2010 funding for the USDA guaranteed loan program was exhausted. As enacted on July 29, 2010, the 2010 Supplemental Appropriations Act, P.L. 111-212, authorized additional appropriations for Section 502 guaranteed loans for the remainder of FY2010. The act also permits USDA to charge lenders a guarantee fee of up to 3.5% of the mortgage amount. In addition, lenders may be charged an annual fee of 0.5% of the mortgage balance for the life of the loan. These changes in the guarantee fees are intended to enable the Section 502 guaranteed home loan program to operate with little or no need for positive credit subsidies in FY2011 and beyond. Since no appropriations legislation was enacted before the beginning of FY2011, the 111th Congress enacted a series of continuing resolutions (CR) to continue funding at the FY2010 level for most accounts in the federal budget (including all of the accounts in USDA's budget). The latest CR (P.L. 111-322) is slated to expire at the earlier of March 4, 2011, or enactment of FY2011 appropriations legislation. |
Debate about the appropriate relationship between the branches in the federal budget process seems inevitable, given the constitutional necessity of shared power in this sphere. Under the Constitution, Congress possesses the "power of the purse" ("No money shall be drawn from the Treasury but in consequence of appropriations made by law"), but the President enjoys broad authority as the chief executive who "shall take care that the laws be faithfully executed." The Constitution is silent concerning the specifics of a budget system for the federal government. Informal procedures sufficed for many years. The Budget and Accounting Act of 1921 (P.L. 67-14) for the first time required the President to submit a consolidated budget recommendation to Congress. To assist in this task, the act also created a new agency, the Bureau of the Budget, "to assemble, correlate, revise, reduce, or increase the estimates of the several departments or establishments." In 1970, the budget agency was reconstituted as the Office of Management and Budget (OMB). OMB also plays an important role later in the budget process when funds are actually spent as appropriations laws are implemented. Impoundment of funds by the President represents an important component in this stage of budget execution. Presidential impoundment actions have sometimes been controversial. The subject of granting the President item veto authority, akin to that exercised by 43 governors, also has elicited considerable debate. With an item veto, the executive can delete specific provisions in a piece of legislation presented for signature, and then proceed to sign the measure into law. Impoundment includes any executive action to withhold or delay the spending of appropriated funds. One useful distinction among impoundment actions, which received statutory recognition in the 1974 Impoundment Control Act, focuses on duration: whether the President's intent is permanent cancellation of the funds in question (rescission) or merely a temporary delay in availability (deferral). Another useful contrast distinguishes presidential deferrals for routine administrative reasons from deferrals for policy purposes. Virtually all Presidents have impounded funds in a routine manner as an exercise of executive discretion to accomplish efficiency in management. The creation of budgetary reserves as a part of the apportionment process required by the Antideficiency Acts (31 U.S.C. 1511-1519) provided formal structure for such routine impoundments, which originated with an administrative regulation issued in 1921 by the Bureau of the Budget and then received a statutory base in 1950. Impoundments for policy reasons, such as opposition to a particular program or a general desire to reduce spending, whether short-term or permanent, have proved far more controversial. Instances of presidential impoundment date back to the early nineteenth century, but Presidents typically sought accommodation rather than confrontation with Congress. In the 1950s and 1960s, disputes over the impoundment authority resulted from the refusal of successive Presidents to fund certain weapons systems to the full extent authorized by Congress. These confrontations between the President and Congress revolved around the constitutional role of commander-in-chief and tended to focus on relatively narrow issues of weapons procurement. President Johnson made broader use of his power to impound by ordering the deferral of billions of dollars of spending during the Vietnam war in an effort to restrain inflationary pressures in the economy. While some impoundments during these periods were motivated by policy concerns, they typically involved temporary spending delays, with the President acting in consultation with congressional leaders, so that a protracted confrontation between the branches was avoided. Conflict over the use of impoundments greatly increased during the Nixon Administration and eventually involved the courts as well as Congress and the President. In the 92 nd and 93 rd Congresses (1971-1974), the confrontation intensified as the President sought to employ the tool of impoundment to reorder national priorities and alter programs previously approved by Congress. Following President Nixon's reelection in 1972, the Administration announced major new impoundment actions affecting a variety of domestic programs. For example, a moratorium was imposed on subsidized housing programs, community development activities were suspended, and disaster assistance was reduced. Several farm programs were likewise targeted for elimination. Perhaps the most controversial of the Nixon impoundments involved the Clean Water Act funds. Court challenges eventually reached the Supreme Court, which in early 1975 decided the case on narrower grounds than the extent of the President's impoundment authority. During these impoundment conflicts of the Nixon years, Congress responded not only with ad hoc efforts to restore individual programs, but also with gradually more restrictive appropriations language. Arguably, the most authoritative response was the enactment of the Impoundment Control Act (ICA), Title X of the Congressional Budget and Impoundment Control Act of 1974. As a result of a compromise in conference, the ICA differentiated deferrals, or temporary delays in funding availability, from rescissions, or permanent cancellations of designated budget authority, with different procedures for congressional review and control of the two types of impoundment. The 1974 law also required the President to inform Congress of all proposed rescissions and deferrals and to submit specified information regarding each. The ICA further required the Comptroller General to oversee executive compliance with the law and to notify Congress if the President failed to report an impoundment or improperly classified an action. The original language allowed a deferral to remain in effect for the period proposed by the President (not to exceed beyond the end of the fiscal year so as to become a de facto rescission) unless either the House or the Senate took action to disapprove it. Such a procedure, known as a one-house legislative veto, was found unconstitutional by the Supreme Court in INS v. Chadha (462 U.S. 919 (1983)). In May 1986 a federal district court ruled that the President's deferral authority under the ICA was inseverable from the one-house veto provision and hence was null; the lower court decision was affirmed on appeal in City of New Haven v. United States (809 F.2d 900 (D.C.C. 1987)). In the case of a rescission, the ICA provided that the funds must be made available for obligation unless both houses of Congress take action to approve the rescission request within 45 days of "continuous session" (recesses of more than three days not counted). In practice, this usually means that funds proposed for rescission not approved by Congress must be made available for obligation after about 60 calendar days, although the period can extend to 75 days or longer. Congress may approve all or only a portion of the rescission request. Congress may also choose after the 45-day period to rescind funds previously requested for rescission by the President. Congress does rescind funds never proposed for rescission by the President, but such action is not subject to the ICA procedures. The ICA establishes no procedures for congressional disapproval of a rescission request during the 45-day period. However, some administrations have voluntarily followed a policy of releasing funds before the expiration of the review period, if either the House or the Senate authoritatively indicates that it does not intend to approve the rescission. In the fall of 1987, as a component of legislation to raise the limit on the public debt ( P.L. 100-119 ), Congress enacted several budget process reforms. Section 207 prohibited the practice, sometimes used by Presidents when Congress failed to act on a rescission proposal within the allotted period, of submitting a new rescission proposal covering identical or very similar matter. By using such resubmissions, the President might continue to tie up funds even though Congress, by its inaction, had already rejected virtually the same proposal. The prohibition against such seriatim rescission proposals contained in the 1987 law applies for the duration of the appropriation, so that it may remain in effect for two or more fiscal years. Section 206 of P.L. 100-119 served to codify the decision in the New Haven case, allowing deferrals to provide for contingencies, to achieve savings made possible through changes in requirements or efficiency of operations, or as provided in statute. The ICA as amended no longer sanctions policy deferrals. The U.S. Constitution provides that the President may either sign a measure into law or veto it in its entirety. However, constitutions in 43 states provide for an item veto (usually confined to appropriation bills), allowing the governor to eliminate discrete provisions in legislation presented for signature. Ten states allow the governor to reduce amounts as well as eliminate items, and seven states have an "amendatory" veto, permitting the governor to return legislation with specific suggestions for change. The first proposal to provide the President with an item veto was introduced in 1876. President Grant endorsed the mechanism, in response to the growing practice in Congress of attaching "riders," or provisions altering permanent law, to appropriations bills. Over the years many bills and resolutions (mainly proposed constitutional amendments) have been introduced, but action in Congress on item veto proposals, beyond an occasional hearing, has been limited. In 1938 the House approved an item veto amendment to the independent offices appropriations bill by voice vote, but the Senate rejected the amendment. Contemporary proposals for item veto are usually confined to bills containing spending authority, although not necessarily limited to items of appropriation. In the 101 st Congress, the Senate Judiciary Subcommittee on the Constitution held a hearing on proposed constitutional amendments permitting an item veto on April 11, 1989, and reported two such amendments, without recommendation, on June 8. S.J.Res. 14 would have allowed the President to veto only selected items in an appropriations bill, while S.J.Res. 23 would have authorized him to disapprove or reduce any item of appropriation, excluding legislative branch items. On April 26, 1990, the full Judiciary Committee voted 8-6 to report both measures favorably, but the report was not filed until September 19, 1990. In the 102 nd Congress, the House voted on language providing item veto authority for the President. On June 11, 1992, during debate on H.J.Res. 290 , proposing a constitutional amendment requiring a balanced budget, the House rejected by vote of 170-258 an amendment by Representative Kyl ( H.Amdt. 602 ). The Kyl proposal sought to allow the President to exercise item veto authority in signing any measure containing spending authority (broadly defined), limit total outlays for a fiscal year to 19% of the gross national product of that year, and require a three-fifths vote of the Congress to approve any additional funds. Some contended that the President already had item veto authority as a part of his constitutional powers. An article by Stephen Glazier, appearing in the Wall Street Journal on December 4, 1987, advocated this position. While a minority interpretation, this view claims some notable supporters. The Senate Judiciary Committee's Subcommittee on the Constitution held a hearing on June 15, 1994, to receive testimony on the subject. Some continue to believe that a statutory framework (different from the Line Item Veto Act of 1996) may yet be devised to give the President authority akin to an item veto without the necessity of a constitutional amendment. One statutory alternative entails bills incorporating the separate enrollment approach, which stipulate that each item of an appropriations bill be enrolled as a separate bill. Since 1985 such separate enrollment measures have been introduced repeatedly in the Senate. The Dole amendment to S. 4 in the 104 th Congress, as passed by the Senate in March 1995 ( S.Amdt. 347 ), incorporated the separate enrollment approach. In the 109 th Congress, H.R. 4889 likewise reflects this approach. Consideration of impoundment reform became increasingly joined with the idea of an item veto. During the Ford and Carter Administrations, the provisions of the ICA proved relatively noncontroversial. Dissatisfaction increased during the Reagan Administration. President Reagan, in his 1984 State of the Union message, specifically called for a constitutional amendment to grant item veto authority, which he considered to be a "powerful tool" while governor of California. In his last two budget messages, President Reagan included enhanced rescission authority among his budget process reform proposals. President George H. W. Bush also endorsed the idea of expanded rescission authority and an item veto for the President. During the 1992 campaign, then-Governor Bill Clinton advocated a presidential item veto, and he subsequently endorsed enhanced rescission authority. During the 2000 campaign George W. Bush went on record in support of expanded rescission authority, and as President, he has repeatedly called for some kind of item veto authority. Instead of granting true item veto authority to the President via a constitutional amendment, efforts came to focus on modifying the framework for congressional review of rescissions by the President. Legislative activity directed toward granting the President expanded rescission authority extended over several years. Such statutory alternatives sometimes have been referred to as giving the President a "line item veto"; while the nomenclature is not technically correct, it does call attention to some functional similarities. In examining impoundment reform legislation, the distinction often has been drawn between "enhanced" and "expedited" rescission proposals. With enhanced rescission, the intent is to reverse the "burden of action" and thereby create a presumption favoring the President. Such proposals usually stipulate that budget authority identified in a rescission message from the President is to be permanently canceled unless Congress acts to disapprove the request within a prescribed period. In contrast, the expedited rescission approach focuses on procedural changes in Congress to require an up or down vote on certain rescission requests from the President. Such measures contain expedited procedures to ensure prompt introduction of a measure to approve the rescission, fast report by committee or automatic discharge, special limits on floor amendments and debate, and so on. Under expedited rescission, congressional approval would still be necessary to cancel the funding, but it would become difficult to ignore proposed rescissions and hence to reject them by inaction. Some bills are "hybrids," reflecting a combination of item veto and rescission language and sometimes features of both expedited and enhanced approaches to rescission reform as well. H.R. 2 in the 104 th Congress (and ultimately, P.L. 104-130 ) represented such hybrids. Toward the end of the 102 nd Congress, H.R. 2164 , characterized by its supporters as a compromise rescission reform measure agreeable to most sponsors of the other measures as well, had over 220 cosponsors. For the first time an expanded rescission measure received favorable floor action, when H.R. 2164 gained House approval on October 3, 1992, by vote of 312-97. The measure would have established procedures for expedited congressional consideration of certain rescission proposals from the President submitted not later than three days after signing an appropriations act. Under the measure, the proposed rescission could not reduce a program below the budget level of the previous year or by more than 25% for new programs. Funds would have become available after a vote in Congress to reject the proposed rescission. Consideration of expanded rescission bills resumed in the 103 rd Congress. On two separate occasions, the House passed expedited rescission measures. Meanwhile, on March 25, 1993, the Senate adopted two sense of the Senate amendments relating to rescission reform as a part of the Budget Resolution for FY1994. The conference version retained a single sense of the Senate provision in this regard, stating the "President should be granted line-item veto authority over items of appropriations and tax expenditures" to expire at the end of the 103 rd Congress. H.Con.Res. 218 , the Budget Resolution for FY1995, as adopted in May 1994, also contained sense-of-the-House provisions regarding enactment of certain budget process legislation, including expedited rescission authority for the President. Action on an expanded rescission measure commenced early in the 104 th Congress. This reflected the results of the November midterm elections, which returned a Republican majority to both the House and Senate. On September 28, 1994, many House Republican Members and candidates signed the Republican Contract with America , which pledged action on a number of measures, including a "legislative line item veto," within the first 100 days, should a Republican majority be elected. Hearings began on January 12, 1995, when the Senate Committee on Governmental Affairs and the House Committee on Government Reform and Oversight held a joint hearing on H.R. 2 , to give the President legislative line item veto authority. On January 18, the Senate Budget Committee held a hearing on related measures ( S. 4 , S. 14 , and S. 206 ). The Senate Judiciary Subcommittee on the Constitution held a hearing on January 24 to consider constitutional amendment proposals. On January 25, the House Committee on Government Reform and Oversight ordered H.R. 2 reported, as amended, and the next day the House Rules Committee likewise reported a further amended version of H.R. 2 . House floor consideration of H.R. 2 commenced on February 2, 1995, on the version of H.R. 2 reported as an amendment in the nature of a substitute, with an open rule and over 30 amendments pending. The House debated the measure for three days during which time six amendments were approved and 11 amendments were rejected, along with a motion to recommit with instructions. On February 6, 1995, the House passed H.R. 2 , as amended, by vote of 294-134. The date of passage had special meaning, as it was the 84 th birthday of former President Ronald Reagan, long a supporter of an item veto for the President. On February 14, 1995, the Senate Budget Committee held markup on pending rescission measures. The committee ordered S. 4 , as amended, reported without recommendation, by vote of 12-10. S. 14 was also ordered reported without recommendation, with an amendment in the nature of a substitute further amended, by vote of 13-8. The committee failed to order reported proposed legislation to create a legislative item veto by requiring separate enrollment of items in appropriations bills and targeted tax benefits in revenue bills. On February 23, 1995, the Senate Governmental Affairs Committee held a hearing on S. 4 and S. 14 . There had been a joint hearing with the House Government Reform and Oversight Committee on January 12, but some Senators on the committee, including the ranking minority member, maintained that the additional hearing day was needed because they had been unable to attend in January, due to competing duties that day on the Senate floor. On March 2, 1995, the Governmental Affairs Committee held markup, with similar results as occurred in the Budget Committee: both bills were ordered reported without recommendation. S. 4 was ordered reported by voice vote; previously the Stevens amendment to the Glenn motion to report carried by vote of 9-6. During markup of S. 14 , the Pryor amendment to exempt budget authority for the operations of the Social Security Administration from expedited rescission was adopted by voice vote. S. 14 was then ordered reported by vote of 13-2. In the Senate, general debate on the subject of item veto began on March 16; it continued on March 17 and on March 20 until late in the afternoon, when floor consideration of S. 4 began. The Republican leaders in the Senate reportedly delayed consideration of legislative line item veto bills in hopes of developing a compromise measure that supporters of S. 4 and S. 14 could all embrace. The "Republican compromise" substitute appeared as Dole Amendment No. 347 on March 20; this substitute amendment incorporated the separate enrollment approach, which seeks to confer item veto authority by statutory means. During consideration of S. 4 on March 20, two perfecting amendments added by the Budget Committee were withdrawn; the provisions so deleted related to procedures for deficit reduction and to a sunset date for the enhanced rescission authority (both are still found in S. 14 ). Floor debate on S. 4 continued on March 21-23. Eight amendments were adopted by voice vote, including the Dole Amendment itself, providing for separate enrollment for presentation to the President of each item of any appropriation and authorization bill or resolution providing direct spending or targeted tax benefits. The Senate ultimately passed S. 4 , with the Dole Amendment in the nature of a substitute and additional amendments, on March 23, 1995, by vote of 69-29. The significant differences between the House-passed H.R. 2 (enhanced rescission approach), and the Senate-passed S. 4 (separate enrollment approach), needed to be resolved in conference. On May 17, 1995, the House passed S. 4 , after agreeing to strike all after the enacting clause of Senate-passed S. 4 and insert in lieu the language of the House-passed H.R. 2 . The Senate agreed to a conference and named eighteen conferees on June 20. On August 1, the Senate approved (83-14) a Dorgan Amendment to H.R. 1905 , FY1996 Energy and Water Appropriations, to express the sense of the Senate that the House Speaker should move immediately to appoint conferees on S. 4 . On September 7, 1995, the Speaker appointed eight House conferees, after a motion to instruct conferees to make the bill applicable to current and subsequent fiscal year appropriation measures was agreed to by voice vote. The conference committee held an initial meeting on September 27, 1995, at which opening statements were presented, and Representative Clinger was chosen as conference chairman. The Members present then instructed staff to explore alternatives for reconciling the two versions. On October 25, 1995, the House agreed to a motion to instruct the House conferees on S. 4 to insist upon the inclusion of provisions to require that the bill apply to the targeted tax benefit provisions of any revenue or reconciliation bill enacted into law during or after FY1995, by vote of 381-44. The conferees met again on November 8, 1996, at which time the House Republicans on the committee offered a compromise package. Some key elements included accepting the House approach of enhanced rescission, using the Senate definition of "item" for possible veto, using compromise language approved by the Joint Committee on Taxation for defining "targeted tax benefits," including new direct spending, accepting Senate "lockbox" language (designed to ensure that any savings from cancellations could be used only for deficit reduction), and dropping the Senate sunset proposal. In his State of the Union message on January 23, 1996, President Clinton urged Congress to complete action on a line item veto measure, stating "I also appeal to Congress to pass the line item veto you promised the American people," but negotiations apparently remained stalled. Following return from the congressional recess in February, the pace of conference activity appeared to pick up considerably. On March 14, 1996, Republican negotiators on the conference committee reported that they had reached agreement on a compromise version of S. 4 , and the conference report was filed on March 21, 1996. Although there was no public conference meeting for approval, the Republican negotiators obtained the signatures of a majority of conferees, thus readying the conference report for final action. The conference substitute reflected compromise between the House and Senate versions, although the enhanced rescission approach of H.R. 2 rather than the separate enrollment framework of S. 4 was chosen. As in the November compromise package, new direct spending and certain targeted tax benefits were subject to the new authority of the President as well as items of discretionary spending in appropriation laws. The measure was to take effect on January 1, 1997, absent an earlier balanced budget agreement, and would terminate on January 1, 2005. The Senate approved the conference substitute on March 27, 1996, by vote of 69-31, and the House followed suit on March 28, 1996, by vote of 232-177. President Clinton signed S. 4 on April 9, 1996. The Line Item Veto Act of 1996 (LIVA) amended the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ), to give the President "enhanced rescission authority" to cancel certain items in appropriations and entitlement measures and also certain narrowly applicable tax breaks. The act authorized the President to cancel in whole any dollar amount of discretionary budget authority (appropriations), any item of new direct spending (entitlement), or limited tax benefits with specified characteristics, contained in a bill otherwise signed into law. The cancellation was to take effect upon receipt in the House and Senate of a special notification message. "Cancellation" in this context meant to prevent from having legal force; in other words, provisions canceled never were to become effective unless Congress reversed the action of the President by enacting a "disapproval bill." The President was only to exercise the cancellation authority if he determined that such cancellation would reduce the federal budget deficit and would not impair essential government functions or harm the national interest; and then notified the Congress in a special message of any such cancellation within five calendar days after enactment of the law providing such amount, item, or benefit. The act provided 30 days for the expedited congressional consideration of disapproval bills to reverse the cancellations contained in the special messages received from the President. Detailed provisions for expedited consideration of the disapproval bill in the House and Senate were outlined. The LIVA also contained a "lockbox" procedure to help ensure that any savings from cancellations go toward deficit reduction. This was to be accomplished by binding the new procedures to existing requirements relating to discretionary spending limits and the PAYGO requirements of the Budget Enforcement Act of 1990. To facilitate judicial review, the act provided for (1) expedited review by the U.S. District Court for the District of Columbia of an action brought by a Member of Congress or an adversely affected individual on the ground that any provision of this act violates the Constitution; (2) review of an order of such Court by appeal directly to the Supreme Court; and (3) expedited disposition of such matter by the Supreme Court. The act became effective on January 1, 1997. During 1997, the first year with the Line Item Veto Act in effect, several noteworthy developments involved judicial challenges and the first use of the new authority by President Clinton. In Congress, disapproval bills to overturn the cancellations by the President were introduced, along with alternative measures for providing the President with expanded rescission authority, bills to repeal the Line Item Veto Act, and even a bill to correct an apparent "loophole" in the original Act. In 1998, there were additional court challenges, with the Supreme Court eventually striking down the new law as unconstitutional. On April 9, 1996 (the same day the Line Item Veto Act was signed by President Clinton), the National Treasury Employees Union et al. filed a complaint for declaratory and injunctive relief, challenging the constitutionality of the new law in the U.S. District Court for the District of Columbia (Civil Action No. 96-624). Only individuals "adversely affected" by the expanded presidential authority, or Members of Congress, can bring action under the "expedited judicial review" provision in the law. On July 3, 1996, a federal judge dismissed the case, ruling that the union's claims were "too speculative and remote" to provide legal standing under the law. On January 2, 1997, the day after the Line Item Veto Act went into effect, another suit challenging its constitutionality was filed in the same court (referred to as Byrd v. Raines ). The plaintiffs, led by Senator Robert Byrd, now included six Members of Congress: Senators Byrd, Mark Hatfield, Daniel Moynihan, and Carl Levin, and Representatives David Skaggs and Henry Waxman. Office of Management and Budget Director Franklin Raines and Secretary of the Treasury Robert Rubin were named as defendants, because of their responsibilities for implementing key aspects of the law. The plaintiffs contended that the act violated the constitutional requirements of bicameral passage and presentment "by granting to the President, acting alone, the authority to 'cancel' and thus repeal provisions of federal law." On January 22, 1997, the Senate by unanimous consent agreed to S.Res. 21 to direct the Senate Legal Counsel to appear as amicus curiae (friend of the court) in the name of the Senate in the Byrd v. Raines case. During debate on S.Res. 21 , Majority Leader Trent Lott noted that Title VII of the Ethics in Government Act authorized such action by the Senate in any legal action "in which the powers and responsibilities of the Congress under the Constitution are placed in issue." On March 21, 1997, U.S. District Court Judge Thomas Penfield Jackson heard oral arguments in the case of Byrd v. Raines . Less than three weeks later, on April 10, Judge Jackson ruled that the Line Item Veto Act was unconstitutional because it violated provisions of the Presentment Clause in the Constitution (Article I, Section 7, Cl. 2). His ruling found that compared with permissible delegations in the past, the Line Item Veto Act, "hands off to the President authority over fundamental legislative choices." In so doing, "Congress has turned the constitutional division of responsibilities for legislating on its head." As already noted, the Line Item Veto Act provided for expedited judicial review, allowing for appeal of a district court decision directly to the Supreme Court. Such a request was filed, and on April 23, 1997, the Supreme Court agreed to an accelerated hearing. The Court heard oral arguments on May 27 and announced its decision in Raines v. Byrd on June 26, 1997. In a 7-2 decision, the Court held that the Members of Congress challenging the law lacked legal standing, so the judgment of the lower court (finding the act unconstitutional) was put aside and the Line Item Veto Act remained in force. However, the Supreme Court confined its decision to the technical issue of jurisdiction and refrained from considering the underlying merits of the case (i.e., whether the Line Item Veto Act was unconstitutional). On August 11, 1997, President Clinton exercised his new veto authority for the first time by transmitting two special messages to Congress, reporting his cancellation of two limited tax benefit provisions in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ), and one item of direct spending in the Balanced Budget Act of 1997 ( P.L. 105-33 ). Both measures had been signed into law on August 5, 1997. The law provided a period of 30 calendar days of session after receipt of a special message (only days when both the House and Senate are in session count) for Congress to consider a disapproval bill under expedited procedures. Upon reconvening in early September, Congress responded quickly to the President's cancellations, with the introduction of four disapproval bills. S. 1144 and H.R. 2436 sought to disapprove the cancellation of the direct spending provision in P.L. 105-33 , transmitted by the President on August 11, 1997, and numbered 97-3, regarding Medicaid funding in New York. S. 1157 and H.R. 2444 sought to disapprove the cancellations of two limited tax benefit provisions in P.L. 105-34 , transmitted by the President on August 11, 1997, and numbered 97-1 and 97-2. The first provision dealt with income sheltering in foreign countries by financial services companies, and the second involved tax deferrals on gains from the sales of agricultural processing facilities to farmer cooperatives. A compromise was apparently reached between the White House and congressional leaders on the canceled tax benefit provisions; on November 8, 1997, the disapproval bill ( H.R. 2444 ) was tabled in the House, and no further action occurred on S. 1157 . On October 6, 1997, President Clinton exercised the new authority to veto items in appropriations bills by cancelling 38 projects contained in the FY1998 Military Construction Appropriations Act ( P.L. 105-45 ). On October 24, the Senate Appropriations Committee approved S. 1292 , with an amendment to exclude two more of the projects from the disapproval bill, reflecting the wishes of Senators from the states involved; there was no written report. On October 30, the Senate passed S. 1292 , after the committee amendment was withdrawn, disapproving 36 of the 38 cancellations, by vote of 69-30. On November 8, 1997, the House passed its version of the disapproval bill, H.R. 2631 (covering all 38 of the cancellations originally in the President's message), by vote of 352-64. On November 9, the Senate passed H.R. 2631 by unanimous consent, precluding the need for conference action, and clearing the disapproval measure for the President. On November 13, 1997, the President vetoed H.R. 2631 , the first disapproval bill to reach his desk under the provisions of the 1996 law. The House voted to override on February 5, 1998 (347-69), and the Senate did likewise on February 25, 1998 (78-20); therefore, the disapproval bill was enacted over the President's veto ( P.L. 105-159 ). (Cancellations under the Line Item Veto Act became effective on the date the special message from the President was received by the House and Senate, but the cancellations became null and void if a disapproval bill was enacted.) On October 14, 1997, President Clinton vetoed 13 projects in the Department of Defense Appropriations. On October 16, 1997, he used the cancellation authority on a provision in the Treasury and General Government Appropriations relating to pension systems for federal employees. On October 17, 1997, the President applied his veto to eight more projects, this time in the Energy and Water Appropriations Act. On November 1, 1997, President Clinton exercised his line-item veto authority in two appropriations acts, canceling seven projects in the VA/HUD measure and three projects in the Transportation Act. On November 20, 1997, the President canceled two projects from Interior and five from the Agriculture Appropriations Act. On December 2, 1997, President Clinton exercised his line-item veto authority for a final time in one of the 13 annual appropriations acts for FY1998, canceling a project in the Commerce-Justice-State measure. This action brought the total of special messages in 1997 to 11, and the total cancellations under the new law to 82 . Once the President used the new authority, other cases were expected to be brought by parties who could more easily establish standing, having suffered ill effects directly as a result of the cancellations. On October 16, 1997, two separate cases challenging the Line Item Veto Act were initiated. A complaint was filed by the City of New York and other interested parties seeking to overturn the cancellation of the new direct spending provision affecting Medicaid funding in the Balanced Budget Act in the U.S. District Court for the District of Columbia (case number 1:97CV02393). On the same day, the National Treasury Employees Union (who had brought the first suit challenging the new law in the spring of 1996, even before it became effective), filed another suit in district court, seeking to overturn the veto of the federal pension provision in the Treasury Appropriations Act (case number 1:97CV02399). On October 21, 1997, a third case, seeking to overturn the cancellation of the limited tax benefit affecting farm cooperatives, was filed in the district court by Snake River Potato Growers, Inc. (case number 1:97CV02463). On October 24, 1997, the cases of the three suits challenging the Line Item Veto Act, were combined, placed in the random assignment pool, and ultimately reassigned to Judge Thomas Hogan. On October 28, 1997, NTEU filed an amended complaint, challenging the specific application of the cancellation authority (as well as the constitutionality of the law). A hearing on the consolidated case was set for January 14, 1998. Meanwhile, on December 19, 1997, the Clinton Administration conceded that the President's cancellation in October of the federal pension provision exceeded the authority conveyed in the Line Item Veto Act. On January 6, 1998, Judge Hogan approved a negotiated settlement in the suit between the Justice Department and the National Treasury Employees Union and ordered that the previously canceled pension provision for an open season to switch pension plans be reinstated. The order found that the President lacked authority to make this cancellation, and so it was "invalid and without legal force and effect." The NTEU's constitutional challenge was declared moot, but oral arguments for the two remaining parties in the consolidated case challenging the law's constitutionality were to proceed. On January 14, 1998, there was a three-hour hearing before Judge Hogan. Arguments were presented by attorneys for the Idaho potato farmers group and for New York City and co-plaintiffs in the cases involving cancellations by the President in August, 1997, of a limited tax benefit provision and an item of new direct spending (affecting Medicaid funding). Judge Hogan on February 12, 1998, issued his ruling, which held the Line Item Veto Act unconstitutional, because it "violates the procedural requirements ordained in Article I of the United States Constitution and impermissibly upsets the balance of powers so carefully prescribed by its Framers." On February 20, 1998, the Justice Department appealed that decision to the Supreme Court, and on February 27, 1998, the Supreme Court agreed to review the case. The Supreme Court heard oral arguments in the case of Clinton v. New York City on April 27, 1998. Both sides conceded that a true item veto, allowing the President to sign some provisions and veto others when presented a piece of legislation, would be unconstitutional. The Solicitor General sought to distinguish the President's cancellation of provisions under the Line Item Veto Act from a formal repeal of the provisions, but several of the Justices seemed skeptical. Another key argument concerned the matter of delegation and whether the act conveys so much authority to the President as to violate the separation of powers. The issue of standing for the two groups of plaintiffs combined in the case also was examined. On June 25, 1998, the Court rendered its decision, holding the Line Item Veto Act unconstitutional, because its cancellation provisions were in violation of procedures set forth in the Constitution's presentment clause found in Article I, section 7. In the immediate aftermath of the Supreme Court decision there was some uncertainly regarding how funding for projects canceled under the now unconstitutional law could be restored. In the view of some, OMB might not be required to fund projects eliminated from appropriations acts, because the cancellations in the consolidated case brought before the Supreme Court only involved limited tax benefit and direct spending provisions. Some suggested that each affected party might have to sue, as did New York City in the case decided by the Supreme Court. Although it was widely expected that funding for projects not explicitly covered by the Supreme Court decision would be restored, three weeks passed before the Justice Department and OMB determined officially that the funds were to be released. On July 17, 1998, OMB announced that funds for the remaining cancellations (those not overturned by previous litigation or the disapproval bill covering the Military Construction appropriations) would be made available. After the President exercised the new authority to cancel items in appropriations acts, bills were introduced to repeal the Line Item Veto Act. On October 9, 1997, such a bill was introduced by Representative Skaggs ( H.R. 2650 , 105 th Congress), and on October 24, 1997, a similar bill was introduced by Senators Byrd and Moynihan ( S. 1319 , 105 th Congress). Shortly after the district court decision in April 1997, expanded rescission measures were reintroduced in the 105 th Congress. On April 15, 1997, H.R. 1321 , an expedited rescission measure similar to that passed by the House in the 103 rd Congress, was introduced, and on the following day, S. 592 , a separate enrollment measure identical to S. 4 as passed by the Senate in the 104 th Congress, was introduced. Joint resolutions proposing an item veto constitutional amendment were also introduced. Another bill introduced in the fall of 1997, H.R. 2649 , combined the features of H.R. 2650 (repealing the line-item veto) and H.R. 1321 (establishing a framework for expedited rescission). On March 11, 1998, the House Rules Subcommittee on Legislative and Budget Process began two days of hearings on the Line Item Veto Act. Although the principal focus of the hearing was on the operation of the act during its first year, there was some consideration of possible alternatives should the law be found unconstitutional by the Supreme Court. On June 25, 1998, the same day the Supreme Court held the Line Item Veto Act unconstitutional, three more bills were introduced. Two new versions of expedited rescission (similar but not identical measures), seeking to apply expedited procedures to targeted tax benefits as well as to rescissions of funding in appropriations measures, were introduced as H.R. 4174 and S. 2220 (105 th Congress). A modified version of separate enrollment, applicable to authorizing legislation containing new direct spending, as well as to appropriations measures, was introduced as S. 2221 . Upon convening of the 106 th Congress in January 1999, measures were again introduced to propose constitutional amendments giving the President line-item veto authority ( H.J.Res. 9 , H.J.Res. 20 , H.J.Res. 30 , and S.J.Res. 31 ), and to provide alternative statutory means for conveying expanded impoundment authority to the President ( S. 100 and S. 139 ). Subsequently, two expedited rescission bills were introduced in the House ( H.R. 3442 and H.R. 3523 ). On July 30, 1999, the House Rules Subcommittee on the Legislative and Budget Process held a hearing to address the subject, "The Rescissions Process after the Line Item Veto: Tools for Controlling Spending." Testimony was received from the Office of Management and Budget, the Congressional Budget Office, and the General Accounting Office, as well as from a panel of academic experts. On March 23, 2000, the House Judiciary Subcommittee on the Constitution held a hearing to consider measures proposing a constitutional amendment for an item veto. Two Members testified in support of H.J.Res. 9 . A second panel, consisting of seven outside witnesses, provided various viewpoints. During the presidential election campaign in 2000, the topic of expanded rescission authority for the President received some attention, with both candidates on record in support of such legislation. In his budget message transmitted to Congress on February 28, 2001, President George W. Bush endorsed several budget process reforms, including a call to "restore the President's line item veto authority." In the subsequent discussion, the document suggested that the constitutional flaw in the Line Item Veto Act of 1996 might be corrected by linking the line-item veto to retiring the national debt. On April 9, 2001, President Bush transmitted to Congress a more detailed budget for FY2002, without further mention of the line-item veto proposal. In his budget submission for FY2003, sent to Congress on February 4, 2002, President Bush again endorsed various proposals for reform of the budget process, including another try at crafting a line-item veto that could pass constitutional muster. As described therein, the President's proposal would restore authority exercised by Presidents prior to 1974 (and the restrictions imposed by the ICA). Specifically, the proposal "would give the President the authority to decline to spend new appropriations, to decline to approve new mandatory spending, or to decline to grant new limited tax benefits (to 100 or fewer beneficiaries) whenever the President determines the spending or tax benefits are not essential Government functions, and will not harm the national interest." In the 107 th Congress, two measures proposing an item veto constitutional amendment were introduced. H.J.Res. 23 sought to allow the President to disapprove any item of appropriation in any bill. H.J.Res. 24 sought to allow the President to decline to approve (i.e., to item veto) any entire dollar amount of discretionary budget authority, any item of new direct spending, or any limited tax benefit. On March 28, 2001, during House consideration of H.Con.Res. 83 (FY2002 budget resolution), a substitute endorsed by Blue Dog Coalition was offered, which contained a sense of the Congress provision calling for modified line-item veto authority to require Congressional votes on rescissions submitted by the President; the amendment was rejected 204-221. On October 9, 2002, the Congressional Budget Office estimated a total federal budget deficit of about $157 billion for FY2002, reflecting the largest percentage drop in revenues in over 50 years and the largest percentage growth in spending on programs and activities in 20 years. Some hoped that the worsening deficit picture might stimulate renewed interest in mechanisms thought conducive to spending control, such as a line-item veto or expanded impoundment authority for the President. In his budget submission for FY2004, President Bush repeated his request for legislation to provide him with a "constitutional line-item veto" to use on "special interest spending items." While discussion the previous year had called for applying savings to debt reduction, the explanation now suggested that all savings from the line-item veto would be designated for deficit reduction. Early in the 108 th Congress, H.R. 180 , an omnibus budget reform measure, was introduced, containing provisions for expedited procedures for congressional action on proposals from the President to rescind budget authority identified as "wasteful spending" (Section 252). On April 11, 2003, during remarks on a forthcoming supplemental appropriations conference report, the ranking member of the Appropriations Committee offered his observations on the demise of the Line Item Veto Act of 1996. On June 16, 2003, H.J.Res. 60 , proposing a constitutional amendment to authorize the line-item veto, was introduced by Representative Andrews. On November 19, 2003, S.J.Res. 25 , proposing a constitutional amendment and reading, in part, "Congress shall have the power to enact a line-item veto," was introduced by Senator Dole. In his budget submission for FY2005, transmitted February 2, 2004, President Bush again called for legislation to provide him with a "constitutional line-item veto" linked to deficit reduction. According to the explanation provided, such a device is needed to deal with spending or tax provisions benefitting "a relative few which would not likely become law if not attached to other bills." The line-item veto envisioned would give the President authority "to reject new appropriations, new mandatory spending, or limited grants of tax benefits (to 100 or fewer beneficiaries) whenever the President determines the spending or tax benefits are not essential Government priorities." All savings resulting from the exercise of such vetoes would go to reducing the deficit. In the second session of the 108 th Congress, additional budget reform measures were introduced with provisions that would have granted expedited rescission authority to the President. The budget resolution for FY2005 ( S.Con.Res. 95 ), as approved by the Senate on March 11, 2004, contained several Sense of the Senate provisions in Title V. Section 501, relating to budget process reform, called for enactment of legislation to restrain government spending, including such possible mechanisms as enhanced rescission or constitutional line-item veto authority for the President. A bill in the 108 th Congress, H.R. 3800 , the Family Budget Protection Act of 2004, contained expedited rescission provisions in Section 311; and H.R. 3925 , the Deficit Control Act of 2004, included such provisions in Section 301. On June 16, 2004, an editorial in the Wall Street Journal endorsed H.R. 3800 , offering special praise for its expedited rescission provisions: "Presidents would have the power of rescission on line items deemed wasteful, which would then be sent back to Congress for an expedited override vote." Further, the editorial stated, the procedures would preserve Congress's power of the purse, and might also provide "a deterrent effect on the porkers." On June 24, 2004, provisions from H.R. 3800 were offered as a series of floor amendments during House consideration of H.R. 4663 , the Spending Control Act of 2004. An amendment that sought to initiate expedited rescission for the President to propose the elimination of wasteful spending identified in appropriations bills was rejected by a recorded vote of 174-237. On August 3, 2004, the Kerry-Edwards [Democratic Party] plan "to keep spending in check while investing in priorities and cutting wasteful spending" was released. Included in the presidential campaign document was a proposal for expedited rescission authority, whereby the President could sign a bill and then send back to Congress a list of specific spending items and tax expenditures of which he disapproved, for an expedited, up-or-down vote. President Bush reiterated his support for restoring presidential line item veto authority in his speech to the Republican national convention on September 2, 2004. At his first post-election news conference, on November 4, 2004, in response to a question about reducing the deficit, he stated, in part, that the president needed a line item that "passed constitutional muster," in order "to maintain budget discipline." At a press conference on December 20, 2004, the President again called for line item veto authority, responding that he had not yet vetoed any appropriations bills, because Congress had followed up on his requested budget targets; but further observing, "Now I think the president ought to have the line item veto because within the appropriations bills there may be differences of opinion [between the executive branch and Congress] on how the money is spent." On January 31, 2006, in his State of the Union address, President Bush reiterated his request for line-item veto authority, noting: "And we can tackle this problem [of too many special-interest "earmark" projects] together, if you pass the line-item veto." In his budget submission for FY2006, transmitted February 7, 2005, President Bush called for a "line item veto linked to deficit reduction." On March 6, 2006, President Bush sent a draft bill titled the Legislative Line Item Veto Act of 2006 to Congress, and the measure was introduced the next day ( see H.R. 4890 and S. 2381 below ). Title notwithstanding, the bills sought to amend the Impoundment Control Act of 1974 (ICA) to incorporate a typical expedited rescission framework, intended through procedural provisions to require an up-or-down vote on presidential requests to cancel certain previously enacted spending or tax provisions. Since congressional approval would remain necessary for the rescissions to become permanent, expedited rescission is generally viewed as a weaker tool than an item veto. H.R. 4890 and S. 2381 , as introduced, also contained rather novel provisions authorizing the President to withhold funds proposed for rescission or to suspend execution of items of direct spending for up to 180 days. These provisions arguably might sanction the return of policy deferrals, originally provided for in the ICA, subject to a one-house veto, but invalidated by the Chadha and New Haven decisions, as well as the statutory provisions in P.L. 100-119 . On March 15, 2006, the House Rules Subcommittee on the Legislative and Budget Process held a hearing on H.R. 4890 . Testimony was received from Representative Paul Ryan, sponsor of H.R. 4890 , and from Representative Jerry Lewis, chairman of the House Appropriations Committee. The Deputy Director of OMB and the Acting Director of CBO also appeared before the subcommittee. On April 27, 2006, the House Judiciary Subcommittee on the Constitution held a hearing on the line item veto and received testimony from Representatives Paul Ryan and Mark Kennedy; and from two attorneys, Charles J. Cooper in private practice, and Cristina Martin Firvida of the National Women's Law Center. On May 2, the Senate Budget Committee held a hearing on S. 2381 ; witnesses included Senator Robert Byrd, Austin Smythe from OMB, Donald Marron from CBO, [author name scrubbed] from the Library of Congress, and attorney Charles J. Cooper. The House Budget Committee held two hearings on H.R. 4890 , on May 25 and June 8, 2006. The first day focused on "Line-Item Veto: Perspectives on Applications and Effects" and featured four witnesses representing private sector groups, including a former Member and two former congressional aides. The second hearing concentrated on constitutional issues, with testimony received from Charles Cooper, [author name scrubbed], and Professor Viet D. Dinh from the Georgetown University Law Center. On June 14, the House Budget Committee held markup of H.R. 4890 . Representative Paul Ryan offered a substitute amendment, which was further amended. An amendment offered by Representative Cuellar to add a sunset provision, whereby the act would expire after six years, was approved by voice vote. Also successful was an amendment offered by Representative Neal, as further amended by Representative McCotter, expressing the sense of Congress regarding possible abuse of proposed cancellation authority: no President or other executive official should make any decision for inclusion or exclusion of items in a special message contingent upon a Members' vote in Congress. The Ryan substitute, as amended, was adopted by voice vote. The Committee then voted 24-10 to report the bill favorably. Several amendments offered by minority Members were rejected, generally with a straight party-line vote. Democrats sought to exempt future changes in Social Security, Medicare, and veterans' entitlement programs from possible cancellations under the LLIVA. Democrats also attempted unsuccessfully to restore pay-as-you-go budget rules, to strengthen requirements for earmark disclosures, and to facilitate enforcement of the three-day lay-over rule for appropriations bills before floor votes. On June 15, the House Rules Committee met to markup H.R. 4890 and voted 8-4 to approve a substitute amendment containing the same version as approved by the Budget Committee. Several changes in the substitute version addressed concerns with the bill as introduced. For example, in response to concern expressed over a return to policy deferrals by allowing the President to withhold spending for up to 180 calendar days, the substitute would allow the President to withhold funds for a maximum of 90 calendars days (an initial 45-day period, which could be extended for another 45 days). Submission of special rescission or cancellation messages by the President would occur only within 45 days of enactment of the measure, and the President would be limited to submission of five special messages for each regular act and 10 messages for an omnibus measure. Submission of duplicative proposals in separate messages would be prohibited. On the other hand, some changes in the substitute version approved by the Budget and Rules Committees, and subsequently by the full House, arguably might be subject to additional critiques. The substitute narrowed the definition of a targeted tax benefit to a revenue-losing measure affecting a single beneficiary, with the chairs of the Ways and Means and Finance Committees to identify such provisions. The definition in H.R. 4890 as introduced referred to revenue-losing measures affecting 100 or fewer beneficiaries, as did the Line Item Veto Act of 1996. The bill as introduced, however, would have allowed the President to identify the provisions by default, whereas the 1996 law assigned the duty to the Joint Committee on Taxation. Supporters of the substitute version suggested that it would treat targeted tax benefits comparably to earmarks in appropriations bills. Critics countered that the new definition was too narrow, and that few tax benefits would be subject to cancellation. On June 21, the House Rules Committee voted to report H.Res. 886 , providing for the consideration of H.R. 4890 , as amended, favorably by a nonrecord vote. A manager's amendment offered by Representative Paul Ryan was adopted as a part of the rule for debate. In response to concerns raised by the Transportation and Infrastructure Committee, the amendment added clarifying language that any amounts cancelled which came from a trust fund or special fund would be returned to the funds from which they were originally derived, rather than revert to the General Fund. The following day the House took up H.R. 4890 , approved the rule ( H.Res. 886 ) by vote of 228-196, and passed the measure by vote of 247-172. A motion by Representative Spratt to recommit H.R. 4890 to the Budget Committee with instructions to report it back to the House with an amendment was rejected by vote of 170-249. Meanwhile, on June 20, 2006, the Senate Budget Committee marked up S. 3521 , the Stop Over Spending Act of 2006, an omnibus budget reform measure containing provisions for expedited rescission in Title I. Minority amendments to exclude Medicare, Social Security, and Veterans' Health Programs from possible rescissions were rejected 10-12 on party-line votes. A manager's amendment was adopted by voice vote, which among other things would prohibit the resubmission of items of direct spending or targeted tax benefits previously rejected by Congress, but would allow the President to resubmit proposed cancellations if Congress failed to complete action on them due to adjournment. Whereupon the committee voted 12-10 to report S. 3521 , as amended, favorably. The report to accompany S. 3521 was filed on July 14, 2006. On June 27, 2006, the President met with some Senators at the White House to discuss the Legislative Line Item Veto bill, and he subsequently urged that the Senate act quickly to approve such a measure. Despite the White House lobbying effort, press accounts questioned the likelihood of further Senate action in the 109 th Congress. As reported in a story on July 20, 2006, "Senate Budget Chairman Judd Gregg, R-NH, all but pronounced the White House's item veto proposal dead for the year, telling reporters that the Bush Administration had not worked aggressively enough to round up the votes." According to a similar story appearing the same day: Senate Budget Chairman Judd Gregg, R-NH, conceded this week that his budget overhaul package ( S. 3521 ), which includes a sunset commission, line-item rescission authority and other budget enforcement measures has little chance of passage. Supporters have been unable to overcome Democratic opposition and a reluctance among some Republicans to address it in an election year. In addition to the alternative of possible action on S. 3521 , the Senate could have chosen to consider a stand alone item veto measure, such as H.R. 4890 , as passed by the House, or S. 2381 . A news story published shortly before Congress departed for the August recess suggested that the issue remained an open question: "Senate Majority Leader Bill Frist, R-TN, has made no decisions about timing or which [line item rescission measure] to bring up, and is taking a wait-and-see approach to the White House lobbying effort." None of these bills, however, saw floor action in the Senate before the 109 th Congress adjourned. H.R. 4890 (Paul Ryan)/ S. 2381 (Frist) . Legislative Line Item Veto Act of 2006. Amends the ICA of 1974 to provide for expedited consideration of certain rescissions of budget authority or cancellation of targeted tax benefits proposed by the President in special messages. Requires any rescinded discretionary budget authority or items of direct spending to be dedicated to deficit reduction. Grants the President authority to withhold funds proposed for rescission or to suspend execution of direct spending and targeted tax benefits. Both bills introduced on March 7, 2006. H.R. 4890 referred jointly to Committees on Budget and on Rules; S. 2381 referred to Budget Committee. Reported favorably, as amended, by House Budget Committee on June 16 ( H.Rept. 109-505 Part 1), and by Rules Committee on June 19, 2006 ( H.Rept. 109-505 Part 2). Passed House, as amended, by vote of 247-172 on June 22, 2006. S. 3521 (Gregg) . Stop Over Spending Act of 2006. An omnibus budget reform bill. Title I, the Legislative Line Item Veto Act, amends the ICA of 1974 to provide for expedited consideration of certain rescissions of budget authority or cancellation of targeted tax benefits proposed by the President. Introduced on June 15, 2006; referred to the Budget Committee. Committee voted 21-10 to report bill, as amended, favorably on June 20, 2006. The report was filed on July 14, 2006 ( S.Rept. 109-283 ). Early in the 110 th Congress, line item veto measures received Senate floor consideration. On January 10, 2007, Senator Judd Gregg introduced "The Second Look at Wasteful Spending Act of 2007" as an amendment ( S.Amdt. 17 to S.Amdt. 3 to S. 1 ) to the Legislative Transparency and Accountability Act of 2007, an ethics and lobbying reform bill. According to Senator Gregg, the language in S.Amdt. 17 was similar to the expedited rescission provisions contained in a Democratic amendment, known as the Daschle substitute, offered in 1995 during Senate consideration of the Line Item Veto Act of 1996. The Bush Administration went on record in support of S.Amdt. 17 : "The Administration strongly supports Senator Gregg's legislative line item veto amendment—an initiative that is consistent with the President's goals." S.Amdt. 17 would have provided for expedited consideration of certain rescissions of discretionary or new mandatory spending or cancellation of targeted tax benefits proposed in special messages from the President. The President could submit up to four rescission packages a year (once with the Budget and three other times at the President's choosing). The President could withhold funding contained in a special message for up to 45 days. The new authority would expire in four years. At one point, it appeared that the ethics and lobbying reform measure might become stalled, with the minority leader insisting on a vote on the Gregg amendment before proceeding to final action on S. 1 . An agreement was worked out, however, between the majority leader and the minority leader, with a promise of a vote on the line item veto amendment during debate on the minimum wage bill ( H.R. 2 ) the following week. On January 18, 2007, S.Amdt. 17 was withdrawn, and S. 1 passed by vote of 96-2. In accordance with the leadership agreement, Senator Gregg filed another amendment ( S.Amdt. 101 to H.R. 2 ) on January 22, 2007, and two hours of floor debate on the line item veto measure ensued. Senator Gregg noted "one major change" in provisions from the previous S.Amdt. 17 incorporated into S.Amdt. 101 : addition of the right to strike. During consideration of a rescission package proposed by the President, a Senator, with the support of 11 others, could move to strike one or more of the rescissions included in the bill; in other words, Congress could amend the President's proposal by deleting selected items. Senator Gregg suggested that this change brought S.Amdt. 101 even more in line with the Daschle substitute in 1995. He also observed that several of the 20 cosponsors of the previous Daschle amendment were still in the Senate. Senator Kent Conrad, chair of the Budget Committee, suggested that the two amendments differed in important respects. The Gregg amendment would have allowed the President to propose rescinding items of new direct spending in programs such as Medicare, whereas the Daschle amendment did not cover such mandatory spending. The Gregg amendment would have permitted the President to propose rescissions from multiple bills in one rescission package whereas the Daschle amendment would have required that a presidential rescission package cover just one bill. According to Senator Conrad, this latter arrangement would give the President less leverage over an individual member. Debate on S.Amdt. 101 resumed on January 24, 2007. A vote to invoke cloture on the line item veto amendment failed to attain the necessary 60 votes (49-48). The amendment was subsequently set aside, and formally withdrawn on January 31. In his budget submission for FY2008 transmitted on February 5, 2007, President Bush once again called for enactment of a line item veto mechanism, such as the Administration's proposal from March 2006, that "would withstand constitutional challenge." Expedited rescission bills were also introduced in the House in the 110 th Congress (see below ). On the same day as the cloture motion on the Gregg line item veto proposal failed in the Senate, Representative Paul Ryan, ranking Republican on the House Budget Committee, along with 83 cosponsors, introduced H.R. 689 , the Legislative Line Item Veto Act of 2007. H.R. 689 was nearly identical to H.R. 4890 as passed by the House in the 109 th Congress. On April 23, 2007, companion bills titled the Congressional Accountability and Line-Item Veto Act were introduced as H.R. 1998 by Representative Paul Ryan, and as S. 1186 by Senator Russell Feingold. In his introductory remarks, Senator Feingold sought to differentiate this measure from previous bills, noting the following: There have been a number of so-called line-item veto proposals offered in the past several years. But the measure Congressman Ryan and I propose today is unique in that it specifically targets the very items that every line-item veto proponent cites when promoting a particular measure, namely earmarks. When President Bush asked for this kind of authority, the examples he gave when citing wasteful spending he wanted to target were congressional earmarks. The universe of items subject to rescission or cancellation by the President in S. 1186 showed noteworthy differences from those contained in the 109 th Congress bills, as passed by the House ( H.R. 4890 ) and reported in the Senate ( S. 3521 , Title I). Instead of allowing the President to propose rescission of any amount of discretionary spending in appropriations acts, et al. (as did the 109 th bills), in H.R. 1998 / S. 1186 the newly expedited rescission authority would have only applied to "congressional earmarks" (as defined in the bill). The provisions regarding the cancellation of limited tax benefits seen in H.R. 1998 / S. 1186 reflected language both from the House-passed bill (chairmen of Ways and Means and Finance Committees to identify them) and Senate-reported version (applicable to any revenue-losing provisions affecting a single or limited group). Most significantly, perhaps, under H.R. 1998 / S. 1186 , the expedited rescission authority would have covered no mandatory spending, but in a departure from provisions in the bills receiving action in the109 th Congress, would have applied to limited tariff benefits. The 110 th Congress bills, H.R. 1998 and S. 1186 , had some provisions similar to those seen in one or more bills from the 109 th Congress. For example, language in H.R. 1998 / S. 1186 regarding the relationship with the ICA paralleled that in the House-passed version of H.R. 4890 , 109 th Congress, as did the language regarding seriatim rescissions, abuse of the proposed cancellation authority, and using any savings for deficit reduction. The expedited congressional procedures in the 109 th , compared with the 110 th , bills are virtually the same. In most cases, when provisions in H.R. 1998 / S. 1186 differed from those in the 109 th Congress bills, the new features served to further confine the boundaries of the additional rescission authority to be granted the President. The deadline for submission of special rescissions or cancellation messages under H.R. 1998 / S. 1186 would have been within 30 days of enactment, compared to 45 days in the House-passed bill in the 109 th Congress and one year in the Senate-reported bill ( S. 3521 , Title I). In a similar manner, S. 1186 would have set a limit of one special message for each act, except for an omnibus budget reconciliation or appropriations measure when two special messages would have been allowed. On the other hand, stipulations regarding deferrals (withholding of spending) by the President in S. 1186 appeared to be less restrictive than those found in the House-passed and Senate-reported versions in the 109 th Congress. Both H.R. 4890 as passed by the House and S. 3521 as reported, allowed withholding for a period not to exceed 45 calendar days. S. 1186 would have permitted the President to withhold funding for designated earmarks or suspend execution of limited tax or tariff benefits for a period of 45 calendar days of continuous session. In addition, S. 1186 would have allowed the extension of the withholding for another 45-day period if the President submitted a supplemental message between days 40 and 45 in the original period. Under the ICA, the President likewise may withhold funds included in a rescission request for 45 calendar days of continuous session, which often equals 60 or more calendar days. Under the provisions in H.R. 1998 / S. 1186 , the President could conceivably have withheld funds for 100 days or longer. As noted already, the original Administration bill in 2006 allowed the President to withhold funds for 180 calendar days. In 2006, some contended that the 180-day withholding mechanism arguably might be viewed as sanctioning the return of policy deferrals, originally provided for in the ICA, subject to a one-house veto, but invalidated by the Chadha and New Haven decisions, as well as the statutory provisions in P.L. 100-119 . The extension of the withholding period in H.R. 1998 / S. 1186 conceivably to over 100 days, compared with the 45-calendar-day period in the House-passed and Senate-reported bills, might arguably be appraised as representing a de facto return to policy deferrals. Two constitutional amendment proposals were introduced in the 110 th Congress. H.J.Res. 38 would have allowed the President to decline to approve any dollar amount of discretionary budget authority, any item of new direct spending, or any tax benefit. This coverage was similar to that seen previously in the Line Item Veto Act of 1996. S.J.Res. 27 would have allowed the President to reduce or disapprove any appropriation in a measure presented to him; after so "amending" the measure, the President may have signed the legislation as modified into law. H.R. 595 (Mark Udall and Paul Ryan) . Stimulating Leadership in Limiting Expenditures Act of 2006. Amends the ICA to provide for expedited consideration of certain presidential proposals for rescission of budget authority contained in appropriation acts. Introduced on January 19, 2007; jointly referred to Committees on Budget and on Rules. H.R. 689 (Paul Ryan et al.) . Legislative Line Item Veto Act of 2007. Amends the ICA of 1974 to provide for expedited consideration of certain rescissions of discretionary budget authority or cancellation of an item of new direct spending, limited tariff benefit, or targeted tax benefits proposed by the President in a special message. Dedicates any savings only to deficit reduction or increase of a surplus. Introduced on January 24, 2007; jointly referred to Committees on Budget and on Rules. H.R. 1375 (Buchanan) . Earmark Accountability and Reform Act of 2007. Amends the ICA of 1974 to provide for expedited consideration of certain rescissions of discretionary budget authority or cancellation of an item of new direct spending or targeted tax benefit proposed by the President in a special message. Dedicates any cancellation only to deficit reduction or increase of a surplus. Amends House Rules to provide that any earmark not contained in House- or Senate-passed versions be deemed out of scope in conference. Introduced on March 7, 2007; referred jointly to Committees on Budget and on Rules. H.R. 1998 (Paul Ryan) . Congressional Accountability and Line-Item Veto Act. Amends the ICA of 1974 to authorize the President to propose in a special message the repeal of any congressional earmark or the cancellation of any limited tariff benefit or targeted tax benefit. Provides expedited procedures for congressional consideration of the proposals contained in special messages. Dedicates any savings from a repeal or cancellation only to deficit reduction or increase of a surplus. Introduced on April 23, 2007; referred jointly to Committees on Budget and on Rules. H.R. 2084 (Hensarling) . Family Budget Protection Act. Omnibus budget reform bill. Section 311 establishes expedited procedures for congressional consideration of certain rescission proposals from the President. Similar expedited rescission provisions were considered by the House in 2004 and rejected by vote of 174-237. Introduced on May 1, 2007; referred to the Committee on the Budget and in addition to the Committees on Rules, Ways and Means, Appropriations, and Government Reform for consideration of those provisions falling within their respective jurisdictions. H.J.Res. 38 (Platts) . Constitutional amendment. Allows the President to decline to approve in whole any dollar amount of discretionary budget authority, any item of new direct spending, or any tax benefit. Introduced on February 27, 2007; referred to the Judiciary Committee. S. 1186 (Feingold) . Congressional Accountability and Line-Item Veto Act. Companion bill to H.R. 1998 (see above). Introduced on April 23, 2007; referred to the Budget Committee. S.J.Res. 27 (Dole) . Constitutional amendment. Allows the President to reduce or disapprove any appropriation in any bill, order, resolution, or vote which is presented to him. Introduced on December 11, 2007; referred to the Judiciary Committee. On March 4, 2009, the Congressional Accountability and Line-Item Veto Act was reintroduced in the 111 th Congress. In the Senate, S. 524 was cosponsored by Senators Feingold and McCain, and in the House H.R. 1294 was introduced by Representatives Paul Ryan and Mark Kirk. Senator Gregg and cosponsor Senator Lieberman introduced S. 640 , the Second Look at Wasteful Spending Act of 2009, on March 19, 2009. S. 640 is similar to a bill in the 109 th Congress, S. 3521 (Title I) as reported by the Senate Budget Committee in 2006 (then chaired by Senator Gregg). Some provisions in the earlier bill, however, appear in modified form in S. 640 . For example, with respect to limited tax benefit provisions that the President would be able to propose for cancellation, S. 3521 in the 109 th Congress stipulated that the Joint Committee on Taxation was to identify such provisions, while S. 640 is silent regarding the identification function. There are also some provisions in S. 640 that were not included in S. 3521 , 109 th Congress. For example, a new section in S. 640 contains expedited provisions for deliberations by a conference committee. Senator Carper, along with 20 cosponsors, introduced S. 907 , the "Budget Enforcement Legislative Tool Act of 2009," on April 28, 2009. This bill is similar to one introduced in the 102 nd Congress ( H.R. 2164 ) by then Representative Carper with over 200 cosponsors. The House passed H.R. 2164 by vote of 312-97, under a suspension of the rules, on October 3, 1992. This constituted the first time an expanded rescission bill received favorable floor action in either chamber. The Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, on December 16, 2009, held a hearing on "Tools to Combat Deficits and Waste: Expedited Rescission Authority," and considered S. 524 , S. 640 , and S. 907 . Witnesses included Senator Feingold, and staff from the Congressional Research Service, the Government Accountability Office, the National Governors Association, the Concord Coalition, and Citizens Against Government Waste. The Senate Judiciary Subcommittee on the Constitution held a hearing on May 25, 2010, concerning "The Legality and Efficacy of Line-Item Veto Proposals." Witnesses included Senator Carper, Jeffrey Liebman, Acting Deputy Director of OMB, and three witnesses from the private sector. In his budget submissions for FY2010 and FY2011, President Obama endorsed an "expedited process for considering rescission requests." According to a FY2011 budget volume, "There would be a benefit to establishing the option of an additional procedure [besides that in the ICA] in those cases where the President finds a need for a rapid, up-or-down vote on a package of rescission proposals." Proposals for rescissions under the expedited procedures could "only reduce or eliminate funding for budget accounts, programs, projects, or activities." On May 24, 2010, President Obama transmitted an Administration draft bill to Congress, the Reduce Unnecessary Spending Act of 2010, which would provide expedited rescission procedures for consideration of certain requests from the President. Within 45 days after signing a bill into law, the President would be able to submit a package of rescissions for reducing or eliminating discretionary appropriations or non-entitlement mandatory spending. Such proposed rescissions from the President would be considered as a group and would be subject to expedited procedures in Congress, designed to ensure an up-or-down vote on the package. As explained in a section-by-section analysis accompanying the 2010 draft, "There is no method to provide an absolute guarantee of a vote, because all rules of the House and Senate are implemented by persons making the motions under the rules. If no one moves to consider a piece of legislation, it will not be considered." On May 28, 2010, the Reduce Unnecessary Spending Act of 2010 as proposed by President Obama was introduced in the House as H.R. 5454 by Representative Spratt along with 20 cosponsors, and on June 9 S. 3474 was introduced by Senator Feingold and eight cosponsors. On June 17, 2010, the House Budget Committee held a hearing titled the "Administration's Proposal for Expedited Rescission." The sole witness was Dr. Liebman from OMB, who called for prompt action by Congress to pass the Reducing Unnecessary Spending Act. Chairman Spratt, who has supported expedited rescission measures in the past and introduced H.R. 5454 , indicated that the bill would receive careful scrutiny by the committee, concluding his opening statement by saying, "I look forward to working with all interested parties as we consider ways to improve this bill and move it through Congress." H.R. 1294 (Paul Ryan et al.). Congressional Accountability and Line-Item Veto Act. Amends the ICA of 1974 to authorize the President to propose in a special message the repeal of any congressional earmark or the cancellation of any limited tariff benefit or targeted tax benefit. Provides expedited procedures for congressional consideration of the proposals contained in such a special message. Dedicates any savings from a repeal or cancellation only to deficit reduction or increase of a surplus. Introduced on March 4, 2009; referred to Committees on Budget and on Rules. H.R. 1390 (Buchanan) . Earmark Accountability and Reform Act of 2009. Amends the ICA of 1974 to provide for expedited consideration of certain rescissions of discretionary budget authority or cancellation of an item of new direct spending or targeted tax benefit proposed by the President in a special message. Dedicates any cancellation only to deficit reduction or increase of a surplus. Amends House Rules to provide that any earmark not contained in House- or Senate-passed versions be deemed out of scope in conference. Introduced on March 9, 2009; referred to Committees on Budget and on Rules. H.R. 3268 (Reichert et al.) . Earmark Transparency and Accountability Reform Act, Title II, Earmark Rescission Authority. Amends the ICA of 1974 to authorize the President to propose in a special message the repeal of any congressional earmark or the cancellation of any limited tariff benefit or targeted tax benefit. Provides expedited procedures for congressional consideration of the proposals contained in such special messages. Dedicates any savings from a repeal or cancellation only to deficit reduction or increase of a surplus. Authorizes temporary presidential authority to withhold congressional earmarks and to suspend any limited tariff or targeted tax benefit. Requires the Comptroller General to develop and implement a systematic process to audit and report to Congress annually on programs, projects, and activities funded through earmarks. Introduced on July 20, 2009; referred to House committees on Rules, Standards of Official Conduct, Judiciary, and Oversight and Reform. H.R. 3964 (Hensarling et al.). Spending, Deficit, and Debt Control Act of 2009. Title II, subtitle B: Legislative Line-Item Veto Act of 2009. Amends the ICA of 1974 to authorize the President to propose to Congress in a special message the cancellation of any item of discretionary spending, item of direct spending, or limited tariff benefit or targeted tax benefit. Provides expedited procedures for congressional consideration of the proposals contained in such special messages. Dedicates any savings from a repeal or cancellation only to deficit reduction or increase of a surplus. Authorizes the President to withhold discretionary budget authority temporarily from obligation (or to defer), or to suspend temporarily direct spending, a limited tariff, or targeted tax benefit. Requires the Comptroller General to report to Congress when any item of discretionary spending is not made available or any item of direct spending, limited tariff benefit, or targeted tax benefit continues to be suspended after the deferral period has expired. Introduced on October 29, 2009; referred to the Committee on the Budget, and in addition to the Committees on Rules, Appropriations, Oversight and Government Reform, and Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned. H.R. 4921 (Minnick et al) . Budget Enforcement Legislative Tool Act of 2010. Companion bill to S. 907 (see below). Introduced on March 24, 2010; referred to the Budget Committee and in addition to the Rules Committee, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned. H.R. 5454 ( Spratt et al.) . Reduce Unnecessary Spending Act of 2010. Amends the ICA of 1974 to provide an expedited process for consideration of certain rescission requests from the President, submitted within 45 days after signing a bill into law. The President would be able to request in such a rescission package the reduction or elimination of any new budget authority or obligation limits in spending measures except to the extent that the funding would provide for an entitlement law. Items in the special message would be considered as a package and would be subject to expedited procedures in Congress, designed to ensure an up-or-down vote on the approval bill. Introduced on May 28, 2010; referred to the Budget Committee and in addition to the Rules Committee, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned. H.J.Res. 15 (Platts). Constitutional amendment. Allows the President to decline to approve in whole any dollar amount of discretionary budget authority, any item of new direct spending, or any limited tax benefit. Introduced on January 8, 2009; referred to the Judiciary Committee. S. 524 (Feingold and McCain). Congressional Accountability and Line-Item Veto Act of 2009. Companion bill to H.R. 1294 (see above). Introduced on March 4, 2009; referred to the Budget Committee. S. 640 (Gregg and Lieberman). Second Look at Wasteful Spending Act of 2009. Amends the ICA of 1974 to authorize the President to propose rescission of dollar amounts of discretionary budget authority, items of direct spending, or cancellation of targeted tax benefits in a special message to Congress. Provides expedited procedures for consideration of the draft bill accompanying the special message from the President. Introduced on March 19, 2009; referred to the Budget Committee. Similar to provisions in S. 3521 ,109 th Congress, reported favorably by the Budget Committee on ( S.Rept. 109-283 ). S. 907 (Carper et al.) . Budget Enforcement Legislative Tool Act of 2009. Amends the ICA of 1974 to authorize the President to propose certain rescissions of discretionary budget authority in a special message to Congress within three days of enactment of the appropriations act. Establishes expedited procedures for congressional consideration of a draft measure (to accompany each special message), approving of the requested rescissions. Introduced on April 28, 2009; referred to the Budget Committee. S. 1808 (Feingold) . Control Spending Now Act. Title I, subpart B: Legislative Line Item Veto Act of 2009. Congressional Accountability and Line Item Veto Act of 2009—Amends the ICA of 1974 to authorize the President to propose the repeal of any congressional earmark or the cancellation (line item veto) of any limited tariff or targeted tax benefit. Dedicates any such repeal or cancellation only to deficit reduction or increase of a surplus. Prescribes procedures for expedited consideration in Congress for such proposals. Authorizes the President temporarily to withhold congressional earmarks from obligation or suspend a limited tariff or targeted tax benefit. Requires the Comptroller General to report to Congress when any item of discretionary spending is not made available or any item of direct spending, limited tariff benefit, or targeted tax benefit continues to be suspended after the deferral period has expired. Expresses the sense of Congress on abuse of proposed repeals and cancellations. Introduced on October 20, 2009; referred to the Committee on Finance. S. 3026 (Bayh and McCain) . Fiscal Freeze Act of 2010. Title I, Congressional Accountability and Line-Item Veto Act of 2010. This title of the omnibus budget reform measure is virtually the same as H.R. 1294 and S. 524 . Introduced on February 23, 2010; referred to the Budget Committee. S. 3423 (Kerry) . Veto Wasteful Spending and Protect Taxpayers of 2010. Amends the ICA of 1974 to authorize the President to propose cancellation of any dollar amount of discretionary budget authority, any item of new direct spending, or any limited tax benefit, within 10 days of enactment. Provides expedited procedures for congressional consideration of the approval bill accompanying each special message from the President. Introduced on May 25, 2010; referred to the Budget Committee. S. 3474 (Feingold et al.). Reduce Unnecessary Spending Act of 2010. Companion bill to H.R. 5454 (see above). Introduced on June 9, 2010; referred to the Budget Committee. S.J.Res. 22 (LeMieux) . Constitutional amendment. Includes provisions relative to requiring a balanced federal budget and granting the President the power to exercise a line-item veto. Introduced on December 15, 2009; referred to the Judiciary Committee. | Conflicting budget priorities of the President and Congress accentuate the institutional tensions between the executive and legislative branches inherent in the federal budget process. Impoundment, whereby a President withholds or delays the spending of funds appropriated by Congress, provides an important mechanism for budgetary control during budget implementation in the executive branch; but Congress retains oversight responsibilities at this stage as well. Many Presidents have called for an item veto, or possibly expanded impoundment authority, to provide them with greater control over federal spending. The Impoundment Control Act of 1974 (Title X of P.L. 93-344), established two categories of impoundments: deferrals, or temporary delays in funding availability; and rescissions, or permanent cancellation of budget authority. With a rescission, the funds must be made available for obligation unless both houses of Congress take action to approve the President's rescission request within 45 days of "continuous session." Consideration of impoundment reform increasingly became joined with that of an item veto for the President. While Constitutional amendment proposals have not disappeared (see H.J.Res. 15 and S.J.Res. 22 ), many who originally favored an item veto constitutional amendment turned to expanded rescission authority for the President as a functionally similar mechanism achievable more easily by statutory change. The Line Item Veto Act was signed into law on April 9, 1996 (P.L. 104-130), and it became effective January 1, 1997. Key provisions allowed the President to cancel any dollar amount of discretionary budget authority, any item of new direct spending, or certain limited tax benefits contained in any law, unless disapproved by Congress. On June 25, 1998, the Supreme Court, in the case of Clinton v. City of New York, held the law unconstitutional on the grounds that it violated the presentment clause; in order to grant the President true item veto authority, a constitutional amendment would be needed (according to the majority opinion). Measures seeking to provide a constitutional alternative to the 1996 law have been introduced in each subsequent Congress. In the 109th Congress, the House passed H.R. 4890, the Legislative Line Item Veto Act of 2006, by a vote of 247-172, but no further action on the measure occurred before the 109th Congress adjourned. Several measures have been introduced in the 111th Congress that would establish expedited rescission procedures, including H.R. 1294, H.R. 1390, H.R. 4921, S. 524, S. 640, S. 907, and S. 3423. Other proposals would provide for expedited rescission along with various other budget process reforms, such as increased earmark accountability or spending controls. In the 111th Congress, H.R. 3268, H.R. 3964, S. 1808, and S. 3026 provide examples of such omnibus budget process bills. Two Constitutional amendment proposals have been introduced, H.J.Res. 15 and S.J.Res. 22. The Obama Administration has endorsed an expedited process for congressional consideration of rescission requests and announced on May 24, 2010, the transmittal of a proposal to Congress, titled Reduce Unnecessary Spending Act of 2010. The Administration bill has been introduced as H.R. 5454 and S. 3474. In the 111th Congress, three committees have held hearings on expedited rescission measures, the most recent being on June 17, 2010, by the House Budget Committee. This report will be updated as events warrant. |
Nepal has undergone a radical transformation in recent years as the nation ended its civil war, abolished the monarchy, and established a multi-party democratic republic. The former Maoist insurgents are once again part of the government and the country is moving forward to try to formulate a new constitution for the new republic that takes into account regional groups' aspirations. While trends are positive at present, significant challenges remain to be overcome. A February 2011 compromise that led to the election of a new government in Nepal has given many political observers some degree of cautious optimism that the country may be continuing on its path from a Hindu monarchy to a representative democracy. However, enormous challenges remain as the new government of Prime Minister Jhala Nath Khanal, of the Communist Party of Nepal United Marxist-Leninists (CPN UML), seeks to draft a constitution before a May 2011 deadline. Before February 2011, Nepal had been in a political vacuum for seven months due to a deadlock in the Constituent Assembly, where no party or coalition was able to attain majority support. That logjam was loosened when Maoist candidate Prachanda withdrew from consideration for prime minister, and the Constituent Assembly (CA) first formed in 2008 to create a new government. They elected Khanal as prime minister, with backing from the Maoists, though the Maoists remained outside the government until March 2011. Details of a "secret" deal between the CPN UML and the Maoists, which broke the political stalemate that had prevented the forming of a new government, have now emerged. Disagreements over the interpretation of the seven-point deal hindered the beginning of the new government in February 2011, but the entry of several Maoists into the government in March 2011 appears to indicate that another impasse has been averted. While Maoists have taken up several ministries including Peace and Reconstruction, they have not been given the Home Ministry. The Maoists will reportedly be given 11 ministries in total as part of the power sharing deal with the CPN-UML. Prime Minister Khanal also reportedly agreed to consider all options with regard to the future disposition of the 19,000 former Maoist combatants. This potentially signals less resistance to the integration of Maoist forces into the army by the CPN-UML than they demonstrated before. It has also been reported that the two parties have agreed to lead the government by turns. The agreement between the two parties was a positive step, but analysts note that the stability of the government will likely be tested by upcoming decisions that could expose widely differing interests between the two parties. The government faces the challenge of completing the peace process that began in 2006 by drafting a constitution before a May 2011 deadline. The government may not meet that deadline, as it faces two large challenges as the deadline approaches: completion of the peace process and crafting a new federal structure as part of the new constitution. The CA may well decide to extend the deadline once again should the government not finish its work in time. Political parties and militant groups representing the Madhes minority of the southern Terai region have put the government on notice that the new constitution and federal structure must take into account their political aspirations and concerns. After 16 unsuccessful votes over approximately seven months, the Constituent Assembly finally elected a new government in the 17 th round of voting in February 2011. This was made possible by the withdrawal of the Maoist candidate Prachanda, who had previously led the Maoist insurgency. The Maoists made a deal with the Communist Party of Nepal Marxist Leninists (CPN UML) to do this and support the CPN UML candidate Prime Minister Khanal. As a result, Khanal received 368 votes out of 601 in the CA to defeat the Nepali Congress candidate. The Nepali Congress candidate, Ram Chandra Poudel, received 122 votes while Deputy Prime Minister Gachedar, representing a Madhes coalition, received 67 votes. The Marxist Leninists previously supported a Maoist government in 2008 but subsequently withdrew support due to a disagreement over control of the army, which led Maoist leader Prachanda to relinquish the prime ministership. One of the key provisions of the 2006 peace agreement that ended a decade-long guerrilla struggle and brought the Maoists off the battlefield and into the political process was a provision which has led to great debate over how and to what extent former Maoist fighters will be integrated into the Army of Nepal. The departure of the United Nations Mission in Nepal (UNMIN) monitoring group in January 2011, which was overseeing caches of arms and the cantonments of former Maoist fighters, led the former caretaker government to set up the Special Committee for the Supervision, Integration, and Rehabilitation of Maoist Fighters to take over the U.N.'s oversight function. UNMIN had been monitoring the situation since January 2007. A key positive development came in January 2011, when Maoist leaders formally relinquished control of their 19,000-member army to a government committee. Despite this, details of how the fighters will be reintegrated into society or integrated into the army of Nepal, and in what numbers, remain to be resolved. The Maoists have held to the view that all former combatants should be integrated into the Army of Nepal. Other political parties have held the view that Maoist numbers should be kept to 6,000 to 8,000 and that the rest should be assisted in their reintegration into private life. It is estimated that about 13,000 to 14,000 of the 19,000 combatants are still in the cantonments. Just how this will be resolved remains to be seen. Forward movement in this area would be viewed as a positive factor that should help move the constitution process forward. The likely contentious nature of a new federal structure may lead the government and constitution drafting committees to defer the issue of a new federal system to a later date, at which time the polity of Nepal may be better able to absorb the shock of potential opposition to a new structure. The main regionally based socio-political cleavage in Nepali society is between the Madhes people of the Terai and "hill" people. The Madhes of the Terai region that spans the southern border with India are not pleased with the political status quo, which divides their region and, from their perspective, gives the "hill people" a disproportionate say in government. One of the key cleavages in Nepali society is between the lowlanders of the Terai plain and the hill people of higher elevations and, in general, higher caste status. Any redistricting that does not unify the Terai into one administrative unit, where the Madhes would clearly dominate, is not likely to be well received by Madhes groups. The Madhes are reportedly displeased by their marginalization from the ruling coalition and have warned that there would be "fire in the plains and the hills" if the new constitution fails to address their aspirations. There are several Madhes political parties as well as armed groups in the Terai that have resorted to violence to promote their cause in the past. The Tharu group, which is also located predominantly in the Terai, opposes its inclusion within "One Madhes" where it would be a minority relative to the Madhes, and instead favors its own administrative district. A new development in the 17 th round of voting to form a new government was the unsuccessful entry of Bijay Kumar Gachedhar to contest the prime ministership on behalf of an alliance of four Madhes political parties. In May 2009, former Prime Minister Pushpa Kamal Dahal, better known by his nom de guerre Prachanda, resigned over a dispute related to his call for the dismissal of the former Chief of Army Staff Rookmangud Katawal. Prachanda, leader of the Communist Party of Nepal-Maoist (CPN-M), sought the dismissal of Katawal, who has since retired over the issue of integrating former Maoist fighters into the Army of Nepal, which Katawal resisted. At the core of the political crisis of May 2009 was the dispute between the Maoists and the Army over the integration of some 19,000 Maoist fighters into the Army of Nepal. Debate on this has focused on the numbers of fighters to be integrated (with the Maoists wanting all fighters integrated and the other political parties favoring far fewer), and whether Maoist forces will be integrated as whole units or attached to existing Army of Nepal units. The Nepali Congress (NC) has opposed Maoist plans to integrate their forces into the Nepali Army. Instead, the NC advocates that they should be placed into an industrial security force, the police, or other sectors. Some estimates place the number of former Maoist fighters in cantonment at 19,000 or more. The Nepal Army is thought to number approximately 95,000 soldiers that are divided into six regional divisions. Prachanda's CPN-M government was replaced by a 22-party coalition. This loose coalition has proven unwieldy in the actual functioning of government. The CPN-M also obstructed the sitting of parliament, held general strikes, and threatened to launch a popular movement against the government. The Maoists created a crisis by preventing the passage of the national budget, introduced to parliament in July 2009, although it was passed in late November 2009. The CPN-M was also reportedly resentful of what it perceived as interference by India in the Kutawal affair. This background provides a context for assessing the stability of the current government, which once again includes these two communist parties. Religion has long been an important factor for Nepal's 29.3 million inhabitants, where 81% of the population is Hindu and 11% of the population is Buddhist. Nepali is the official language, though there are over 100 regional and indigenous languages spoken in Nepal. The main geographic division in the country is between the low-lying and agriculturally productive Terai region, found adjacent to the southern border with India, and the more mountainous parts of the country. Nepal has been an independent kingdom since 1768. Never colonized, the country was almost totally isolated from outside influence until the early 1950s. A transition from strict rule by the king to constitutional monarchy began in 1959, when then-King Mahendra issued a new constitution and held the country's first democratic elections. In 1960, however, the king declared the parliamentary system a failure, dismissed the fledgling government, suspended the constitution, and established a partyless system of rule under the monarchy. Although officially banned, political parties continued to exist and to agitate for a return to constitutional democracy. In February 1990, student groups and the major political parties launched the Movement for the Restoration of Democracy. The centrist Nepali Congress (NC) party joined with the leftist parties to hold peaceful demonstrations in Nepal's urban centers. In April 1990, after more than 50 people were killed when police fired on a crowd of demonstrators, then-King Birendra turned power over to an interim government. This government drafted a constitution in November 1990 establishing Nepal as a parliamentary democracy with a constitutional monarch as head of state. The king at that time retained limited powers, including the right to declare a state of emergency with the approval of a two-thirds majority of parliament. In February 1996, the leaders of the underground CPN-M launched a "People's War" in the mid-western region of Nepal, with the aim of replacing the constitutional monarchy with a one-party communist regime. The uprising appears to have been fueled by widespread perceptions of government corruption and failure to improve the quality of life of citizens, including providing access to cultivable land. The Maoists ran a parallel government, established their own tax system, burned land records, and redistributed seized property and food to the poor, in 45 districts. The insurgency was waged, in part, through torture, killings, and bombings targeting police, the military, and public officials. A number of bank robberies, combined with "revolutionary tax" revenue, made the Nepali Maoists one of the wealthiest rebel groups in Asia. The Kathmandu government faced additional turmoil in June 2001, when Crown Prince Dipendra shot and killed his parents, King Birendra and Queen Aishwarya; seven other members of the royal family; and himself, reportedly after a disagreement over whom he should marry. This incident did much to undermine the legitimacy of the monarchy. King Gyanendra, the former king's brother, was crowned on June 4, 2001, and he appointed a commission to investigate the assassinations. By mid-June, the country began returning to normal following rioting and widespread refusal to believe official accounts of the massacre. In July 2001, Prime Minister Girija Prasad Koirala stepped down amid fears of continuing instability and his government's failure to deal with the growing Maoist insurgency. He was replaced by NC leader Sher Bahadur Deuba, who then became the head of Nepal's 11 th government in as many years. During the summer of 2002, the government of Nepal was thrown into a constitutional crisis that interfered with its ability to effectively combat the Maoist insurgency. The crisis began in late May, when King Gyanendra dissolved parliament and unilaterally declared a three-month extension of emergency rule, which had expired on May 24, 2002. The prime minister, who also scheduled early elections for November 2002, reportedly took such action after his centrist Nepali Congress party refused to support his plan to extend emergency rule. Following the prime minister's actions, 56 former members of parliament filed a lawsuit against him, claiming there was no constitutional precedent for the dissolution of parliament during emergency rule. In August 2002, the Supreme Court rejected this lawsuit. Although opponents of the prime minister agreed to accept the verdict, they emphasized the difficulty of holding free and fair elections two years ahead of schedule when much of the country was under either rebel or army control. Although the prime minister pledged that there would be no emergency rule during the scheduled November 2002 elections, Maoist attacks and threatened strikes prompted the government to consider various measures to prevent a Maoist disruption of the polls. The government discussed imposing a partial state of emergency in areas most affected by the insurgency. However, opposition parties, which urged the government to open a dialogue with the Maoists, argued that by curbing civil liberties, emergency rule would inhibit free and fair elections. As an alternative, the government announced in September 2002 that it would hold the elections in six stages over two months, starting in mid-November, so that government troops could be transferred around the country to protect voters and candidates. After further deliberation, however, Nepal's cabinet concluded that the security situation was too risky to hold elections. On October 3, 2002, the cabinet asked King Gyanendra to postpone the national elections for one year. The next day, the king dismissed the prime minister, disbanded his cabinet, and assumed executive powers. The security situation in Nepal deteriorated after the collapse of the ceasefire between the Maoists and the government on August 27, 2003. The Maoists favored drafting a new constitution that would abolish the monarchy. The king opposed such a move and wanted the Maoists to relinquish their weapons. Accommodation between the king and opposition democratic elements had been thought to be key to creating the unified front necessary to defeat the Maoists. With his direct assumption of powers, and arrest of opposition democratic elements, the king decided to try to defeat the Maoists on his own. This move proved to be the beginning of the end of the power of the monarchy in Nepal. After seizing direct power in February 2005, King Gyanendra exerted control over democratic elements, but made little progress in the struggle against the Maoists. The king reportedly thought he could take advantage of a split in the Maoist leadership and disarray amongst democrats to seize control and use the Royal Nepal Army (RNA) to defeat the Maoists. The seizure of power by the king appears to have been aimed as much, if not more so, at asserting the king's control over democratic forces. Many observers felt that a military solution to the conflict with the Maoists was not achievable and that a concerted effort by the king and the democrats was needed to establish a unified front to defeat the Maoists. When the king assumed power, he stated that he would take steps to reinstate a constitutional democracy within 100 days, which he then failed to do. Although some political prisoners were released by the king, hundreds of others remained under arrest and restrictions on civil liberties, such as public assembly and freedom of the press, remained in place. A U.N. Office of the High Commissioner of Human Rights team was established in Nepal in April 2005 to monitor the observance of human rights and international humanitarian law. By moving against the democrats, who under different circumstances could have worked with the king against the Maoists, the king strengthened the position of the Maoists. By some estimates almost half of the RNA was occupied with palace security, civil administration, and efforts to restrict communications and civil rights. The king's legitimacy with the people was weakened due to the circumstances under which he assumed the throne, the way he seized direct rule, and due to poor popular perceptions of his son, Prince Paras Shah. The former crown prince was unpopular with Nepalis "for his drunken antics and playboy lifestyle." From February 13 to 27, 2005, the Maoists reacted to the king's actions by blockading major highways linking the country's 75 districts, as well as international road links to India and China. This led to clashes between Maoists and the RNA and brought trade by road to a standstill. The army organized armed convoys, which allowed limited trade to continue. The Maoists had earlier cut off land routes to Kathmandu in August 2004. During the week-long blockade in 2004, prices of some basic foods more than doubled and fuel was rationed. This increase in food prices reportedly recurred in the 2005 blockade. By blockading Kathmandu, the Maoists successfully increased pressure on the king's government and demonstrated their power. On April 24, 2006, mounting popular resistance in support of the political parties led King Gyanendra to hand over power to the Seven Party Alliance. This followed weeks of violent protests and demonstrations against direct royal rule in Nepal. The Seven Party Alliance that opposed the king in April included the parties as listed below: The Nepali Congress (NC) Communist Party of Nepal Unified Marxist Leninist (CPN-UML) Nepali Congress (Democratic) or NC (D) Nepal Sadbhavana Party (Anandi Devi) or NSP (A) Jana Morcha Nepal Samyukta Baam Morcha (United Left Front) or ULF Nepal Workers and Peasants Party (NWPP) The Maoists were not part of the Seven Party Alliance, though they worked with the alliance to oppose the monarchy. This was made possible by the king's political crackdown on the democrats. The seven parties worked together through their alliance to promote a more democratic Nepal in the face of direct rule by the king. In May 2006, six of the seven political parties formed a coalition government. On November 8, 2006, the Seven Party Alliance and the Maoists reached a peace agreement, ending a decade-old insurgency that claimed over 13,000 lives. In it, the Maoists agreed to put down their arms and postpone a decision on the future disposition of the monarchy until after the election of a Constituent Assembly. Under the peace agreement, Constituent Assembly elections were to be held by the end of June 2007. The June election date slipped but Constituent Assembly elections were eventually held in April 2008. The structure of the current 601-seat legislature is a mixed member system with 240 members elected from single member constituencies and 335 members elected on a proportional basis from party lists. A further 26 members are nominated by the cabinet to represent ethnic and indigenous groups. Administratively, the country is divided into 75 districts. The CPN-M, with 220 seats and 36.6% of seats, is the largest party in the Constituent Assembly. The 110 seats for the NC represent 18.3% of the CA, while the 103 seats belonging to the CPN-UML represent 17.1%. The 52 seats of the MPRF represent 8.7%, and the 20 seats of the TMDP represent 3.3%. Twenty other parties and independents, all with less than 2% of the CA seats, account for the balance. In accordance with the interim constitution, legislative powers passed from the previous parliament to the CA after its election in April 2008. The prime minister is selected by a vote of the CA. The Nepal Army, which fought a protracted counterinsurgency war against the Maoists from 1996 to 2006, has remained largely outside politics. Some view the acquiescence of the former Royal Nepal Army in the transformation of Nepal from a monarchy into a republic as predicated on a tacit agreement that its position would not be directly challenged in this process. Prachanda's decision to seek the removal of senior military leadership and integrate former Maoist fighters may have been perceived as overstepping this tacit agreement. The army could possibly become more political should a plan to integrate former Maoist fighters into the Army of Nepal be viewed by the army as a threat to its position. The former head of the Army of Nepal, General Katawal, opposed integration, which was a condition of the November 2006 Peace Agreement that ended the 10-year civil war with the Maoists. One estimate of the cost of the war estimates the number killed at 16,274, with 5,640 injured and 70,425 displaced during the conflict. Opponents of integration contend that the Maoists have not returned land confiscated during the civil war nor have they dismantled their militant youth wing, which many Nepalis fear could be used by the Maoists to further escalate violence to achieve political ends. The CPN-UML, who were the CPN-M's main political allies, pulled out of the CPN-M government in response to Prachanda's decision to dismiss General Katawal in May 2009. The President of Nepal, Ram Baran Yadav, of the Nepali Congress Party, reversed Prachanda's decision and reinstated General Kutawal at the time. As violence associated with the former Maoist insurgency abated, inter-communal tensions have mounted and at times become violent. This has been particularly acute in the Terai region along Nepal's southern border with India, where the Madhes live. An estimated 45% to 49% of the country's population lives in the Terai region. The Madhes seek autonomy to free themselves from what they feel is domination by Pahadis from the more mountainous parts of northern Nepal. The Madhes also have closer ties to India than other Nepali groups. Other ethnic groups in the Terai have opposed regional autonomy. There appear to be a number of armed groups fighting a low-intensity struggle for autonomy in the region as well as various political parties and factions. The Madhes have added a new regional, ethnic, and linguistic dimension to Nepal's struggle for political stability. There have been allegations from inside Nepal that Hindu radicals may have had a role in the violence in the Terai. The Madhes have complained about their underrepresentation in parliament, the government, the police, and the army, as well as economic discrimination against them. Calls for self-determination through the creation of a Madhes Autonomous Region, as well as the implementation of proportional representation in government, were sought by Madhes groups as a way of reversing what they viewed as their traditional marginalization within Nepal's political structure. Agitation for such measures lessened when the interim government agreed to an eight-point plan which recognized autonomous regions and promised to incorporate provisions for fair representation in the new constitution and to conduct army recruiting on a proportional basis from various ethnic groups. A decision by the Supreme Court directing Vice President Paramananda Jha to retake his oath in Nepali (he originally took the oath in his native Hindi, which is more widely spoken in the Terai) led to widespread strikes in the Terai in August 2009. The CPN-UML government subsequently added nine cabinet ministers, bringing the total number of ministers to 42. Eight of the nine added in September were Madhes, in an apparent attempt to placate Madhes over the controversy. The Madhesi have added a new regional dimension to Nepal's struggle for political stability. A new threat to the political stability of Nepal has emerged from a number of groups representing Madhesi in southern Nepal. The MPRF, TMDP, Sadbhavana Party, and the Dalit Janajati Party represent Madhesis and command 85 seats in the CA. The new president and vice president are also Madhesi. Madhesis are culturally and ethnically close to peoples of northern India. There have been allegations from inside Nepal that Hindu radicals may have had a role in the violence in the Terai. Madhesi have complained about their underrepresentation in parliament, the government, police, and army as well as economic discrimination against them. Over the years both the Maoists and security forces have committed numerous human rights violations. That said, some progress in the areas of human rights and political freedoms have been achieved since the early 1990s. The king's dismissal of government in 2005 led to many abuses and curtailments of civil rights. This setback was reversed by the reinstatement of parliament in 2006. Trafficking in women and children and indentured domestic work remain problems in Nepal. Nepal also suffers from widespread corruption. Nepal ranked 146 out of 178 countries in the 2010 Global Corruption Perceptions Index by Transparency International. The Tibetan community in Nepal has, according to Human Rights Watch, been subject to numerous abuses at the hands of Nepali authorities as Nepal has reportedly come under pressure from China to quell any protests in Nepal over Chinese rule in Tibet. Nepali authorities reportedly made an estimated 8,350 arrests of Tibetans, out of an estimated total population of some 20,000 Tibetan refugees, exiles, and asylum seekers, during the period between March 10 and July 18, 2008. Nepal is a key transit route for Tibetans seeking to reach India. Human Rights Watch accused the government of Nepal of unnecessary and excessive use of force, arbitrary arrest, sexual assault of women during arrest, arbitrary and preventative detention and beatings of Tibetans in detention, and unlawful threats to deport Tibetans to China. Nepal Home Ministry Spokesman Modraj Dotel stated in March 2008 that "We have given the Tibetans refugee status and allow them to carry out culture events. However, they do not have the right for political activities ... we will not allow any anti-China activities in Nepal and will stop it." Nepal is one of the world's poorest nations. Average per capita income in Nepal is $427 with 55% of the population living on $1.25 per day or less. Inflation is estimated to be 8.4% and an estimated 75% of the people are engaged in agriculture. This insulates Nepal to a large degree from international economic factors, though tourism remains vulnerable to global economic downturns. Major crops include rice, wheat, maize, jute, sugarcane, and potatoes. Nearly a quarter of the national budget is externally funded through foreign aid. Nepal's GDP is expected to grow by 3.5% to 4% in 2011. Political instability and insurgency-related violence of recent years has undermined the country's economy. Political uncertainty and continued reliance on subsistence farming could keep Nepal poor for many years to come. Though the industrial base is small, Nepal produces carpets, garments, and, increasingly, textiles, which now account for a majority of merchandise exports. Other major revenue sources are tourism and remittances, including those from Nepal's famed Gurkha soldiers serving in the British and Indian armies. Nepal also has substantial hydropower potential. Government efforts to increase foreign trade and investment have been impeded by political instability, corruption, the resistance of vested interests, the small size of the economy, its remote and landlocked location, the lack of technological development, and frequent natural disasters, including floods and landslides. Nepal's infrastructure is poor and it has few commercially exploitable resources other than hydro power and cement grade limestone deposits. Nepal also suffers from low rates of investment and domestic savings. Firewood supplies an estimated 76% of total energy consumed in Nepal and is used for heating and cooking. Nepal's key export partners include most significantly India, as well as the United States and Germany. While India remains Nepal's key trading partner, Nepal has made an effort to develop trade relations with Sri Lanka and Pakistan. According to the State Department Background Notes on Nepal, U.S. policy objectives toward Nepal center on helping Nepal build a peaceful, prosperous, and democratic society. Since 1951, the United States has provided more than $1.2 billion in bilateral development assistance to Nepal. In recent years, annual bilateral U.S. assistance through the U.S. Agency for International Development and the Department of State has averaged $54 million. Nepal is the United States' 161 st -largest goods trade partner, with two-way trade totaling $86 million in 2009. Promotion of democracy and regional stability are key U.S. interests in Nepal. The United States seeks to promote democracy and civil society in Nepal and provide developmental assistance to its people. The United States has viewed the Maoists' past plans to institute a one-party republic, collectivize agriculture, re-educate "class enemies" and export revolution as undermining regional stability as well as the promotion of democracy and development for Nepal. The extent to which the CPN-M remains committed to these goals is unclear. U.S. assistance to Nepal has sought to help Nepal "cement recent gains in peace and security" and assist Nepal in its transition to democracy, including strengthening Nepal's democratic institutions. Economic Support Funds (ESF), Development Assistance (DA), and Child Survival and Health (CSH) programs have sought to enhance stability and security while seeking to strengthen governance and protect human rights. International Military Education and Training (IMET) programs have sought to develop Nepal's military's ability to conduct operations while "following the rules of engagement that respect the rule of law, international human rights standards, and democratic values." For further details of U.S. assistance programs to Nepal see the U.S. Agency for International Development's website. Nepal is a landlocked geopolitical buffer state, like Bhutan, that is caught between the two Asian giants, India and China. India and China fought a border war in 1962 in the mountains near Nepal, which led to ongoing territorial disputes. Tensions along the border have mounted from time to time with concomitant troop buildups, as was the case in December 2007, when India moved some 6,000 troops to reinforce the India-Bhutan-China border in the area of Bhutan and Arunachal Pradesh to the east of Nepal. Nepal is heavily dependent on India as the primary source of imports, its main market for exports, and for access to the sea through the port of Calcutta. A significant percentage of all foreign investment in Nepal also comes from India. Moreover, the Himalayan mountain range along Nepal's northern border limits access to China, whereas the 500-mile southern border with India is relatively open. India has considered Nepal a strategic link in its northern border defenses. New Delhi has viewed Nepali instability as a potential catalyst for the destabilization of India's own troubled northeastern states. It is feared by some that Maoist success in Nepal may have a negative impact on India's own Maoist problem, which has increased in recent years. Some sectors of the Nepali leadership have long resented Indian economic influence and have sought to establish a more independent foreign policy, which could draw Nepal closer to China. Kathmandu has at times "played the China card" in seeking to counterbalance what it considers undue pressure from India. Beijing has contributed economic aid to Nepal. Nepal borders Tibet, whose spiritual leader, the Dalai Lama, has sought a degree of autonomy from Beijing for the Tibetan regions within China. 56 Contrary to historical precedent, former Prime Minister Prachanda made his first trip abroad as prime minister to China. Observers in India believe that China targeted the Maoists as the political faction with whom China can best gain political favor. That said, China appears to still be pressing the CPN-UML government to reach agreement on issues related to Tibetan refugees and border management. India and Nepal share many cultural and religious traditions, particularly in the Terai region, and have a tradition of close cooperation in the area of defense and foreign affairs. The election of a Maoist-backed government may be viewed by Delhi as something of a setback given the sometimes tense relations between the Maoists and the government of India. During her January 2011 visit to Nepal, Indian Foreign Secretary Nirumpama Rao met with leaders of all the main political parties, including the Maoists. It was reported that she asked Maoist leader Prachanda about the Maoists' "anti-India" stance and that she was told that the Maoists believe that it is time to look at "certain historical issues like treaties [the 1950 India-Nepal Treaty of Peace and Friendship] … in a new manner." Some in Nepal view the treaty as granting India a disproportionate say in Nepalese affairs. Just how far the Maoists' desire to revisit the 1950 treaty will go as a partner in the CPN-UML government remains to be seen. During a recent visit to Nepal, Rao stated after a meeting with Prime Minister Madhav Kumar that India would give priority to implementing a 34-point agreement with Nepal that includes enhanced cooperation between the two nations' security agencies and border security. China has several key interests in Nepal. China has an interest in keeping Nepal from becoming a location from which Tibetan activists can promote the cause of Tibet. China has become more successful in recent years in convincing Nepal to restrict the exile Tibetan community there. Reportedly responding to Chinese pressure, the government of Nepal in March 2011 prevented the estimated 20,000 Tibetans in exile in Nepal from voting for a new political head of the exiled Tibetan community. China has in recent years made significant inroads in developing ties with South Asian states. Some view this as predominantly economically driven while others, particularly in strategic circles in New Delhi, increasingly view Chinese activity with geopolitical concern. There have been reports of Chinese agents crossing the porous India-Nepal border for the purpose of infiltrating Tibetan exile groups in India and monitoring the activities of the Dalai Lama and his associates. In March 2011, China announced that it will seek to further strengthen its relations with the South Asia Association of Regional Cooperation (SAARC). China became an observer in SAARC in 2005. Nepal's relationship with Bhutan is largely defined by tensions over ethnic Nepalis who are in Bhutan or who have fled Bhutan. The government of Bhutan has been experiencing problems with Bhutanese of Nepali background, many of whom it views as having settled in Bhutan illegally. This Nepali minority group is known as the Lhotshampa. They are a Nepali-speaking Hindu people that inhabit Bhutan's southwest. Many Lhotshampa left Bhutan as a result of attempts over recent decades to integrate them into mainstream Bhutanese culture. Such attempts at assimilation have been viewed as a threat to the ethnic Nepalis' own culture. The program was aimed at assimilating the Lhotshampa by having them adopt the Bhutanese language, Dzongkha, as well as Bhutan's Buddhist religion and its cultural dress. This tension led to unrest in the south of Bhutan in the early 1990s. Formal assistance from the United Nations was requested by the Nepalese government in July 2006. Following this, the U.N. dispatched a pre-assessment mission that helped the seven-party alliance coalition and the Maoists to resolve differences on the issue of arms management. The U.N. monitored the cantonment of combatants and the caching of arms as specified under the peace agreement. The Security Council established the U.N. Political Mission in Nepal (UNMIN) through Resolution 1740 in January 2007. Under Resolution 1740, UNMIN was tasked to monitor the management of arms and armed personnel of both sides; to assist the parties through the Joint Monitoring Coordinating Committee in implementing their agreement; to assist in the monitoring of the cease fire; to provide technical support for the planning, preparation and conduct of the election of a Constituent Assembly; and to provide a small team of election monitors. UNMIN oversees the cantonment of former rebel fighters and the storage of their weapons. UNMIN's mission was extended until January 2011. | Nepal has undergone a radical political transformation since 2006, when a 10-year armed struggle by Maoist insurgents, which claimed at least 13,000 lives, officially came to an end. The country's king stepped down in 2006, and two years later Nepal declared itself a republic, electing a Constituent Assembly in 2008 to write a new constitution, which is currently being drafted. Though the process of democratization has had setbacks and been marked by violence at times, Nepal has conducted reasonably peaceful elections, brought former insurgents into the political system, and in a broad sense, taken several large steps towards entrenching a functioning democracy. This still-unfolding democratization process makes Nepal of interest to Congress and to U.S. foreign policymakers. A Congressional Nepal caucus has been newly formed, which should help further strengthen relations between the two countries, which have traditionally been friendly. U.S. policy objectives toward Nepal include supporting democratic institutions and economic liberalization, promoting peace and stability in South Asia, supporting Nepalese territorial integrity, and alleviating poverty and promoting development. Nepal's status as a small, landlocked state situated between India and China also makes it important to foreign policymakers. Nepal's reliance on these two giant neighbors leads it to seek amicable relations with both, though ties with India have historically been closer. Some believe India is concerned a Maoist regime in Nepal could lend support to Maoist rebels in India. China, meanwhile, has taken several steps to pressure Nepal to repatriate, or at least constrain the activities of, refugees crossing the border from Tibet. The place of Nepal's Maoists remains a delicate question that will do much to determine the fate of the nation's democracy. The group surprised many by peacefully challenging, and winning, the April 10, 2008, Constituent Assembly elections. During the civil war, the Maoists' stated aim had been to establish a peasant-led revolutionary communist regime, but once part of the political process, their objectives appear to have moderated. They have since lost control over government, and then returned as part of a coalition led by the Communist Party of Nepal United Marxist Leninist (CPN-UML). Two key challenges presently face Nepal. The first is to complete the peace process, which would require a resolution of the difficult issue of how to integrate former Maoist fighters into the army, or into society. The second key challenge is completing the drafting of a constitution. This raises the question of establishing a new federal structure that would address grievances of groups that feel they have been underrepresented in the key institutions of the state, particularly in the Terai region bordering India. |
Unemployment Compensation (UC) is a joint federal-state program and is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes. The underlying framework of the UC system is contained in the Social Security Act: Title III authorizes grants to states for the administration of state UC laws; Title IX authorizes the various components of the federal UTF; and Title XII authorizes advances or loans to insolvent state UC programs. Among its 59 accounts, the federal UTF in the U.S. Treasury includes the Employment Security Administration Account (ESAA), the Extended Unemployment Compensation Account (EUCA), and the Federal Unemployment Account (FUA); 53 state accounts; the Federal Employees Compensation Account; and two accounts related to the Railroad Retirement Board. Federal unemployment taxes are placed in the ESAA, the EUCA, and the FUA; each state's unemployment taxes are placed in the appropriate state's account. In law, the term Reed Act refers to a part of the Employment Security Financing Act of 1954, P.L. 83-567. This legislation amended Titles IX and XII of the Social Security Act (SSA) and established the basic structure of the UTF. The amendments to Title IX, among other things, provided for the transfer of excess funds in the federal portion of the UTF to the individual state accounts under certain conditions. In practice, there have been two forms of Reed Act distributions. The first form, regular Reed Act distributions, follows the terms as set forth in the Reed Act. The second type, special Reed Act distributions, distributes some of the federal UTF funds to the states where these special distributions may follow some but not all of the conditions set by the Reed Act. The 1998-2002 Reed Act distributions were special distributions. Federal law restricts states to using Reed Act distributions only to cover the cost of state benefits, employment services (ES), labor market information, and administration of state UC and ES programs. Suggested uses by the Department of Labor included establishing revolving funds for UC and ES automation costs, UC and ES performance improvement, costs related to reducing UC fraud and abuse, and improvement in UC claims filing and payment methods. An appropriation by the state's legislature is necessary before the state's share of this distribution may be used for UC and ES administrative expenses. Funds may not be used to extend a temporary unemployment benefit such as the Emergency Unemployment Compensation (EUC08) program. Under FUTA, the federal tax on employers finances the states' administrative costs of UC and loans to states with insolvent UC programs. State UC payroll taxes finance the costs of regular UC benefits. The extended benefits program is funded 50% by the federal government and 50% by the states, but the 2009 stimulus package ( P.L. 111-5 §2005) as amended temporarily provides for 100% federal funding of this program through March 7, 2012. Under FUTA, employers pay a federal tax of 6.0% on wages of up to $7,000 a year paid to each worker. The law, however, provides a credit against federal tax liability of up to 5.4% to employers who pay state taxes in a timely manner. Accordingly, in states meeting the specified requirements, employers pay an effective federal tax of 0.6%, or a maximum of $42 per covered worker, per year. At the end of the federal fiscal year, on September 30 th , the net balance of the ESAA is determined. If the amount in this account exceeds 40% of the prior year's appropriation by Congress, then an "excess" balance exists. This excess balance is transferred first to the EUCA. When that account reaches its statutory maximum, the remaining excess balance is transferred to the FUA. When all three accounts are at their statutory maximums , any remaining excess balance is distributed to the accounts of the states in the UTF based on each state's share of U.S. covered wages. These distributions are called Reed Act distributions. Reed Act distributions occurred in 1956 through 1958 and 1998 through 2002. Table 1 lists the distributions. The most recent Reed Act distribution that was a regular and not a special Reed Act distribution was $15.9 million and occurred in 1998. The Balanced Budget Act (BBA) of 1997, P.L. 105-33 , limited the Reed Act distributions for the 1999 to 2001 period to special distributions of $100 million each year. Any amounts in excess of the $100 million that—absent the BBA amendments—would have been transferred to the states "shall, as of the beginning of the succeeding fiscal year, accrue to the federal unemployment account, without regard" to its statutory limit. In March 2002, the Job Creation and Worker Assistance Act of 2002, P.L. 107-147 , provided for a one-time special Reed Act distribution of up to $8 billion to state accounts in the UTF, where the funds were distributed based upon the formula used for regular Reed Act distributions, using calendar year 2000 state information. The law labeled this transfer a "Reed Act" distribution although it differed from traditional Reed Act distributions, most notably because the law distributed a set dollar amount which was not determined by the statutory ceilings in the federal accounts and was distributed before the end of a fiscal year. There was no Reed Act distribution in 2003, and no regular Reed Act distribution is projected through FY2021. According to the Department of Labor, there is no projected distribution through FY2021 on account outstanding loans owed to the general fund of the U.S. Treasury. According to a General Account Office (GAO, now know as the Government Accountability Office) report, the $8 billion Reed Act distribution reduced 2003 unemployment taxes in 22 states and UC administration costs in 17 states. The Center for Employment Security Education and Research (CESER), a component of the National Association of State Workforce Agencies (NASWA), with the assistance of Booz Allen Hamilton and Decern Consulting, examined how states used the $8 billion special Reed Act Distribution of 2002. This study found that approximately half of the Reed Act distribution was used to lower state unemployment taxes in 2003 and 2004 from what they would have otherwise been. The special distribution also led to increases in spending on UC benefits, UC administration, and employment services. The American Recovery and Reinvestment Act ( P.L. 111-5 §2003) provided for a special UTF distribution. The law provided a special transfer of UTF funds from FUA of up to a total of $7 billion to the state accounts within the UTF as "incentive payments" for changing certain state UC laws. The maximum incentive payment allowable for a state was calculated using the methods also used in Reed Act distributions. That is, funds were to be distributed to the state UTF accounts based on the state's share of estimated federal unemployment taxes (excluding reduced credit payments) made by the state's employers. In addition, the act transferred a total of $500 million from the federal ESAA to the state's accounts in the UTF. | Under the Federal Unemployment Tax Act (FUTA; P.L. 76-379), the federal unemployment tax on employers finances the states' administrative costs of Unemployment Compensation (UC) and loans to states with insolvent UC programs. The extended benefits program is funded 50% by the federal government and 50% by the states, but the 2009 stimulus package (P.L. 111-5 §2005) as amended temporarily provides for 100% federal funding of this program through December 31, 2012. FUTA tax revenues are placed into the Unemployment Trust Fund (UTF) that—among its many accounts—contains three federal accounts and 53 individual state accounts from the states' unemployment taxes. Under certain financial conditions, excess federal tax funds in the Unemployment Trust Fund (UTF) are transferred to the individual state accounts within the UTF. The transferred funds are referred to as Reed Act distributions. The Reed Act, P.L. 83-567, set ceilings in the federal UTF accounts that trigger funds to be distributed to state accounts; Congress has changed these ceilings several times (P.L. 105-33, P.L. 102-318, and P.L. 100-203). There are other transfers in the UTF that are labeled by legislation as special Reed Act distributions. These are distributed in a manner similar to the Reed Act but do not follow all of the Reed Act provisions. The most recent regular Reed Act distribution was $15.9 million and occurred in 1998. The Balanced Budget Act (BBA) of 1997, P.L. 105-33, limited Reed Act distributions for the 1999 to 2001 period to special Reed Act distributions of $100 million each year. In March 2002, the Job Creation and Worker Assistance Act of 2002, P.L. 107-147, provided for a one-time special Reed Act distribution of up to $8 billion to state accounts. The American Recovery and Reinvestment Act (P.L. 111-5 §2003) provided for a special UTF distribution that has some properties similar to a Reed Act distribution. The law distributes up to a total of $7.5 billion to the states through a special transfer of funds from the federal accounts within the UTF to the state accounts, using the methodology required by the Reed Act to determine the maximum state allotments. Up to $7 billion was distributed to states as incentive payments for changing certain state UC laws. Administrative funds totaling $500 million was distributed among the state accounts, regardless of whether states changed their UC laws. According to the Department of Labor, there is no projected regular Reed Act distribution through FY2021 on account outstanding loans in the UTF owed to the general fund of the U.S. Treasury. This report will be updated if legislative activity affects Reed Act distributions. |
Nearly all state and local governments sell bonds to finance public projects and certain qualified private activities. The federal government subsidizes state and local bond issuances through a number of policies. The mostly widely utilized policy instrument is the tax-exempt bond, which excludes bond interest payments received from the investor's federal taxable income. In contrast, interest payments from other types of bonds, such as corporate bonds, are included in federal taxable income. Because of the difference in taxability, state and local government tax-exempt bonds—often referred to as municipal bonds—offer a lower pre-tax interest rate than corporate bonds, which reduces the interest costs owed by state and municipal governments. Tax credit bonds (TCBs) offer an alternative to municipal bonds, providing a tax credit or direct payment proportional to the bond's face value in lieu of the tax exemption. Most TCBs are designated for a specific purpose. TCBs have been used by issuers to finance public school construction and renovation; clean renewable energy projects; refinancing of outstanding government debt in regions affected by natural disasters; conservation of forest land; investment in energy conservation; and for economic development purposes. The relative appeal of TCBs and municipal bonds is dependent on issuer and investor characteristics and on economic conditions. Many recent TCBs are not eligible for new issuances under current law, due either to the expiration of issuing authority or to full subscription of the TCB issuing limit. Bonds that are no longer being issued may still be held by the public. In the 114 th Congress, multiple bills have been introduced to extend or modify certain TCB programs. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) extended the issuing authority of QZABs for the 2015 and 2016 tax years, and provided for $400 million of issuing capacity for each year. Other legislation, including H.R. 2676 and S. 1515 would extend the BAB program indefinitely. Additionally, the President's FY2017 Budget included a number of proposals related to TCBs, including the creation of a new TCB for certain infrastructure programs. There are several types of TCBs, most of which are provided for a specific purpose, location, or type of project. Issuers of Qualified Zone Academy Bonds (QZABs) are required to use the proceeds to finance public school partnership programs in economically distressed areas. Clean Renewable Energy Bonds (CREBs) are designated for clean renewable energy projects. Midwestern Disaster Bond (MWDB) proceeds were for the refinancing of outstanding government debt in regions affected by the Midwestern storms and floods in the spring and summer of 2008. Qualified Forestry Conservation Bonds (QFCBs) are intended to help non-profits or government entities purchase and conserve forest land. Qualified Energy Conservation Bonds (QECBs) are for investment in capital projects that improve energy conservation. Qualified School Construction Bonds (QSCBs) are for school construction, Build America Bonds (BABs) are for any governmental purpose, and Recovery Zone Economic Development Bonds (RZEDBs) are for economic development purposes. Table 1 summarizes the acronyms for the bonds examined in this report. TCBs offer a tax credit that may be used to directly reduce federal income tax liability. The credit available from a TCB depends on the bond principal and credit rate. The method of determining the credit rate differs across types of TCBs: the credit rate for investor and issuer credit TCBs depends on a national credit rate set by Treasury, while the credit rate for direct payment TCBs is dependent on interest rate negotiations between the issuer and investor. Unlike interest on municipal bonds, which does not create a taxable income stream, the credit amount is included in the bond holder's gross income. The credit is limited to the bondholder's current tax liability and is therefore "non-refundable." Unused tax credits may be carried over to the succeeding tax year. The credit rate for investor and issuer credit TCBs is dependent on a national credit rate set by the Secretary of the Treasury. That national credit rate is intended to allow issuers of TCBs to sell their bonds at par (face value) without additional interest expense. The rate calculation is based on its [the Treasury Department's] estimate of the yields on outstanding bonds from market sectors selected by the Treasury Department in its discretion that have an investment grade rating between A and BBB for bonds of a similar maturity for the business day immediately preceding the sale date of the tax credit bonds. The credit rate published (by the U.S. Bureau of the Fiscal Service) on the issue sale date is the bondholder's annual rate of credit. The relationship between the national credit rate set by Treasury and final credit rate applied to a bond issue is dictated by the federal tax code, and differs across types of investor and issuer TCBs. The credit on what are known as 100% credit TCBs provides for a benefit equal to the product of the national credit rate and the bond principal. For example, the annual tax credit rate for investor credit TCBs was 3.92% on September 8, 2016 (the term was 45 years). The bonds sold on that day would allow the taxpayer to claim a federal tax credit equal to 3.92% multiplied by the face value of the bond. Thus, a $100,000 bond issued on September 8, 2016, would yield an annual tax credit of $3,920 for the bondholder. However, other credit rates may be reduced for some TCBs. CREBs and QECBs allow for a credit equal to 70% of the national credit rate. Thus, for these bonds, the investor receives 70% of the annual tax credit described above, or $2,744 (70% of $3,920). The method for determining the tax credit rate for investor tax credit TCBs is generally the same for 100% and 70% credit TCBs. Unlike investor credit TCBs, the benefit claimed for issuer direct payment TCBs depends on the interest rate established between the buyer and issuer of the bond, not the Secretary of the Treasury. The issuer and investor agree on terms either as a result of a competitive bid process or through a negotiated sale. As with investor credit TCBs, the relationship of the final credit rate and the negotiated interest rate may differ across types of TCBs. BAB and RZEDB credits are 35% and 45%, respectively, of a market-determined taxable bond interest rate for the specific issuer, not the Secretary of Treasury. For example, if the negotiated taxable interest rate is 8%, on $100,000 of bond principal, then a bond with 35% credit amount would produce a credit worth $2,800 (8% times $100,000 times 35%). The issuer has the option of receiving a direct payment from the Treasury equal to the credit amount or allowing the investor to claim the credit. The issuer would choose the direct payment option if the net interest cost was less than traditional tax-exempt debt of like terms. The interest cost to the issuer choosing the direct payment is $8,000 less the $2,800, or $5,200. If the tax-exempt rate of the bond is greater than 5.20% (requiring a payment of greater than $5,200), then the direct payment is a better option for the issuer. So long as the marginal tax rate of investors in the municipal bond market is lower than the credit rate of the direct payment TCB, then municipal issuers would likely chose the direct payment option. However, as the marginal tax rate rises, the alternative to direct payment TCBs, traditional tax-exempt bonds, is relatively more attractive to issuers and investors alike. Increases in statutory marginal tax rates would likely induce such an outcome, reducing the attractiveness of direct payment TCBs relative to traditional tax-exempt bonds. The direct payment TCB, in cases where the issuer claims the direct payment, is modeled after the "taxable bond option," which was first considered in the late 1960s. In 1976, the following was posited by the then president of the Federal Reserve Bank in Boston, Frank E. Morris: The taxable bond option is a tool to improve the efficiency of our financial markets and, at the same time, to reduce substantially the element of inequity in our income tax system which stems from tax exemption [on municipal bonds]. It will reduce the interest costs on municipal borrowings, but the benefits will accrue proportionally as much to cities with strong credit ratings as to those with serious financial problems. The taxable bond option has been well received by issuers and investors. A U.S. Department of the Treasury report on BABs, a direct payment TCB, estimated that over the lifetime of the program over $181 billion in BABs were issued. The implementation of annual sequesters, as provided for by the Budget Control Act of 2011 ( P.L. 112-25 ), diminished the credit rates of certain issuer direct payment TCBs. In FY2016, sequestration reduced the credit rates for issuer direct payment BABs, QSCBs, QZABs, new CREBs, and QECBs by 6.8%. The credits on TCBs are "strippable," or separable from the underlying bond. Allowing the separation of the credit from the underlying bond improves the attractiveness and marketability of the TCBs to issuers, investors, and financial intermediaries. Generally, a financial intermediary could buy the TCB, sell the principal to an investor looking for a longer-term investment, and sell the stream of credits to another investor seeking quarterly income. For example, assume a financial intermediary buys the $100,000 TCB presented above. The intermediary sells the right to the principal portion (the $100,000) of the TCB to a pension fund for $90,000 and sells the stream of credits ($1,980 every quarter for 15 years) to another investor for $90,000. The stripping provision makes TCBs more competitive with traditional bonds. The maximum term (the number of years for which the credit will be paid) "shall be the term which the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50% of the face amount of the bond." Specifically, the maximum term of the bonds is determined by the prevailing interest rate for municipal debt with a maturity of greater than 10 years. The maximum term on TCBs issued on September 8, 2016, was set at 45 years. Midwest Disaster Bonds (MWDBs) had a maximum term of two years, and the interest rate reflected the shorter term. The Treasury publishes the credit rate and term daily. ARRA included a provision that requires some of the TCBs to abide by the labor standards as mandated under the Davis-Bacon Act of 1931. Generally, Davis-Bacon requires that contractors pay workers not less than the locally prevailing wage for comparable work. The following bonds are subject to the Davis-Bacon labor standard: new CREBs, QECBs, QZABs, QSCBs, and RZEDBs. The Treasury-determined credit rate for investor credit TCBs is set higher than the municipal bond rate to compensate for the credit's taxability noted earlier. Generally, to attract investors, the credit rate should yield a return greater than the prevailing municipal bond rate and at least equal to the after-tax rate for corporate bonds of similar maturity and risk. And for issuers, the interest cost should be less than, or at least equal to, the next best financing alternative. In almost all cases, tax-exempt bonds would be the next best alternative for governmental issuers. The following section offers a brief analysis of the tradeoff between tax credit bonds and other bonds from the prospective of investors and issuers. An investor's marginal tax rate is critical in determining the attractiveness of bond investments. Consider the following example where we assume an average 4.53% interest rate on municipal debt. Investors in the 15% income tax bracket would need a credit rate of at least 5.33% (4.53% divided by (1 - 0.15)) to choose TCBs over municipal bonds. Investors in the 35% bracket would require a credit rate on TCBs of 6.97% (4.53% divided by (1 - 0.35)). Generally, the TCB credit rate would have to exceed the after-tax return on municipal bonds and the after-tax return on taxable bonds of like term to maturity. The investor credit TCB rate is set at the higher amount to ensure the market for the bonds clears. The choice between a tax credit bond and a taxable corporate bond is not as dependent upon the bondholder's tax bracket. At comparable levels of default risk, TCBs and taxable bonds are equally attractive to purchasers that anticipate tax liability. However, an investor without tax liability that holds a tax credit bond would be allowed to claim a credit for future tax liability or carry forward the credit. For these investors, "stripping" the tax credits from the bond and selling them to an entity with tax liability would be an option. The objective of issuers is to borrow at the lowest possible interest cost. TCBs under both the investor credit model and the issuer credit model are typically lower cost than the next best alternative, tax-exempt bonds. Proposals to reduce the issuer credit rate, to 25% or 28% for example, increase the likelihood that issuers will opt for traditional tax-exempt bond finance. Direct payment TCBs provide issuers with the option of receiving payments directly from Treasury as another option to tax-exempt bonds. The relative value of direct payment TCBs increases with the interest rate of the alternative tax-exempt bond, as that rate determines the payment otherwise required from the issuer. TCB issuers may also establish a bond reserve fund (or sinking fund). A sinking fund provides for the eventual repayment of bond principal by devoting certain funds to regular payments on the bond issue. Generally, IRS rules allow reserve funds to accumulate just enough to repay the bond principal. The sinking fund provision for TCBs significantly reduces the interest cost to the issuer. On September 8, 2016, the allowable rate for the "Permitted Sinking Fund Yield" to repay the issue was 1.55%. The TCB rate was 3.92% on that day. The relative appeal of tax-exempt bonds and TCBs to investors and policymakers may vary significantly with underlying economic patterns. In normal economic conditions, tax-exempt bonds are offered at a lower interest rate than those of corporate bonds. For example, on September 2, 2016, the average high-grade taxable corporate bond rate was 3.24%, and the average high-grade municipal bond rate was 2.84% (see Figure 1 ). The municipal bond rate thus offers a considerable subsidy to the issuer, as without the tax exemption the issuer would have had to pay 40 basis points more for each dollar borrowed (3.24% is 0.40 percentage points greater than 2.84%). However, from late 2008 to early 2009 and from early 2011 to early 2015, the gap between the interest rates of municipal and corporate bonds was much lower than its historical average, and in some cases the municipal bond rates were actually higher than the taxable high-grade corporate bond rates. Turmoil in the financial markets brought about by the Great Recession may have contributed to the increase in municipal bond rates. Another contributor to the high yields on municipal bonds may have been low demand for those bonds due to concerns about potential and actual defaults by municipalities like Chicago, Detroit, and Puerto Rico. Beginning in 2015, the spread between corporate and municipal bonds returned near its historical average. This return to normal may be due to anticipated interest rate increases by the Federal Reserve, as municipal bonds are anticipated to perform better as interest rates increase. However, the recent fluctuations in the rate spread make it difficult to predict the nature of the spread moving forward. The value of the TCB credit is a function of both the interest rate of the bond and the credit rate on the TCB as set by Treasury. However, because the credit rate of the TCB is intended to be such that the bonds are not sold at a discount, the relative value of TCBs to corporate bonds is less dependent on general economic conditions than is the value of municipal bonds over corporate bonds. Therefore, TCBs may be relatively more attractive compared to municipal bonds in economic periods of low growth or great uncertainty. The authority to issue TCBs is usually capped with a national limit or with a state-by-state cap. BABs were the exception. In addition, some of the TCBs include set asides for sub-state governments or other entities. What follows is a brief overview of how and to whom each bond program allocates the authority to issue the bonds. Table 2 lists the existing TCBs and their authorization levels. A more detailed description of each type of bond is provided later in the report. Note that P.L. 110-246 , enacted in June of 2008, created Section 54A of the tax code. This section contains many parameters common to all TCBs. This revision of the tax code was intended to "standardize" some of the TCB parameters. As Table 2 shows, the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 , ARRA) included several bond provisions that use a tax credit mechanism. Specifically, ARRA created QSCBs. It also allowed issuers the option of receiving a direct payment from the U.S. Treasury instead of tax-exempt interest payments or tax credits for investors. These new bonds, BABs and RZEDBs, are also unlike other tax credit bonds in that the interest rate on the bonds is a rate agreed to by the issuer and bond investor. In short, with BABs and RZEDBs, the two parties in the transaction established the tax credit rate, not the Treasury Secretary. The resulting investor tax credit amount or issuer direct payment is equal to 35% of the interest payment for BABs and 45% for RZEDBs. Legislation has been introduced in the 114 th Congress that would modify the status of certain TCBs. This activity includes H.R. 2676 and S. 1515 , which would reauthorize and extend the issuance of BABs. Moreover, QZABs were extended for the 2015 and 2016 tax year with $400 million of capacity each year by the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). Other recent TCB legislative action was taken in the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act; P.L. 111-147 ), which expanded the direct payment option beyond BABs to include issuers of new CREBs, QECBs, QZABs, and QSCBs. The aggregate limit for QZAB debt was $400 million annually from 1998 through 2008, $1.4 billion for each of 2009 and 2010, and $400 million annually from 2011 through 2016. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) authorized an additional $400 million dollars in QZABs for both 2015 and 2016. Further limits are applied to each state, the District of Columbia, and territory based upon their portion of the U.S. population below the poverty line. States are responsible for the allocation of the available credit to the local governments or qualified zone academies. Unused credit capacity can be carried forward for up to two years. Individual public schools use QZABs, through their participating state and local governments, for school renovation (not including new construction), equipment, teacher training, and course materials. To qualify for the program, the school must also be a "Qualified Zone Academy." A "Qualified Zone Academy" is any public school (or program within a public school) that provides and develops educational programs below the postsecondary level if "such public school or program (as the case may be) is designed in cooperation with business to enhance the academic curriculum, increase graduation and employment rates, and prepare students for the rigors of college and the increasingly complex workforce." In addition, the academy must also be located in an empowerment zone or enterprise community. Alternatively, the academy also qualifies if it is reasonably expected that at least 35% of the students qualify for the free or reduced price school lunch program. At least 95% of the bond proceeds must be used for rehabilitating or repairing public school facilities, providing equipment, developing course materials, or training teachers and other school personnel. These bonds had a national limit of $11 billion in each of 2009 and 2010. An additional $200 million in each of 2009 and 2010 was allocated to Indian schools. The bonds generally are allocated to states based on the state's share of Title 1 Basic Grants (Section 1124 of the Elementary and Secondary Education Act of 1965; 20 U.S.C. 6333, BG). The District of Columbia and the possessions of the U.S. are considered states for QSCBs. The possessions other than Puerto Rico (American Samoa, Commonwealth of the Northern Mariana Islands, Guam, and U.S. Virgin Islands), however, were allocated an amount on the basis of the possession's population with income below the poverty line as a portion of the entire U.S. population with income below the poverty line. As noted above, 40% of the bond volume ($4.4 billion) is dedicated to large LEAs. A "large" LEA is defined as one of the 100 largest based on the number of "children aged 5 through 17 from families living below the poverty level." Also, one of not more than an additional 25 LEAs can be chosen by the Secretary if the LEA is "in particular need of assistance, based on a low level of resources for school construction, high level of enrollment growth, or such other factors as the Secretary deems appropriate." Each large LEA, as defined above, would receive an allocation based on the LEA's share of the total Title I basic grants directed to large LEAs. The state allocation is reduced by the amount dedicated to any large LEAs in the state. States are currently authorized to issue $5.2 billion of QZABs and were authorized to issue $22 billion of QSCBs. QZAB allocations will be made through 2016 and may be carried forward up to two years. QSCB allocations were made through 2010 but can be carried forward indefinitely. On September 8, 2016, the credit rate on QZABs and QSCBs was 3.92% and the term 45 years. As noted earlier, issuers of QZABs and QSCBs could have chosen the direct payment option before 2011. Two bills were introduced in the 113 th Congress to extend QSCBs, H.R. 1629 and S. 1523 . As of this writing, no bills have been introduced in the 114 th Congress to extend this provision. As authorized by P.L. 109-58 , the original CREBs, which could have been issued through 2009, had a national limit of $1.2 billion of which a maximum of $750 million can be granted to governmental bodies. In addition to governmental bodies, cooperative electric companies and a "clean renewable energy bond lender" can issue the bonds. A clean renewable energy bond lender is defined in the tax code as "a lender which is a cooperative which is owned by, or has outstanding loans to, 100 or more electric companies and is in existence on February 1, 2002, and shall include any affiliated entity which is controlled by such lender." The CREB lender would lend to co-ops or governmental bodies. The Secretary of the Treasury reviews applications and selects projects "as the Secretary deems appropriate." Thus, CREBs are not allocated by formula and there are no state minimums. The Internal Revenue Service, through IRS Notice 2005-98, described the allocation strategy of the Secretary. The smallest dollar amount projects are considered first and the allocations continue for ever larger dollar amount projects until the entire allocation is consumed. The term and credit rate for CREBs were determined in the same manner as the other TCBs. These original CREBs offered a 100% credit. CREBs are available to finance qualified energy production projects which include (1) wind facilities, (2) closed-loop bio-mass facilities, (3) open-loop bio-mass facilities, (4) geothermal or solar energy facilities, (5) small irrigation power facilities, (6) landfill gas facilities, (7) trash combustion facilities, (8) refined coal production facilities, and (9) certain hydropower facilities. As originally authorized in P.L. 110-343 , the new CREBs had a national limit of $2.4 billion to be issued before December 31, 2009. In contrast to the original CREBs, as noted in Table 2 , the credit rate on new CREBs is 70% of the credit rate offered on the original CREBs. Not more than one-third of new CREBs were allocated to any of the following: (1) public power providers, (2) governmental bodies, or (3) projects of cooperative electric companies. For public power providers, the Secretary determines the qualified projects which "are appropriate for receiving an allocation." Each will receive a share of the allocation based on the ratio of the projected cost of the project relative to all other qualified projects receiving an allocation. Governmental bodies and co-ops receive an allocation in an amount the "Secretary determines appropriate." As with original CREBs, there is not a state-by-state minimum or formula allocation mechanism. As noted earlier, issuers of new CREBs can choose the direct payment option. QECBs were first created under P.L. 110-343 with a national limit of $800 million. The program was expanded with an additional $2.4 billion under P.L. 111-5 for a total available authority of $3.2 billion. Similar to the new CREBs, these tax credit bonds offer a credit rate that is 70% of the credit rate offered on old CREBs and other TCBs. Though the authority to allocate QECBs does not expire, the QECB program is now fully subscribed. QECBs were allocated to states based on the state's share of total U.S. population. The District of Columbia and the possessions of the U.S. are considered states for QECBs. Large local governments, defined as any municipality or county with population of greater than 100,000, are eligible for a direct allocation. Counties that contain a large city can be eligible if its population less the large city population is still greater than 100,000. These bonds are to be used for capital expenditures for the purposes of (1) reducing energy consumption in publicly owned buildings by at least 20%; (2) implementing green community programs; (3) rural development involving the production of electricity from renewable energy resources; or (4) programs listed above for CREBs. Also included are expenditures on research facilities and research grants, to support research in (1) development of cellulosic ethanol or other nonfossil fuels; (2) technologies for the capture and sequestration of carbon dioxide produced through the use of fossil fuels; (3) increasing the efficiency of existing technologies for producing nonfossil fuels; (4) automobile battery technologies and other technologies to reduce fossil fuel consumption in transportation; and (5) technologies to reduce energy use in buildings. Energy saving mass commuting facilities and demonstration projects are also included in the list of qualified purposes. As noted earlier, issuers of QECBs could have chosen the direct payment option on debt issued through 2011. QFCBs were limited to $500 million to be allocated before May 22, 2010 (24 months after enactment of P.L. 110-246 ), in a manner "as the Secretary determines appropriate." Once the bonds are issued, the proceeds must be spent within three years. A unique feature of QFCBs is the allowance for an allocation amount to be used to offset any taxes due the federal government. Any allocation amount used to settle outstanding federal tax debts cannot be used for bond issuance. A qualified issuer is a "State or any political subdivision or instrumentality thereof or a 501(c)(3) organization." For purposes of the QFCB program, a qualified forestry conservation purpose must meet the following criteria: (1) Some portion of the land acquired must be adjacent to United States Forest Service Land. (2) At least half of the land acquired must be transferred to the United States Forest Service at no net cost to the United States and not more than half of the land acquired may either remain with or be conveyed to a State. (3) All of the land must be subject to a native fish habitat conservation plan approved by the United States Fish and Wildlife Service. (4) The amount of acreage acquired must be at least 40,000 acres. GTCBs were bonds distributed to areas affected by Hurricane Katrina, which made landfall in late August 2005. A total of $350 million was available to be issued through GTCBs, with up to $200 million available to be issued by the state of Louisiana, up to $100 million available to be issued by the state of Mississippi, and up to $50 million available to be issued by the state of Alabama. The maturity length of GTCBs was much shorter than that of many other TCBs, with a maximum allowable term of two years. GTCB credits were eligible to be claimed against regular income tax liability and alternative minimum tax liability. GTCBs were designed to assist state and local governments that were burdened with additional fiscal stress. The bonds were largely designed to help with fiscal responsibilities that pre-dated the arrival of Hurricane Katrina, as 95% of GTCB proceeds were required to be used to make bond payments (other than private activity bonds) that were outstanding as of August 28, 2005. GTCBs could be used to pay principal, interest, or premia on state or local outstanding bonds. Eligibility to authorize GTCBs expired at the end of 2006. MWDBs were designated for areas impacted by the severe storms and flooding in the Midwest that occurred between May 1, 2008, and August 1, 2008. Each affected area could have issued an amount based on the population of the affected area. States with over 2 million affected residents were authorized to issue up to $100 million and those with less than 2 million and more than 1 million could have issued $50 million. States with an affected population under 1 million were not eligible to issue MWDBs. Based on IRS guidance, Illinois, Missouri, and Nebraska could have issued up to $50 million each. Indiana, Iowa, and Wisconsin could have issued up to $100 million. These bonds were issued in calendar year 2009 only and as with GTCBs, had a maximum term of two years. The credit rate on the bonds reflected the relatively short term of the bonds. The bonds were intended for states to use to help those sub-state jurisdictions which were under fiscal stress. Specifically, the proceeds from MWDBs were to be used to pay the principal and interest on any outstanding state bonds or the bonds of any affected political subdivision within the state. The proceeds could also have been loaned to a jurisdiction for the same purpose. The provision required the issuer to issue an equal amount of general obligations for the same purpose, akin to a matching requirement. Unlike other TCBs, BABs were not targeted in their designation. The volume of BABs was not limited and the purpose was constrained only by the requirement that "the interest on such obligation would (but for this section) be excludible from gross income under section 103." Thus, BABs could have been issued for any purpose that would have been eligible for traditional tax-exempt bond financing other than private activity bonds. The bonds must have been issued before January 1, 2011. BABs are a direct payment TCB, and offer a credit amount equal to 35% of the interest rate established by the buyer and issuer of the bond. In the 114 th Congress, similar legislation has been introduced in the House and Senate to reinstate and permanently extend BABs. H.R. 2676 and S. 1515 would permanently extend issuance authority for BABs, and implement a decreasing schedule for the applicable credit rate. The credit rate would decrease from 35% for bonds issued in 2009 or 2010 to 28% for bonds issued in 2019 or later. A U.S. Department of the Treasury report on BABs estimated that through December of 2010, the bonds had saved municipal issuers roughly $20 billion in interest costs. RZEDBs are a special type of BAB. Instead of the 35% credit, RZEDBs offered a 45% credit and are targeted to economically distressed areas. Specifically, these bonds are for any area designated by the issuer (1) as having significant poverty, unemployment, rate of home foreclosures, or general distress; (2) economically distressed by reason of the closure or realignment of a military installation pursuant to the Defense Base Closure and Realignment Act of 1990; or is (3) an empowerment zone or renewal community. The purpose of the bonds is, as the name implies, economic development. Specifically, the bonds are to be used for "(1) capital expenditures paid or incurred with respect to property located in such zone [recovery zone], (2) expenditures for public infrastructure and construction of public facilities, and (3) expenditures for job training and educational programs." The volume limit for RZEDBs is $10 billion and was allocated to states (including DC and the possessions) based on their employment declines in 2008. All states that experienced an employment decline in 2008 receive an allocation that bares the same ratio as the state's share of the total employment decline in those states. However, all states and U.S. territories, regardless of employment changes, are guaranteed a minimum of 0.90% of the $10 billion. Large municipalities and counties are also guaranteed a share of the state allocations based on the jurisdiction's share of the aggregate employment decline in the state. A large jurisdiction is defined as one with a population of greater than 100,000. For counties with large municipalities receiving an allocation, the county population is reduced by the municipal population for purposes of the 100,000 threshold. Authority to issue RZEDBs expired January 1, 2011. | Nearly all state and local governments sell bonds to finance public projects and certain qualified private activities. The federal government subsidizes state and local bond issuances through a number of policies. One such policy is the Tax Credit Bond (TCB), which provides a tax credit or direct payment to the issuer or investor that is proportional to the bond's face value. TCBs represent an alternative to tax-exempt bonds, which exclude interest earnings from the investor's federal taxable income. This report explains the tax credit mechanism and describes the market for TCBs. The majority of TCBs are designated for a specific purpose, location, or project. Issuers use the proceeds for public school construction and renovation; clean renewable energy projects; refinancing of outstanding government debt in regions affected by natural disasters; conservation of forest land; investment in energy conservation; and for economic development purposes. The relative appeal of TCBs and municipal bonds is dependent on issuer and investor characteristics and on economic conditions. The first tax credit bonds, qualified zone academy bonds (QZABs), were introduced as part of the Taxpayer Relief Act of 1997 (P.L. 105-34) and first issued in 1998. Clean renewable energy bonds (CREBs) were created by the Energy Policy Act of 2005 (P.L. 109-58), and were later modified as "new" CREBs in the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). Gulf tax credit bonds (GTCBs) were created by the Gulf Opportunity Zone Act of 2005 (P.L. 109-135). Qualified forestry conservation bonds (QFCBs) were created by the Food, Conservation, and Energy Act of 2008 (P.L. 110-246). Qualified energy conservation bonds (QECBs) and Midwest Disaster Bonds (MWDBs) were created by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343). The American Recovery and Reinvestment Act of 2009 (P.L. 111-5, ARRA) included several bond provisions that use a tax credit or issuer direct payment. Specifically, ARRA created Qualified School Constructions Bonds (QSCBs), Build America Bonds (BABs) and Recovery Zone Economic Development Bonds (RZEDBs). Unlike other tax credit bonds, the interest rate on the BABs and RZEDBs is a rate agreed to by the issuer and investor and the issuers receive direct payments from the Treasury. In contrast, the Secretary of the Treasury sets the credit rate for the other TCBs. The credit rate differs across TCB programs. The QZAB and QSCB credit rate is set at 100% and the "new CREB" and QECB credit rate is set at 70% of the interest cost. In contrast, the BAB tax credit rate is 35%. Most of the TCBs to date have been established as temporary tax provisions. The authority to issue several TCBs, including GTCBs and CREBs, has expired in recent years. The only permanent TCB, QECBs, are currently fully subscribed. Bonds that are no longer being issued may still be held by the public. In the 114th Congress, multiple bills have been introduced to extend or modify certain TCB programs. The Consolidated Appropriations Act, 2016 (P.L. 114-113) extended the issuance authority of QZABs for the 2015 and 2016 tax years, and provided for $400 million of issuing capacity for each year. Other legislation, including H.R. 2676 and S. 1515 would extend the BAB program indefinitely. Additionally, the President's FY2017 Budget included a number of proposals related to TCBs, including the creation of a new TCB for certain infrastructure programs. |
Members of Congress and Administrations have periodically considered reorganizing the federal government's trade and development functions to advance various U.S. policy objectives. In the 115 th Congress, these issues have come to the fore in the context of development finance. "Development finance" is a term commonly used to describe government-backed financing to support private sector capital investments in developing and emerging economies. It can be viewed on a continuum of public and private support, situated between pure government support through grants and concessional loans and pure commercial financing at market-rate terms. Development finance institutions (DFIs) are specialized entities that supply such finance. In the United States, the primary provider of development finance is the Overseas Private Investment Corporation (OPIC), but other agencies, such as the U.S. Agency for International Development (USAID), also provide development finance. President Trump renewed the debate over the future of U.S. development finance at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Danang, Vietnam in November 2017, where he announced that the United States is committed "to reforming our development finance institutions so that they better incentivize private sector investment in your economies and provide strong alternatives to state-directed initiatives that come with many strings attached." The Trump Administration's National Security Strategy, released in December 2017, identified modernizing U.S. development finance tools as a priority to advance U.S. global influence. It noted that, "[w]ith these changes, the United States will not be left behind as other states use investment and project finance to extend their influence." Competition for influence with China, which is a major supplier of development finance, especially appears to be a prominent driver of the Administration's interest in development finance reform. Moreover, potential reorganization of the executive branch has been a broader interest of the Trump Administration. The President's FY2019 budget proposed the consolidation of OPIC and other agency development finance functions, specifically noting the Development Credit Authority (DCA) of USAID, into a new U.S. development finance agency to advance a number of U.S. policy objectives. In February 2018, two proposed versions of the Better Utilization of Investments Leading to Development (BUILD) Act, H.R. 5105 in the House and S. 2463 in the Senate, were introduced on a bipartisan, bicameral basis to create a new U.S. International Development Finance Corporation (IDFC). Both bills would consolidate all of OPIC's functions and the Development Credit Authority (DCA), enterprise funds, and development finance technical support functions of USAID. A major difference between the two bills, as introduced, was that S. 2463 H.R. 5105 would authorize the new DFI for seven years, while would authorize it until September 30, 2038. However, the House-passed (July 17, 2018; H.Rept. 115-814 ) and Senate committee-reported (June 27, 2018) versions bridge some differences, including both now providing a seven-year authorization. The Trump Administration issued a statement strongly supporting the BUILD Act, noting that it was broadly consistent with the Administration's goals and FY2019 budget proposal. At the same time, the Administration called for some modifications to the bills to enhance the proposed DFI's alignment with national interests and institutional linkages, as well as to address risk management and other concerns. Stakeholders differ in their views of particular aspects of the DFI proposal and certain issues remain open questions. In June 2018, the White House published a government-wide reorganization plan. It included a proposal to consolidate the U.S. government's existing development finance tools, citing OPIC and DCA as examples. The Administration appears to view the BUILD Act as the primary vehicle for implementing its development finance consolidation proposal. While some executive branch reorganizations can happen administratively, the changes contemplated here would likely require changes to U.S. law. At the bilateral level, national governments can operate DFIs. The United Kingdom was the first country to establish a DFI in 1948. Many countries have followed suit. These DFIs are typically wholly or majority government-owned. They operate either as independent institutions or as a part of larger development banks or institutions. Their organizational structures have evolved, in some cases, due to changing perceptions of how to address identified development needs in the most effective way possible. Unlike OPIC, other bilateral DFIs tend to be permanent and not subject to renewals by their countries' legislatures. DFIs also can operate multilaterally, as parts of international financial institutions (IFIs), such as the International Finance Corporation (IFC), the private sector arm of the World Bank. They can operate regionally through regional development banks as well. Examples of these banks include the African Development Bank (AfDB), Asian Development Bank (AsDB), European Bank for Reconstruction & Development (EBRD), and the Inter-American Development Bank (IDB). The primary role of nearly all DFIs is promoting economic development by supporting foreign direct investment (FDI) in underserved types of projects, regions, and countries; undercapitalized sectors; and countries with viable project environments but low credit ratings (see text box ). DFIs use a range of financial instruments to support private investment in development projects; depending on the DFI, these may include equity, direct loans, loan guarantees, political risk insurance, and technical assistance. Varied as they may be, DFIs aim to be catalytic agents in promoting private sector investment in developing countries. Their support is aimed to increase private sector activity and public-private partnerships that would not happen in the absence of DFIs because of the actual or perceived risk associated with the activity. In providing support for development, DFIs typically pursue "additionality," that is, limiting their support to circumstances when commercial financing for a project is not available on commercially viable terms in order to complement, not compete with, the private sector. The presence of DFIs is considered to provide a guarantee of a long-term commitment to development that private capital would otherwise not bear on its own. At the same time, DFIs generally are market-oriented in their project support, such as in the fees they charge. They generally aim to be financially sustainable or profitable, investing in projects that generate returns. As such, DFIs often have a double bottom line of development impact and financial sustainability or profitability—prompting debate within the development community about the extent to which these goals are complementary or in tension. DFIs vary in the size of their activities, as well as their portfolio compositions—whether by financial instrument, geographic region, or economic sector. They often cofinance investment projects with each other, both at the multilateral and bilateral level. Such financing pools additional funds and diversifies risks across DFIs, such as for certain large-scale infrastructure projects that may be too big and risky for one DFI to finance alone. Unlike government-backed export financing, no international rules govern DFIs' investment financing activities. For decades, the major players in development funding were international financial institutions and bilateral government donors. By the end of the 1980s, private capital flows began to accelerate, and bilateral DFIs, including those of the United States and European countries, became more active in development finance. With their growing economic power, emerging economies increasingly are now also major suppliers of such finance. It is difficult to find centralized, comprehensive, and comparable sources of information on DFI activities. According to one study, the amount of financing committed by some major DFIs grew from about $10 billion in 2000 to nearly $70 billion 2014. That year, DFI annual commitments for private sector investment in developing countries were comprised of 40% by multilateral DFIs (including the IFC and the Multilateral Investment Guarantee Agency, MIGA); 35% by bilateral DFIs (15 European DFIs, OPIC, and Japan's DFI); and 25% by regional finance institutions. By many accounts, the magnitude and scope of China's development finance outsizes that of other historical suppliers of development finance. For example, at the end of 2016, assets of the China Development Bank (CDB, discussed below) stood at 14.3 trillion yuan ($2.3 trillion). Measured by assets, the CDB is larger than the World Bank's IFC, whose assets totaled $90.4 billion in 2016. The growth of direct investment flows has outpaced that of official development assistance (ODA) provided by the 29 members of the Organization for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC), which includes the United States. As ODA has decreased and FDI to developing countries has increased, development finance has become more prominent as a way to encourage private investment to go to undercapitalized areas. For example, global investments in infrastructure total about $2.5 trillion a year, but do not meet demand, such as in developing countries experiencing population growth, expanding economies, and industrialization. Based on current trends, there is a shortfall in infrastructure investment of about $350 billion a year. That gap triples if the United Nations Sustainable Development Goals (SDGs) are taken into account. OPIC and USAID are at the center of the current development finance reorganization debate. While outside of the scope of this report, it is important to note that the United States also supports development finance at the multilateral and regional level through its contributions to entities such as the IFC and various regional development banks. This section provides an overview of OPIC and USAID and, for context, also briefly discusses some other agencies that employ tools similar to these agencies but generally for different purposes. OPIC is the official U.S. DFI. Established by the Foreign Assistance Act of 1961, as amended (FAA; 22 U.S.C. §2191 et seq .), it officially began operations in 1971 (see text box ). It seeks to promote economic growth in developing economies by providing, on a demand-driven basis, project and other investment financing for overseas investments and insuring against the political risks of investing abroad, such as currency inconvertibility, expropriation, and political violence. OPIC provides loans, guarantees, and political risk insurance for qualifying investments. OPIC does not take equity positions in investment funds (pools of capital that make direct equity and equity-related investments in companies). Rather, OPIC supports investment funds through financing. OPIC also generally does not conduct technical assistance. Congress most recently extended OPIC's authority to conduct its programs through September 30, 2018 ( P.L. 115-141 ). Although OPIC uses financial tools and is oriented toward private enterprise, it is a foreign assistance tool. The FAA requires it to conduct its work under the Secretary of State's policy guidance. By statute, OPIC is governed by a 15-member Board of Directors, with 8 "private sector" Directors (with requirements for small business, labor, and other representation) and 7 "federal government" Directors (including the OPIC President, USAID Administrator, U.S. Trade Representative, and a Labor Department officer). In FY2017, OPIC reported authorizing $3.8 billion in new commitments for 112 projects, and its exposure reached a record high of $23.2 billion (see Figure 1 ). OPIC estimated that it helped mobilize $6.8 billion in capital and supported 13,000 new jobs in host countries that year. OPIC's activities are backed by the full faith and credit of the U.S. government. Projects must meet certain requirements, including that investors must have a meaningful U.S. connection in order to be eligible for OPIC support. OPIC must take certain considerations into account when determining whether to support a project (e.g., U.S. economic impact, environmental impact, worker rights, and development impact on country of investment destination). Projects are subject to certain limitations as well. The FAA directs OPIC to operate "on a self-sustaining basis, taking into account ... the economic and financial soundness of projects" and with regard to risk management principles. OPIC charges interest, premia, and other fees for its services to cover the cost of its operations. It assesses credit and other risks of proposed transactions, monitors commitments, and guards against potential losses through reserves. Unlike USAID (discussed below), OPIC's international presence is limited. OPIC states that it relies on expertise of other U.S. government agencies at U.S. missions abroad. USAID has been actively involved in providing development finance in various forms since its establishment in 1961. In its first 20 years, provision of development loans to developing country governments, mostly for infrastructure projects, made up a significant proportion of its operations. In the 1980s, with the Reagan Administration's Private Enterprise Initiative, the agency greatly expanded efforts to develop the private sector in developing countries, including lending to micro, small, and medium business. At this time, the agency possesses a range of development finance capacities: The Development Credit Authority (DCA), managed by the DCA office in the Bureau for Economic Growth, Education, and the Environment (E3), supports bank lending for specific development purposes by employing the promise of U.S. government repayment typically of up to half of each loan in case of default. By lessening the liability to the lending bank, these partial loan guarantees aim to encourage banks to make loans for purposes and clients that they may have previously avoided as commercially unviable or too risky. In FY2016, nearly half of DCA guarantees issued by value (47%) promoted activity in energy and 26% focused on agriculture, while fully half of the value of guarantee assistance went to sub-Saharan Africa and 25% to Asia. Enterprise Funds are private sector-managed entities established with the purpose of stimulating free market economic growth. Following a model of venture capital funds, they featured equity investment as a significant feature of their activities. The funds also, in varying degrees, provide support for mortgage securitization, microfinance, equipment leasing, credit cards, and other efforts to introduce new financial instruments. Ten such funds, supported by $1.2 billion in taxpayer assistance, were launched in Eastern Europe and the former Soviet Union in response to the fall of communist governments and economies in the late 1980s to early 1990s. Two enterprise funds have been established in recent years in Tunisia and Egypt. Micro, Small, and Medium Enterprise (MSME) Finance and Technical Support . Since the 1960s, USAID has provided financial and technical assistance to entrepreneurs through a range of intermediaries—cooperatives, commercial banks, credit unions, business associations, and other nongovernmental organizations (NGOs)—that offer loans and business development services. In addition, the agency has been instrumental in promoting policy reforms that facilitate a legal environment conducive to private sector lending in the developing world. For example, to help small and medium enterprises (SME) in rural areas of Nicaragua with limited access to finance and investment capital, the Enterprise and Employment Program (2009-2013) provided direct technical assistance and training to banks so they could create SME lending programs. The USAID mission also supported development of a new credit scoring tool to assist lenders in making better lending decisions, leading to $39 million in new lending. Catalyzing Private Sector Finance . For many decades—from the commercialization of contraceptive production and distribution in support of family planning, as well as the sale and manufacturing of oral rehydration therapy (ORT), in the 1980s, to the public-private partnerships of the Global Development Alliance in the early 2000s—USAID has sought to increase its development impact by leveraging the resources of the private sector. In drawing the financial support of the private sector, especially U.S. business, the agency has exploited its "convening power" as the leading development agency in the U.S. government with a mission presence in dozens of countries and expertise in the full range of development sectors. Efforts to catalyze private sector finance are ongoing throughout the agency, at both mission and central bureau levels. In 2017, the USAID mission in Pakistan established three equity funds with a contribution of $24 million for each fund, matched or exceeded by private investors to help the expansion of small and medium business in that country. In Ethiopia, a $6 million Innovation Investment Fund has attracted private sector cost sharing of about $25 million in support of medium to large-scale businesses operating within pastoral areas. Launched in 2014, the Africa Bureau's Private Capital Group for Africa (PCGA) works to attract private capital to support development-related projects by identifying profitable transactions. With a team based in South Africa, it seeks to facilitate transactions by eliminating risk and other barriers to finance; to improve cities' ability to finance and service debt for public service projects; and to encourage the use of South African pension funds—a major source of finance capital—in development projects. The USAID Global Health Bureau's Center for Accelerating Innovation and Impact is exploring ways of funneling private sector finance to meet global health needs, including a pilot program to provide working capital to independent pharmacies in order to improve access to medicine in Africa. In 2015, a new Office of Private Capital Development and Microenterprise (PCM) was established in the E3 Bureau specifically to find new ways to mobilize private sector capital and expertise in support of development and facilitate USAID mission activity in this area. It has, for example, partnered with CrossBoundary Energy to pilot a new model of financing solar installations for enterprises in Africa and, working with Sarona Asset Management, it is piloting a currency risk mitigation tool that may help attract more institutional investment (pension funds, insurance companies) in development programs. In addition to OPIC and USAID, some other U.S. government agencies administer functions similar to development finance but generally for different purposes (see Figure 2 ). Several agencies also provide financing and insurance, notably the Export-Import Bank of the United States (Ex-Im Bank). Known as the official U.S. export credit agency (ECA), Ex-Im Bank helps finance U.S. exports of goods and services, not U.S. private sector investment. Unlike OPIC and USAID, Ex-Im Bank is not authorized under the FAA, but rather has its own charter, the Export-Import Bank Act of 1945, as amended (12 U.S.C. §635 et seq. ). It focuses on supporting U.S. exports to contribute to U.S. employment, although its activities can have U.S. foreign policy implications. Other agencies, such as the U.S. Department of Agriculture (USDA) and the Small Business Administration (SBA), also provide export financing, but in a more limited manner and specific to their constituencies, that is, for U.S. exports of agricultural products and exports by U.S. small businesses, respectively. The U.S. Trade and Development Agency (TDA) is among the agencies that also provide technical assistance. Authorized under the FAA (22 U.S.C. §2421), TDA has a dual mission in supporting both U.S. foreign policy and trade objectives, as its name would suggest. TDA aims to link U.S. businesses to export opportunities overseas, including by infrastructure development, that lead to economic growth in developing and middle-income countries. TDA funds pre-export activities, such as feasibility studies and pilot projects. This section highlights selected foreign bilateral DFIs (see Appendix for comparative table). The most direct counterparts and perhaps most easily comparable DFIs to OPIC are arguably the bilateral European DFIs that are members of the Association of European Development Finance Institutions (EDFI). Unlike OPIC, European DFIs can take equity positions and offer some technical assistance. However, they do not offer political risk insurance as OPIC does. Collectively, the EDFI members' portfolios reached $45 billion in 2015, more than double OPIC's $20 billion portfolio in 2015—through OPIC's portfolio was larger than that of any individual EDFI member. Like OPIC, the European DFIs overall tend to be most concentrated in Africa and Latin America. The UK's DFI is distinct in its exclusive focus since 2012 on Africa and South Asia, which it says allows it to focus on regions where the world's poorest people live. Financial services was the largest sector of support for EDFI members collectively, as for OPIC. Also, comparable to OPIC's focus on economic and social governance in its support of projects, EDFI states that its members have adopted a "shared set of principles for responsible financing, which underlines that respect for human rights and environmental sustainability is a prerequisite for financing by EDFIs." China, which has become a major, if not the leading, global supplier of development finance, provides development finance through several entities. At the national level, the key entity is China Development Bank (CDB), a state-owned "policy bank" that conducts development finance for specific purposes. More recently, China established two new multilateral development banks, the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), also known as the BRICS development bank. Data on China's development finance activities are limited and estimates vary widely, but China may have provided upwards of $100 billion in financing in recent years. China's development finance activities have been prominent in their linkages to major Chinese national efforts, notably the Belt and Road Initiative (BRI). Announced in 2013, the BRI is China's vision for economic connectivity across Asia, Africa, Europe, and other parts of the world over land and sea routes, including major financing for infrastructure. It is unclear how much funding China plans to commit to BRI, with reports of Chinese investments potentially reaching $4 trillion, if not more. A number of China's financial institutions are involved in BRI. CDB reportedly has provided support for 100 BRI projects totaling $30 billion. Much of China's support for development is directed toward infrastructure and energy projects, with involvement of Chinese firms, including state-owned enterprises (SOEs). China's development finance activity in Asia, Africa, and Latin America has been a focal point for development finance watchers, but its range is broader, particularly in light of the BRI. China's support for overseas investment often is not associated with the same environmental and social standards to which OPIC and many other DFIs subscribe. On one hand, some recipient governments may welcome that Chinese support is not as conditional as that of other DFIs on environmental and social requirements. At the same time, projects supported by China have raised questions about environmental and social risks, including displacement of large populations due to major infrastructure work, such as hydropower projects. China's financing also appears to take on risks that other DFIs may not want to take. Many of the countries in which China invests have high debt-to-GDP ratios, raising questions about debt sustainability. One illustration of debt challenges associated with China's lending is Sri Lanka; in December 2017, Sri Lanka leased its Hambantota port to Beijing for 99 years after finding itself unable to repay China-backed loans to fund the port. This has "grant[ed] China a foothold in the Indian Ocean and its critical shipping lanes." Japan provides development finance through its Japanese Bank for International Cooperation (JBIC), which is wholly owned by the Japanese government. JBIC was established in 2012, combining Japan's investment and export financing functions. JBIC characterizes itself as a "policy-based institution" that conducts its operations based on policy needs in response to economic and financial situations domestically and internationally. A major focus of JBIC's activities is projects related to securing medium- to-long-term supplies of energy and mineral resources. The composition of JBIC's commitments by financial instrument type has changed over time. In earlier decades, export loans comprised the majority of JBIC's commitments, while presently overseas investment loans represent the bulk of new commitments. By geographic region, Asia represented the largest share of JBIC's FY2016 commitments, followed by North America and Europe. This section discusses issues raised by the potential reorganization of U.S. government development finance functions. While many of the issues draw from the Administration's development finance reform proposal and the BUILD Act bills, the discussion has applicability to other proposals Congress may consider for development finance reorganization. At the outset, Congress may consider the rationales for and against the United States being involved in development finance and modifying that involvement. Supporters of "upgrading" OPIC assert that outdated rules, limited resources and authorities, and lack of a long-term authorization constrain the agency. They have opposed proposals to eliminate OPIC or to consolidate it into a broader trade agency. They argue that OPIC helps fill in gaps in private sector support that arise from market failures, as well as helps U.S. firms compete against foreign firms backed by foreign DFIs for investment opportunities—thereby advancing U.S. foreign policy, national security, and economic interests. While even a strengthened OPIC may not be able to compete "dollar-for-dollar" with China's DFI activity, supporters argue that the United States "can and should do more to support international economic development with partners who have embraced the private sector-driven development model." At the same time, OPIC has been the subject of long-standing criticism. Opponents of OPIC dispute the notion that the federal government should be involved in financing and insuring private sector investments. They argue that OPIC diverts capital away from efficient uses and crowds out private alternatives, take issue with OPIC assuming risks unwanted by the private sector, and question the development benefits of its programs. Critics have called for terminating OPIC's functions or privatizing them, rather than boosting them through a new DFI. From an economic perspective, the impact of government-backed financing on markets is often debatable. Some economists contend that officially backed financing by other countries is likely to have little effect on the overall level of U.S. investment, although certain foreign government policies may have harmed specific U.S. industries, and even if it has an impact, the net benefit may be small or negative due to opportunity costs. Other experts contend that U.S. government support is critical for U.S. investors to offset the effects of similar programs used by foreign governments. While some development financing is complementary, one point of debate is the extent to which there is direct competition for investment projects between U.S investors and foreign investors backed by other governments. Moreover, a range of factors beyond investment financing may influence competitiveness. Proof that state-backed foreign investment financing places U.S. firms at a competitive disadvantage in overseas markets is difficult to identify, in part because of the lack of transparency for DFI activities. Nevertheless, the sheer magnitude of financing provided by emerging economies suggests that such financing may have discernable impacts on U.S. commercial activity in the long term. In the event that Congress determines that U.S. development finance functions should be reformed, a key question is whether consolidation is the best way to proceed, or if reforms should be made within individual agencies, keeping their current structures intact. A proposal to create a new DFI has been in the making for some time. In recent years, various civil society stakeholders, including some analysts at the Center for Global Development (CGD), have proposed consolidating the functions of OPIC and other agencies that they view as development finance into a new DFI. Congressional hearings have been held in recent years on development assistance reform that have considered changes to OPIC. The Administration's FY2019 budget proposal to create a new DFI was the outgrowth of interagency discussions, led by the Office of Management and Budget (OMB) and the National Security Council (NSC) and involving OPIC, USAID, the State Department, and others, on challenges related to development; these discussions were prompted by the President's executive order on government reorganization. Against this backdrop, the BUILD Act was introduced in the House and Senate in February 2018. The Trump Administration issued a statement strongly supporting the BUILD Act, noting that it was broadly consistent with the Administration's goals and FY2019 budget proposal while also calling for some modifications to the bills. From the Administration's perspective, the bills should be modified to enhance the new DFI's alignment with U.S. national interests, as well as its institutional links with USAID and other development agencies. The Administration also held that the bills require other changes, including to the DFI's funding structure, to enhance the DFI's risk management and prevent it from displacing private sector resources. Supporters of reorganization argue that it could enhance government efficiency by eliminating overlap of functions and reducing costs. They also argue that consolidating the U.S. government's development finance functions would allow the U.S. government to better leverage its suite of development finance tools. Supporters also argue that the new DFI would help the United States compete more effectively with China and foreign counterparts by better matching the resources and authorities of those foreign DFIs. In addition to these rationales for reorganization, supporters also may see the creation of a broader DFI as a way to strengthen OPIC or shield it from potential future risk of elimination. Critics of reorganization argue that it could incur costs through the creation of a new bureaucracy, at least in the short run. Other concerns raised include the risk that reorganization could dilute or undermine the effectiveness of the development finance functions at issue because OPIC and USAID, while both focused on development, have different constituencies and approaches in their work. For instance, although both have programs that deal with private enterprise, OPIC has had to be self-sustaining and accordingly less of a risk-taker than USAID. Still others may argue that a more effective way for the United States to focus on enhancing coordination of development finance functions among agencies or to support development goals is to focus on its activities through multilateral and regional DFIs. If Congress pursues reorganization, it faces a number of issues regarding how to structure the proposed new DFI. The proposed DFI can be viewed as a distinct new entity but also would be a successor to OPIC. Thus, the issues raised by reorganization are discussed here as potential changes to OPIC. The BUILD Act would create a new International Development Finance Corporation (IDFC), a wholly owned U.S. government corporation, by consolidating all of OPIC's functions and USAID's DCA, enterprise funds, and development finance technical support functions. The IDFC would aim to facilitate private sector participation in providing capital and skills to support economic development of developing countries. In doing so, the IDFC would promote U.S. development assistance objectives and advance foreign policy and economic interests. Since the BUILD Act's introduction, various concerns have been raised about the proposed DFI's objectives among supporters. For example, some in the development community questioned whether the new DFI would have a sufficiently strong development mandate. Other concerns among supporters have been about the transparency, environmental, and social standards of the new DFI relative to OPIC. Some critics of OPIC have supported strengthening statutorily the aim of the DFI in specifically countering China's influence in the developing countries. Of the myriad issues regarding China's development finance, a frequently noted one is the debt burdens it imposes on developing countries. Amendments to the BUILD Act appear to reflect these concerns. Both the House-passed and Senate committee-reported versions would direct the new DFI to take into account in its financing operations "the economic and financial soundness and development objectives" of the projects it supports. They also expand the statement of policy to include providing countries with a "robust alternative to state-directed investments by authoritarian governments and [U.S.] strategic competitors using high standards of transparency and environmental and social safeguards, and which take into account the debt sustainability of partner countries." Congress may consider how the structure and composition of the proposed DFI's management structure may reflect policy priorities. Under the BUIILD Act, the proposed DFI's Board of Directors would vary from OPIC's Board of Directors. The new DFI's nine-member Board of Directors would be composed of the Chief Executive Officer of the new DFI, four U.S. government officials (the Secretary of State, USAID Administrator, Secretary of the Treasury, and Secretary of Commerce—or their designees), and four private sector members. The Chairperson of the Board would be designated by the President from among the members of the Board, while the USAID Administrator (or his/her designee) would be the Vice Chairperson. In comparison, by statute, OPIC's 15-member Board of Directors is composed of eight "private sector" Directors (with requirements for small business, labor, and cooperatives interests) and seven "federal government" Directors (including the OPIC President, USAID Administrator, U.S. Trade Representative, and a Labor Department officer). The Chairman and Vice Chairmen of OPIC's Board are to be appointed by the President of the United States among the members of the Board. Thus, distinctions include that the new DFI's Board of Directors would be smaller; have more "federal government" than "private sector" representation; not have a specific requirement to have small business, organized labor, or cooperatives representation; and be required to have the USAID Administrator (or his/her designee) as the Vice Chairperson of the Board. These differences could raise questions about how the new DFI's management structure vis-à-vis OPIC's management structure could affect its emphasis on various stakeholder interests in its operations and institutional ties with other government agencies. As introduced in the House and Senate, the BUILD Act would require private sector board members to have "relevant private sector experience to carry out" the new DFI's purposes. Following committee action, the House-passed and Senate committee-reported versions modify this requirement to note that such experience "may include experience relating to the private sector, the environment, labor organizations, or international development." A question for Congress is whether to establish the new DFI as a permanent entity or one subject to reauthorization and, if the latter, how frequently. As introduced, the House version of the BUILD Act would extend the new DFI's authority by seven years and the Senate version would extend it until FY2038. The current versions reconciled this difference in favor of seven years. In considering this issue, Congress may consider looking to OPIC. In recent years, OPIC has been subject to yearly extensions of its authority through the appropriations process. Some argue that a multiyear or permanent authorization would enhance OPIC's ability to plan in the long term and provide assurances to investors about its programs. (OPIC commitments and obligations can be made for multiyear periods extending beyond any particular reauthorization.) Others argue that periodic reauthorizations allow for enhanced congressional oversight of OPIC's activities. Other DFIs tend not to be subject to a regular reauthorization process, as they were established as "permanent" entities, but remain subject to ongoing oversight and scrutiny by legislative bodies or executive agencies. Congress may consider whether to modify the new DFI's "maximum contingent liability"—the total amount of financing and insurance that the DFI is permitted statutorily to have outstanding at any one time—compared to that of OPIC. Variously referred to as the portfolio or exposure limit, it has been statutorily set at $29 billion for OPIC. In FY2017, OPIC's exposure was $23.2 billion, or 80% of OPIC's exposure limit. The BUILD Act would set the new development finance agency's exposure limit at $60 billion for five years. It would adjust the maximum contingent liability limit every five years to reflect any percentage of increase in the average of the Consumer Price Index (CPI) over the preceding five years. A larger maximum contingent liability would allow the new DFI to take on more projects and have the potential to have a greater development impact, yet it might increase risks to U.S. taxpayers if the projects that were supported experienced defaults or were subject to claims recoveries. In Senate committee consideration, two proposed amendments related to the exposure cap were defeated. One amendment would have reduced the statutory exposure limit for the new DFI from $60 billion to $35 billion, and the other would have eliminated the automatic increase of the limit based on the CPI five-year average. Under the BUILD Act, the IDFC's authorities would expand beyond OPIC's existing authorities to make loans and guarantees and issue insurance or reinsurance; they would also include the authority to take minority equity positions in investments, subject to limitations. In addition, unlike OPIC, the IDFC would be able to issue loans in local currency. Drawing from USAID, the IDFC would be authorized to establish and operate enterprise funds as well. In addition, the IDFC would have the authority to conduct feasibility studies on proposed investment projects (with cost-sharing) and provide technical assistance. Like OPIC, the IDFC's authorities to support development finance would be backed by the full faith and credit of the U.S. government. Congress may examine proposed changes to OPIC's existing authorities under the BUILD Act, including in the following areas. The BUILD Act would give the new DFI the authority to take a minority equity stake in investment funds, subject to limitations. Supporters of such authority argue that the new DFI would be able to use the higher returns generally associated with equity investments to support more projects, as well as be more competitive vis-à-vis foreign counterparts, given that most other DFIs have equity authority. OPIC asserts that the ability to invest in investment funds as a limited partner could help diversify its total exposure in the long run through its "incremental return," as well as enable it to partner more effectively with other DFIs. However, there remains resistance to the notion of the U.S. government taking an ownership stake in a private enterprise. Critics argue that equity authority would require more resources in managing an investment, compared to one supported through debt instruments alone, and could lead to additional risk and financial exposure. Under the BUILD Act, the new DFI would have the authority to administer and manage special projects and programs, including technical assistance, grants, and studies for a range of activities, including renewable and small business activities. The House-passed and Senate committee-reported versions expand this list of activities to include activities related to women's economic empowerment and microenterprise households. In addition, the IDFC would have the authority to conduct feasibility studies on proposed investment projects (with cost-sharing). The authority to make grants for feasibility studies and other technical assistance would be a distinction from OPIC's current and typical operations. Presently, OPIC has limited authority to provide technical assistance for certain investment projects in Africa. Other U.S. government agencies focus more specifically on technical assistance for foreign policy programs, including the Department of State, USAID, and TDA—sometimes in collaboration with OPIC. For example, in the wake of the "Arab Spring," OPIC approved $500 million in lending to Egypt and Jordan to support small businesses in those countries, and USAID provided grant funding and technical assistance. Those in favor of technical assistance capacity for the DFI contend that this function would enhance the agency's effectiveness. Nevertheless, the new DFI's technical assistance function could overlap with other government agencies' roles. The technical assistance issue has prompted some to question the rationale for excluding TDA from the consolidation. Others point out that TDA aims to support U.S. exports through its programs to support economic development overseas. The new DFI would be able to make loans in U.S. or foreign currency, expanded authority compared to OPIC, which was limited to making loans in U.S. currency. Both the House-passed and Senate committee-reported bills would only permit foreign currency-denominated support if the Board determines there is a "substantive policy rationale for such support." In addition, S. 2463 , as reported by the Senate Foreign Relations Committee, would require the DFI to collect data on the involvement of minority- and women-owned businesses in projects support by the DFI, and to include the data in its annual report to quantify the effectiveness of the DFI's outreach activities to minority-owned and women-owned business. This language is similar to provisions in OPIC's enabling legislation regarding outreach to women- and minority-owned businesses and related data collection (22 U.S.C §2200(b)). The House-passed version does not include any substantively similar provision. Congress may consider what requirements and limitations to impose on the new DFI's support for projects. Through such conditions, Congress can exercise its authority over the DFI and guide its activities more directly, even if it is not involved in approving individual projects. At the same time, it may wish to consider the impact of layering conditions on the new DFI's support on its flexibility and agility, including vis-à-vis other DFIs, which may attach different terms and policy conditions to their support. Many of the BUILD Act's provisions mirror OPIC's current parameters, such as requirements to take into account worker rights and environmental impact factors. Some provisions would vary. Under the BUILD Act, the IDFC's activities would be subject to statutory requirements and limitations. Scope of geographic operations. OPIC, by its statute, must give preferential consideration to investment projects in less-developed countries and restrict its support in higher-income countries; it has interpreted this requirement to allow it to support projects in higher-income countries that are highly developmental or focus on underserved areas or populations. The BUILD Act also would prioritize support in low-income or lower-middle-income economies, but set a higher bar for providing support in upper-middle-income countries, including subjecting it to a national interest determination by the President. This could enhance the DFI's development impact in the poorest regions, but also inhibit its impact to the extent that investors prefer supporting projects that are in higher-income countries but that are nevertheless development oriented. Market-based support. Compared to OPIC, the IDFC would be subject to greater specifications on interest rates and ensuring the market-based nature of the new entity's support. "U.S. nexus" requirement. While OPIC support is only available to investors that have a U.S. connection, the new DFI would only have to give preferential consideration to projects sponsored by or involving the U.S. private sector. Such a modification could expand the DFI's development impact, but at the same time, decrease benefits to U.S. employment interests. International trade considerations. The IDFC would have to give preferential consideration to countries in compliance with or making substantial progress in coming into compliance with their international trade obligations. OPIC does not have a comparable obligation with respect to international trade obligations. Worker rights and environmental impact. As with OPIC, the IDFC's support would also have to take into account worker rights and environmental impact considerations. Support could not be provided in countries and to projects benefiting persons subject to U.S. sanctions. The House-passed and Senate committee-reported versions of the BUILD Act would also require the DFI to include specified language in all contracts for DFI support regarding worker rights and child labor. Additionality. Reflecting OPIC's current practice of making sure that its support is "additional" to the private sector support for investment, the new DFI would be required to supplement, not compete with, private sector support. The House-passed and Senate committee-reported versions also would require the new DFI to develop safeguards, policies, and guidelines to ensure that its support does not have a "significant adverse effect" on U.S. employment. Women's economic empowerment consideration. The House-passed and Senate committee-reported versions of the bills would require the new DFI to consider the impact of its support women's economic opportunities and outcomes and to take steps to mitigate gender gaps and maximize development impact by working to improve women's economic opportunities. Boycott restriction . Based on an amendment offered during committee mark-up, the House-passed version of the BUILD Act would require the new DFI, when considering whether to approve a project, to take into account whether the project is sponsored by or would benefit individuals who, within the past three years, have supported a boycott on a foreign country that is "friendly" with the United States and is not subject to a boycott under U.S. law or regulation. The measure is aimed at ensuring that beneficiaries of the new DFI's support are "not undermining [U.S.] foreign policy goals." Concerns about boycotts against Israel appear to figure prominently. The Senate committee-reported version also has this provision. Sanctions restrictions. Under the BUILD Act, support could not be provided in countries and to projects benefiting persons subject to U.S. sanctions. H.R. 5105 , as amended during committee markup, would further require that any beneficiaries of the new DFI's support to certify that they are not conducting business that is subject to sanctions under U.S. law. The Senate committee-reported version also has this provision. The House and Senate committee-approved versions of the BUILD Act would both establish a risk committee and audit committee to monitor the new entity's performance. The IDFC also would be required to develop a performance measure system and monitor projects, building on OPIC's current development impact measurement system. It would be subject to reporting and auditing requirements. The House-passed and Senate committee-reported versions of the BUILD Act would require the risk committee to develop policies for assessing, before and while providing support to any foreign entities, whether those entities have in place due diligence policies and practices to prevent money laundering and corruption. The aim of the proposed requirements would be to ensure the IDFC does not provide to persons knowingly engaged in corruption, providing support for terrorism, drug trafficking, human trafficking, or otherwise supporting gross violations of human rights. In addition, they would add "developmental, environmental, and social risk" to the list of risks for which the risk committee is required to develop policies. The DFI's risk management practices could be of interest for Congress, as the BUILD Act would expand the new DFI's exposure cap and its authorities. Some may argue that any increased risks relative to OPIC would be limited, and that the proposed DFI would have the organizational structure to manage risks properly, such as through the Chief Risk Officer and audit and risk committees prescribed by the BUILD Act. Others say that technical assistance conducted by the new DFI for projects could help to strengthen projects, and lead to projects that are more financially sound. Still others may argue that for the new DFI to be effective, it must be willing to take on risks, because it is in those riskier markets where it will be able to make the most the difference in terms of development. The BUILD Act would establish an Inspector General (IG) specific to the new DFI. Presently, the USAID IG has legal authority to conduct reviews, investigations, and inspections of OPIC's operations and activities. Given the differing roles of OPIC and USAID and the fact that the new DFI, as a merger, would be a distinctly new entity, one view could be that there is a need to establish an IG specific to the new DFI. Another view could be that the current OPIC-USAID arrangement suffices and no additional resources should be directed to creating a new IG. The House-passed and Senate committee-reported bills would require the new DFI to establish a transparent and independent accountability mechanism to annually evaluate and report to the Board of Directors and Congress about compliance with environmental, social, labor, human rights, and transparency standards, consistent with the agency's statutory mandates; provide a forum for resolving concerns regarding the impact of projects supported by the DFI with respect to these standards; and provide advice regarding the DFI's projects, policies, and practices. If Congress structures a new DFI, a consideration is how to measure the proposed agency's performance. Under the BUILD Act, the new DFI would be required to develop a performance measurement system and monitor projects, using OPIC's current development impact measurement system as a starting point. Measuring development impact can be complicated for a number of reasons, including definitional issues, difficulties isolating the impact of development finance from other variables that affect development outcome, challenges in monitoring projects for development impact after DFI support for a project ends, and resource constraints. Comparing development impacts across DFIs is also difficult as development indicators may not be harmonized. To the extent that the proposed DFI raises questions within the development community about whether it would be truly "developmental" at its core, rigorous adherence to development objectives through a measurement system will likely be critical to gauging its effectiveness. Moreover, Congress may wish to take a broader view of U.S. development impact, given the active U.S. contributions to regional and multilateral DFIs. In terms of the performance measurement system, the House-amended and Senate committee-reported bills both would further require that the new DFI to develop standards for measuring the projected and ex post development impact of a project. Transparency and public participation opportunities in the new DFI's activities have been part of the debate over the BUILD Act. Both the House-passed and Senate committee-approved bills would require the new DFI to notify Congress 15 days before making a financial commitment above $10 million. They also would impose reporting requirements on the new DFI. The BUILD Act, in both the House-passed and Senate committee-approved versions, would require the new DFI's Board of Directors to develop, in consultation with stakeholders and other interested parties, a publicly available policy for consultations, hearings, and other forms of engagement in order to provide "meaningful" public participation in the Board's activities. The version of S. 2463 reported by the Senate Foreign Relations Committee would establish a Development Advisory Council to advise the Board on development objectives. Its members would be appointed by the Board, on the recommendation of the CEO and Chief Development Officer. The council would be composed of no more than nine members "broadly representative" of NGOs, think tanks, and other institutions engaged in international development. The council would not be subject to the Federal Advisory Committee Act. The House-passed version does not include a similar provision. If Congress decides to establish a new DFI, it would face consideration of how to fund it. Under the BUILD Act, the new DFI would be directed to be "self-sustaining" like OPIC and similarly to fund its operation through the fees and other revenues it collects. Congress may consider to what extent the DFI's potentially expanded capacity and functions, as well as other features, may shape its ability to operate on a self-sustaining basis or not. For example, one consideration is how the new DFI would fund its grant-making functions. The Administration proposal allocates $56 million in Economic Support and Development Fund (ESDF) money for development finance related programming and authorizes "additional transfers" of funds from USAID. OPIC leadership points to the ESDF as a possible way to fund grants by the new DFI. Some contemplate that the DFI's grant-making activities would be limited. Neither the House nor Senate committee-approved State-Foreign Operations appropriations bills for FY2019 ( H.R. 6385 and S. 3108 , respectively) include funding for a DFI, but both proposals indicate that they will consider funding for a DFI if legislation authorizing a new institution is enacted. If enacted into law, both the proposed legislation and the Administration's FY2019 budget proposal on the new DFI would have an impact on USAID, although, lacking detail, the full extent of these initiatives' impact is not yet clear. The Administration proposal and the legislation both call for USAID to transfer the Development Credit Authority to the new DFI. Both the House-passed and Senate committee-passed versions also authorize but do not require the transfer from USAID to the DFI of the enterprise funds and the Office of Private Capital and Microenterprise, though the Senate bill authorizes this only with the concurrence of the USAID Administrator. This section discusses possible consequences for USAID. The DCA is one of many assistance tools available to USAID. It has generally been used by the agency to produce specific development outcomes. Almost all DCA projects have originated through the country- or region-based missions which identified a problem and used DCA guarantees to help address the problem, often in conjunction with an array of other project activities, including technical assistance and training that, in their totality, made the loans more effective. Supporters of the proposed reorganization assert that consolidating DCA with other development finance functions would increase the efficiency of these functions. However, former USAID Administrator Andrew Natsios and former Associate Administrator Eric Postel argue that removing the DCA from USAID would end the integration of this tool in that broader project design, making its use as a development tool less effective. As discussed below, proponents suggest that, with effective interagency coordination, USAID could still access the full benefits of DCA guarantee instruments. H.R. 5105 and S. 2463 , as amended, would both establish the position of Chief Development Officer within the new DFI, and that officer would be tasked with, among other things, directly working with USAID missions to ensure their continuous access to the development credit tools that are transferred to the DFI. Some observers say that the existing authorities for the Europe/Eurasia enterprise funds, which the legislation would transfer to the proposed DFI, are specific to the time and place in which they operated. Those older funds are also substantially different from the two current funds, which, like existing models of investment funds managed directly by OPIC, are more restricted in their range of activities to equity investments and lending. The new USAID enterprise funds, however, remain primarily funded by U.S. government grant funds, while OPIC's are supported with private sector money. The USAID model is also private sector-managed, likely requiring close USAID oversight and an in-country presence to ensure the funds fulfill a development, rather than a purely for-profit, mission. As such, their removal to an agency without either feature may make this model less effective as a development instrument. Relatedly, it has been argued that if the new DFI would have the authority to conduct equity investment, there is no need for an enterprise fund. PCM conducts both a research/project pilot function in identifying opportunities to draw in private capital and a technical expertise resource function benefitting USAID missions. The latter function would likely be lost if the office is transferred to the new DFI or, as some have noted, would have to be reintroduced in some other form if USAID is to play any continuing role in this sphere. It is also not clear whether legislators intend to transfer microfinance functions out of the agency as well—PCM does little on this issue, as microenterprise activities have been incorporated into other sectors and mechanisms. Transfer of these financing functions, whether for efficiency or nonduplication purposes, could have unintended impacts on USAID's overall development efforts. For example, USAID has employed loan guaranties in support of its broader health, agriculture, environment, and other sector programs. To a more limited extent, it has supported equity investment programs separate from the enterprise funds in Pakistan and elsewhere. Efforts to leverage private capital in support of development are conducted throughout the agency and in every sector with or without PCM assistance. To the extent that the DFI proposals would prevent duplication of methodologies that employ private funding, many USAID development efforts could be made less effective. In addition, the proposal calls for the transfer of $56 million from traditional USAID accounts to the new DFI to be used for development finance-related programming, including advisory services, technical assistance, capacity building, and credit subsidies. This funding, and "additional transfers" for which the proposal seeks authority, would otherwise presumably remain with USAID to achieve similar objectives. As currently constituted, the proposals imply that cost savings and operational efficiencies would ensue from concentrating development finance capabilities in one institution. It is unclear how the transfer of offices, personnel, and loan authorities from one agency to the next would save funds. It is also unclear how the new DFI would be able to efficiently conduct its activities without seeking to duplicate the features that give USAID its advantage as a development programming and implementation agency, namely its convening power, development know-how, and mission presence. One possible answer that the legislation implies is close coordination (see below). Both the House-passed and Senate committee-passed versions of the BUILD Act require a joint report to Congress by the DFI CEO and the Administrator of USAID on how the DFI and USAID will coordinate the transfer of functions from USAID to the DFI prior to the implementation of such transfers. Language was also added to clarify the interagency consultation process required for the establishment of new enterprise funds by the DFI. If Congress determines that consolidation is the best way to proceed, a critical issue is how to ensure sufficient, long-term interagency coordination between the new DFI and other federal agencies. The legislation suggests that coordination between the DFI and two key development agencies—USAID and the Millennium Challenge Corporation (MCC)—would be a necessary feature of the proposal by requiring appointment of a Chief Development Officer who would be responsible for coordinating policy and its implementation with the development missions of its sister agencies. The Administration budget proposal similarly anticipates the DFI's "strong linkages" to USAID, suggesting that it would work "closely with the missions and other parts of USAID to enhance the enabling environment for private sector investment." Supporters of the DFI proposal appear to recognize the role of USAID missions in identifying and funding financing needs and USAID's Development Credit Authority in implementing those financing programs. Many supporters of the DFI proposal believe that this system should continue even with DCA consolidation into the DFI. They argue that the proposal might have positive benefits for USAID if its relationship with the DFI provides USAID missions with access, not only to its former DCA guarantee instrument, but to the whole range of finance tools, including equity and risk insurance, that the DFI would manage. Similarly, the DFI would be able to significantly expand its overseas presence through access to USAID's missions. The trick, as some observers have noted, is to make the process for USAID missions to draw on DFI tools and the DFI to draw on USAID—the coordination between the two distinct agencies—"seamless." The history of foreign aid interagency cooperation and coordination suggests the difficulties of achieving smoothly functioning coordination. In the past, commentators have pointed to, as examples of interagency differences, the fragmentation of development assistance among multiple players; the problems of coordination between the State Department Office of the Global AIDS Coordinator and its program implementers; tensions between State and USAID in Pakistan and Arab Spring countries; and the lack of complementarity between MCC and USAID (despite the latter's presence on the MCC Board of Directors). Different agencies develop different corporate cultures and focus and observers note strong distinctions between OPIC and USAID. Currently, OPIC provides relatively larger-scale financing, has been more oriented toward infrastructure historically but has offered support for financial and other noninfrastructure investments lately, and can only support projects that have meaningful involvement by the U.S. private sector. USAID works at a significantly more small-scale, locally oriented level, and has been described as more risk tolerant in its development efforts as it works in a much less structured environment. Each agency approaches development in vastly different ways—the fact that they do not do the same deals now suggests these differences. Some have suggested that OPIC is unlikely to understand the myriad USAID regulations and legislative restrictions under which it operates and question whether it or the DFI would be able to work successfully in the USAID mission environment (and vice versa). Some observers believe that, for the new DFI to effectively play a development assistance role in support of USAID, coordination should be hard-wired into the authorizing legislation, rather than depending on impermanent interpersonal relationships or shared board membership to effect a temporary cooperation. One suggestion is a dual-hatted—both DFI and USAID—Chief Development Officer, to help ensure that the DFI operates in a way that would meet USAID needs in the field. Another possible path forward is to require that DCA guarantees continue to draw their funding from USAID mission budgets, thereby ensuring that the DFI views USAID as a key customer. In addition, the metrics required by the legislation to measure development success could include support for USAID programs as an indicator. In addition to examining interagency coordination from a development perspective, Congress also may consider coordination issues from the export promotion perspective. OPIC has a strong private sector orientation, and investment is linked to U.S. exports and other economic impacts. OPIC and Ex-Im Bank have a history of collaboration, including on financing projects under Administration initiatives such as Power Africa and conducting outreach to small businesses on U.S. government financing resources. OPIC also is a member of the interagency Trade Promotion Coordinating Committee (TPCC) and involved in Administration export promotion efforts. To the extent that the proposed DFI's role with respect to the private sector is different from that of OPIC, Congress may consider to what extent the proposal would affect the current synergies between OPIC and Ex-Im Bank, as well as broader implications for interagency coordination of the U.S. government's export promotion activities. Several Members of Congress have sought to address some of these concerns during House and Senate committee consideration of the BUILD Act, with both chambers amending the act to require the DFI to have a Chief Development Officer tasked with coordinating development policies and implementation efforts with USAID and giving the USAID Administrator a direct role in the appointment of the Chief Development Officer. Congress may examine how the new DFI would support U.S. businesses in competing with foreign businesses for overseas investment opportunities. For example, how would the capacity, authorities, policy parameters, and other features formulated by Congress enable or constrain the DFI from supporting U.S. private investment overseas for development? What policy trade-offs would these features entail? The new DFI's potential role in supporting U.S. strategic economic interests also may be of congressional interest. The Trump Administration has cast development finance reorganization as a way to advance U.S. influence and serve as an alternative to state-directed investment models, notably by China. The National Security Strategy stated, "American-led investments represent the most sustainable and responsible approach to development and offer a stark contrast to the corrupt, opaque, exploitive, and low-quality deals offered by authoritarian states." Given that a U.S. DFI would not be able to match the resources of China's DFIs, Congress may examine how the new DFI could deploy its resources strategically to advance U.S. policy objectives. Another potential issue for consideration is whether to strengthen statutorily the aim of the DFI in specifically countering China's influence in the developing countries. At the same time, Congress may examine how a more strategic orientation for the DFI would align with the typically demand-driven nature of U.S. government support for private sector activity, as has been the case for OPIC. In addition, Congress may consider whether to advocate for creating international "rules for the road" for development finance. Such rules could help ensure that the proposed DFI operates on a "level playing field" relative to its counterparts, given the variation in terms, conditions, and practices of DFIs internationally. U.S. involvement in developing such rules could help advance U.S. strategic interests. However, such rules would only be effective to the extent that major suppliers of development finance are willing to abide by them. For example, China is not a party to international rules on export credit financing, though it has been involved in recent negotiations to develop new rules on such financing. While Congress has demonstrated bipartisan, bicameral support for moving forward with development finance reorganization, the current proposals present Congress with a number of issues in terms of structuring the proposed new DFI and the implications of reorganization. Development finance is a cross-cutting issue implicating U.S. interests in terms of foreign policy, national security, economic interests, and international investment. Combining public support with private sector capital, development finance also intersects with a range of stakeholder interests and any reorganization may raise questions about how to balance various policy goals. Thus, consideration of the BUILD Act or any other legislation introduced to reorganize federal development finance functions may be an active area of debate for Congress. | Members of Congress and Administrations have periodically considered reorganizing the federal government's trade and development functions to advance various policy objectives. In its 2019 budget request, the Trump Administration included a proposal to consolidate the Overseas Private Investment Corporation (OPIC) and other agency development finance functions, specifically noting the Development Credit Authority (DCA) of the U.S. Agency for International Development (USAID), into a new U.S. development finance agency. The policy objectives that the new agency would aim to support include enhancing the efficiency and effectiveness of government functions and advancing U.S. national security interests. The Administration also proposed the creation of a new Development Finance Institution as part of a comprehensive government-wide reform and reorganization plan released in June 2018. In February 2018, two proposed versions of the Better Utilization of Investments Leading to Development (BUILD) Act, H.R. 5105 in the House and S. 2463 in the Senate, were introduced on a bipartisan, bicameral basis to create a new U.S. International Development Finance Corporation (IDFC). The companion bills would consolidate all of OPIC's functions and the DCA, enterprise funds, and development finance technical support functions of USAID. While there were some significant discrepancies between the two bills, as introduced, including the period of authorization, amendments made in both chambers have bridged some differences. Stakeholders differ in their views of particular aspects of the proposal and certain issues remain open questions. Congress would play a major role in any reorganization of federal development finance functions. The proposal to create a new U.S. government agency involves legislative, oversight, and appropriations functions. Key questions for Congress may include the following: What are the rationales for and against modifying and expanding OPIC's functions? Should development finance functions be reorganized or should alternative approaches be considered? If reorganization is pursued, how should a new development finance institution (DFI) be structured? How should a proposed new DFI be funded? What implications would a proposed new DFI have for USAID and U.S. development objectives? How can adequate coordination be ensured between the new DFI and other U.S. government agencies involved in development? What are the competitiveness and other strategic implications of the proposed DFI? |
The 10-year statutory ban on the manufacture, transfer or possession of "semiautomatic assault weapons" (SAWs) and "large capacity ammunition feeding devices" (LCAFDs) that are capable of holding more than 10 rounds expired on September 13, 2004. The expiration of the SAW-LCAFD ban has been, and will likely remain, controversial. Bills were introduced that would have extended the ban ( S. 2190 , S. 2498 ), made it permanent ( S. 1034 ), or expanded it to include other "military style" firearms ( H.R. 2038 / S. 1431 ). On March 2, 2004, the Senate passed an amendment to S. 1805 , that would have extended the ban for 10 years, but the bill was not passed. A key consideration for Congress is whether violent gun crimes, particularly crimes involving multiple gunshot victims and gunshot wounds per victim, were reduced by the ban. As in 1994, an underlying question for Congress is whether SAWs are more dangerous than other semiautomatic firearms and, if so, should the ban be extended or made permanent, and possibly expanded to include other "military style" firearms. This report focuses on the use and interpretation of firearms trace data produced by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF). Ban supporters have presented trace data to support extending the ban, making it permanent, and perhaps strengthening it. Ban opponents counter that there are serious limitations regarding these trace data. Meanwhile, researchers continue to debate the proper use and interpretation of these data. Please note that this report provides no coverage of legal challenges to the SAW-LCAFD ban. In statute, "SAWs" were defined in two ways. First, certain firearms, or copies or duplicates of those firearms in any caliber, were defined as SAWs by make (in most cases) and model (such as the Colt AR-15, INTRATEC TEC-9, or revolving cylinder shotguns similar to the Street Sweeper). Second, other firearms were defined as SAWs if they included specified features. A rifle met the SAW definition if it was able to accept a detachable magazine and included two or more of the following five features: (1) a folding or telescoping stock; (2) a pistol grip that protruded conspicuously below the action of the firearm; (3) a bayonet mount; (4) a muzzle flash suppressor or threaded barrel capable of accepting such a suppressor; or (5) a grenade launcher. There were similar definitions for pistols and shotguns that were classified as SAWs. SAWs and LCAFDs that were legally possessed prior to the date of enactment were exempted from the ban and remained legally transferrable under applicable federal and state laws. Notwithstanding statutory definitions, there remains a lack of definitive data on SAWs. For example, the precise number of SAWs in civilian circulation is unknown, as is the number of SAWs used in crime. Nonetheless, there are three sources of limited data on SAWs and their possible use by criminals. Those sources include (1) ATF firearm trace data, (2) crime gun recoveries in certain cities, and (3) data on law enforcement officers killed feloniously in the line of duty. There are limited data about SAWs from firearm traces conducted by the ATF, but the proper use and interpretation of the related data remain a matter of debate. Today, as before the 1994 SAW-LCAFD ban, there are significant questions about the consistent and unbiased collection of ATF firearm trace data. Consequently, at a national level, firearm trace data may not be representative of the types of firearms recovered by police and, hence, may not be representative of guns used in crime. Some researchers, however, find firearm trace data to be a useful measurement of crime gun trends—particularly when such data are limited to localities in which the issue of consistent and unbiased data collection have been at least partially addressed through comprehensive crime gun tracing. Other researchers have long stressed that firearm trace data are not representative samples of crime guns. Neither the Federal Bureau of Investigation (FBI)—the principal federal agency charged with the collection of national crime statistics, nor the ATF have endorsed the use of firearm trace data for purposes other than assisting in ongoing criminal investigations. In August 2004, an assessment on the effectiveness of the ban—commissioned by the National Institute of Justice—was released. Based on firearm recoveries in six cities, this report found that firearms with LCAFDs were used in between 14% and 26% of crimes, leading the study's researchers to conclude that in those cities there were indications that any effects that the ban might have had on reducing firearms-related violent crime might have been offset by an increase in use of firearms equipped with LCAFDs. As with firearm trace data, however, there are significant limitations regarding firearm recovery data for these cities. First, while all of these cities made efforts to include all firearm recoveries associated with murders or other serious crimes in their databases, a relatively small percentage of crime guns were recovered by law enforcement. Second, firearm recoveries may be affected by local and regional enforcement strategies that result in significant variation in recoveries from one locality to another. Third, these cities provided the study's researchers with "convenience samples." Fourth, the cities were not selected randomly. These limitations precluded the study's researchers from testing for statistical significance between the SAWs, other semiautomatic firearms equipped with LCAFDs, and all firearms recovered. Data are also available on law enforcement officers killed feloniously with firearms in the line of duty. SAWs and other rifles that use the same calibers of ammunition were used in over half of these cases (65 of112) in the decade, CYs 1993-2002. Proponents of the ban have recompiled FBI data to show that the SAWS and other firearms, which they describe as "military-style" based on their make and model, were used in one-fifth (41 of 211) of such cases from calendar years (CYs) 1998-2001. It should be noted that it is not possible to determine precisely whether all these firearms were SAWs, nor is it known to what extent these firearms contributed to the ability of the criminals to outgun the police by firing multiple shots without reloading. Ban supporters argue that assault weapons should be prohibited, because they were designed for military purposes, are firearms of choice for criminals, and are not suitable for hunting, competitive shooting, or self-defense. They claim that these weapons include the "military features" that increase capacity of fire (detachable magazines) and ease of fire (pistol grips, barrel shrouds, and other features). Thus, they conclude that SAWs are more lethal than other semiautomatic firearms. Furthermore, proponents of the ban underscore that the impetus for the ban was several mass murders committed with SAWs, and that these firearms are disproportionately—given their relatively small numbers compared to other firearms—used in crimes involving multiple shots fired, multiple victims, multiple gunshot wounds per victim, and police officers as victims. They note that, despite several legal challenges, the ban has been upheld as constitutional by federal courts. Opponents of the ban argue that SAWs are not designed for, or used by, military forces, and that large numbers of law-abiding gun owners use SAWs for self-defense, marksmanship, and hunting. They contend that SAWs are functionally no different from other semiautomatic firearms in that they fire only one round per pull of the trigger, and that the statutorily defined SAW features are largely cosmetic and that these banned firearms are no more lethal than other commonly available semiautomatic firearms. They also cite federal, state, and local data sources that suggest that SAWs were used in a fraction (2%) of violent crimes before the ban, and have been used in about the same percentages since the ban. They view the ban as part of a progressive intrusion on the right of citizens to own firearms. Arriving at a definition of an "assault weapon" that is acceptable to all parties has proved difficult. While some would define an "assault weapon" to include any military-style firearm, others maintain that all semiautomatic weapons are equally lethal. They argue that the lethality of the firearms is constant no matter what largely aesthetic features are incorporated into their design. It is noteworthy that, for many years, the term "assault weapon" was a term of art, marketing attraction, and journalistic device. The 1994 legislation created a statutory definition for the term "semiautomatic assault weapon," but the statutory definition expired with the ban. Moreover, firearm designs come in a very wide variety, and it is often difficult to categorize certain types of firearms according to traditional notions as to what constitutes a "machine pistol," "Carbine," "battle rifle," or an "assault weapon." As a result, some still debate the correct use of the term "assault weapon." According to many firearms experts, "assault rifles" were developed during World War II to provide a lighter infantry weapon that could fire more rounds, more rapidly, and more easily. In other words, the design of these firearms included features that allowed for increased capacity and rate of fire, less weight, and less recoil. To increase capacity of fire, detachable, self-feeding magazines (introduced in the late 1880s) were incorporated into these rifles. To increase the rate of fire, assault rifles were designed to be fired in fully automatic mode (firing repeatedly), or with a "select fire" feature that allowed them to be fired in fully automatic mode, in short bursts (such as, three rounds per pull of the trigger), or in semiautomatic mode (one round per pull of the trigger). Mid-size rounds were developed, so infantrymen could carry more ammunition, and their rifles would be lighter when fully loaded. Also, mid-size rounds reduced the recoil or "kick," making the rifles easier to handle and keep on target. The prototype assault rifle was developed by the Germans during World War II based on a Swiss design. This rifle—the Maschinerkarabiner 42 (Mkb 42) —was chambered to fire the 7.92x33 millimeter (mm) cartridge (a mid-size rifle cartridge). The Germans improved upon the Mkb 42's design and produced the first assault rifle, literally, dubbing it the Sturmgewehr (StG 43) , towards the end of the war. After the war, the StG 43 was the model for later generations of assault rifle designs, including the Spanish CETME, Belgique FN/FAL, and West German G-3. The Soviet Union, meanwhile, developed the Avtomat Kalashnikov of 1947 (AK-47), which was chambered to fire 7.62x39 mm cartridges. The United States was relatively late in developing a similar assault rifle. Between 1956 and 1959, Eugene Stoner designed an assault rifle later adopted by the U.S. Armed Forces as the M-16. It was chambered to fire Remington .223 cartridges (5.56x45 mm). The M-16 became the standard infantry rifle issued during the Southeast Asian conflict and remains the most widely issued firearm in the U.S. Armed Forces. Most military assault rifles were designed to be fully automatic, meaning they fire and reload continuously with a single pull of the trigger until all the rounds in the magazine are expended, or the trigger is released. Later generations of these weapons were outfitted with select fire features that allow them to be fired in multi-round bursts or in semiautomatic mode, in addition to fully automatic mode. Many assault rifle designs included features that were previously incorporated into submachine gun designs and handguns, such as pistol grips and barrel shrouds. Some ban supporters maintain that these features allow shooters to more easily stabilize and effectively fire these rifles in a low slung position in close quarters combat. Ban opponents maintain that the grips are shaped to conform with the relative position of the rifle's barrel and stock. These rifles also include detachable magazines with greater capacity than used in early generations of World War II battle rifles like the American M-1 Garand or the German Model 98 Mauser. Semiautomatic firearms are self- or re-loading, meaning that when one round is fired, the firearm automatically ejects the old cartridge casing and loads a fresh cartridge by partially utilizing the energy expended by the fired cartridge. Semiautomatic firearms, including SAWs, fire one round per pull of the trigger like all other firearms other than fully automatics. The rate of fire of semiautomatics is equivalent to that of revolvers, in that both depend on how quickly a person can pull the trigger. Other commonplace firearms, such as bolt-action, lever-action, and pump-action firearms require a manual operation of the firearm's bolt to reload between shots. Many models of firearms that were originally designed for military purposes, most of which were originally designed to be fired in fully automatic mode or select fire, were later produced for civilian markets by modifying their design so that they could only be fired in semiautomatic mode. To convert one of these firearms to fully automatic is illegal. These weapons are also capable of accepting magazines of greater capacity than ten rounds, prompting some to argue that the large-capacity magazine (or LCAFD) is perhaps the most functionally important distinguishing feature of assault weapons. In 1994, Congress imposed a 10-year ban on the possession, transfer, or manufacture of SAWs and LCAFDs (capable of holding more than 10 rounds) that were not legally produced or possessed prior to September 13, 1994—the date of enactment. The 1994 Act was the culmination of several years of congressional hearings and debate that followed the January 1989 shootings in Stockton, California, when Patrick Purdy killed five children and wounded 30 others with a semiautomatic version of an AK-47. Legislation to restrict the manufacture and transfer of "assault weapons" received significant action in the 101 st and 102 nd Congress, but this legislation was not enacted. In the 103 rd Congress, with strong support from the Clinton Administration, Senator Dianne Feinstein successfully amended the omnibus crime control act of 1993 ( S. 1607 ) with language banning the manufacture of specified new assault weapons (for transfer to private citizens) on November 17, 1993. The Senate passed this bill on November 19, 1993. On May 2, 1994, the House Judiciary Committee reported H.R. 4296 (H.Rept. 103-489), a measure that was similar to the Feinstein assault weapons amendment to S. 1607 . During conference negotiations on H.R. 3355 , similar assault weapons ban language was included in this omnibus crime bill. The House approved the conference report on August 21, 1994. The Senate approved this measure on August 25. President William J. Clinton signed the Violent Crime Control and Law Enforcement Act of 1994 ( H.R. 3355 ) into law on September 13, 1994 ( P.L. 103-322 ). In the 104 th Congress, the House passed a bill ( H.R. 125 ) that would have repealed the 1994 SAW ban. President Clinton announced that he would veto such legislation if it reached his desk. Senate Majority Leader Robert Dole announced that legislation to repeal the ban was not a priority for the Senate. No further action was taken—either to terminate or extend the SAW-LCAFD ban. As a result, the ban expired on September 13, 2004. The 1994 Act prohibited the manufacture, transfer or possession of SAWs for 10 years, with certain exceptions discussed below. In statute, "SAWs" were defined in two ways. First, certain firearms, or copies or duplicates of those firearms in any caliber, were defined as SAWs by make (in most cases) and model. Second, other firearms were defined as SAWs, if they included specified features. SAWs defined by make and model included: (1) Norinco, Mitchell, and Poly Technologies Avtomat Kalashnikovs (all models); (2) Action Arms Israeli Military Industries Uzi and Galil; (3) Beretta Ar70 (SC-70); (4) Colt AR-15; (5) Fabrique National FN/FAL, FN/LAR, and FNC; (6) SWD M-10, M-11, M-11/9, and M-12; (7) Steyr AUG; (8) INTRATEC TEC-9, TEC-DC9, and TEC-22; and (9) Revolving cylinder shotguns like or similar to the Street Sweeper and Striker 12. SAWs defined by certain features included Semiautomatic rifles capable of accepting a detachable magazine with at least two of five other features (folding or telescoping stock, conspicuously protruding pistol grip beneath the action of the weapon, bayonet mount; flash suppressor or threaded barrel capable of accommodating such a device, or grenade launcher). Semiautomatic pistols capable of accepting a detachable magazine and with at least two of five other features (the ability to accept a magazine in a position other than the pistol grip; threaded barrel capable of accepting a barrel extender, flash suppressor, forward handgrip, or silencer; barrel shroud; manufactured weight of 50 ounces of more when unloaded; or semiautomatic version of an automatic firearm). Semiautomatic shotguns with two of four other features (folding or telescoping stock, conspicuously protruding pistol grip beneath the action of the weapon, fixed magazine capacity in excess of five rounds, and an ability to accept a detachable magazine). The 1994 Act also prohibited the transfer or possession of LCAFDs that were not legally possessed prior to enactment. The act defined such a device to include any magazine, belt, drum, feed strip, or similar device that has a capacity of, or that could be readily restored or converted to accept, more than 10 rounds of ammunition. This did not include any attached tubular devices designed to accept, and capable of being used only with, .22 caliber rimfire ammunition. Exemptions to the ban were also provided by the 1994 Act for SAWs otherwise lawfully possessed, and LCAFDs manufactured, prior to or on the date of enactment. Also, 661 types of long guns were exempted; as were manually operated, permanently inoperable, or antique firearms; semiautomatic rifles that could not accept a detachable feeding device that held greater than five rounds; or semiautomatic shotguns that could not hold greater than five rounds in a fixed or detachable magazine. Unlike SAWs and similar semiautomatic firearms that were banned administratively from importation, it remained legal to import LCAFDs that were produced prior to the ban's enactment. In addition, public agencies or individuals that met at least one of four specified conditions were exempted from the ban. They included law enforcement officers for the purpose of law enforcement; licensees charged with protecting nuclear facilities or transporting nuclear materials, their employees and contractors; retirees from law enforcement agencies who were presented a SAW upon retirement, as long as they were not otherwise prohibited; and licensees for the purpose of authorized testing and experimentation. Following the ban's enactment, many firearm manufacturers in the United States and abroad modified the design of firearms to, depending upon one's point of view, either to evade the ban or to comply with the ban's requirements. It was not uncommon following the ban to hear references to "pre-ban" "post-ban" assault weapons, meaning firearms produced after the ban, which were similar to banned firearms, but modified and, hence, not subject to the ban. "Post-ban assault weapons" were also referred to as "sporterized," "legal substitutes," or "copycats." Even before the 1994 ban, in 1989, the Administration of George H.W. Bush had halted the importation of some semiautomatic firearms that could be considered "assault weapons" under existing legal authority provided by the 1968 Gun Control Act, under the determination that they were not "particularly suitable for or readily adaptable to sporting purposes." In 1998, the Clinton Administration halted the importation of firearms modified to comply with the 1989 importation ban. While in part the Clinton importation ban was prompted by a trade dispute with China, others have noted that companies closely tied with the Chinese Army were providing large numbers of surplus military firearms to U.S. importers at very low costs. Domestic firearm manufacturers continued to produce firearms—at times with mostly imported parts, which ban supporters argued were either in violation of the ban, since they were copies or duplicates of banned firearms, or firearms that should have been banned under an expanded SAW definition. In addition, to some observers the importation ban on these firearms, but no similar ban on their domestic manufacture, appeared to be an incongruity in the law. The 1994 Act also required the Attorney General to study and measure (if possible) the impact of the SAW ban, with a focus on drug trafficking and violent crime. It stipulated that the study would be conducted for 18 months, beginning 12 months after the date of enactment. It required the Attorney General to report back to Congress within 30 months of enactment as to the findings and determinations of the study. The Attorney General delegated the responsibility for this study to the National Institute of Justice (NIJ). In turn, NIJ contracted with the Urban Institute to conduct this study, which resulted in an initial report in 1997. The initial SAW ban impact study was released on March 13, 1997. NIJ also published a policy brief based on this report. In conducting this study, the Urban Institute researchers set up an economic hypothesis to measure the impact of the SAW ban. They started from the premise that to reduce levels of SAW-related crime. The law must increase the scarcity of the banned weapons. Scarcity would be reflected in higher prices for pre-ban SAWs, which would have been available legally for transfer and possession. And, higher prices would discourage criminal use of SAWs, leading to a reduction in SAW-related crime. The researchers noted that the statutory schedule for the study constrained their findings to the short-term effects of the SAW ban. They concluded that because "the banned weapons and magazines were never used in more than a modest fraction of all gun murders," that the "maximum theoretically achievable preventive effect of the ban on gun murders is almost certainly too small to detect statistically with only one year of post-ban crime data." The researchers found that the price of SAWs nearly doubled in the year preceding the ban, but then dropped to nearly the 1992 prices immediately following the ban. Nevertheless, researchers estimated that the ban possibly contributed to a 6.7% decrease in total gun murders, or a 27% decrease in assault weapon/large capacity feeding device-related crime, between 1994 and 1995. In addition, while they detected no decrease in multiple victim/multiple gunshot wound crimes, they did see a slight reduction in killings of police officers with SAWs. In addition, the researchers analyzed firearm trace data collected by the ATF. They found that ATF firearms trace data were an imperfect measure, because they reflect only a small percentage of guns used in crimes. While imperfect, the Urban Institute researchers noted that the trace data reflected similar trends in data on all guns recovered in two cities. They noted that a decrease in SAW traces in 1995 as compared to 1994 warranted further study. The Urban Institute researchers included several recommendations in their study. They included the need to: develop new gun market data sources and improve existing ones; examine the effects of legal substitute or copycat firearms; study criminal use of LCAFDs; improve the recording of LCAFDs recovered in crime guns; conduct in-depth, incident-based research on fatal and nonfatal gun assaults; and update the impact analysis initiated in fulfilment of the 1994 Act. In July 2004, an updated impact study was completed for NIJ. This study, along with others, is discussed later in this report. There is a general lack of definitive data on "assault weapons" and the wider population of firearms that constitute the civilian gun stock. Consequently, the number of SAWs available to civilians for possession or transfer is only estimated, as is the frequency with which SAWs are used in crimes. It is generally accepted, however, that the population of "assault weapons"—particularly those subject to the 1994 ban—increased significantly during the 1980s and early 1990s. The intent of the ban was to gradually reduce the number of legally available SAWs. At the time of the ban, it was estimated that there were upwards of 1.5 million privately owned assault weapons in the United States. According to CRS extrapolations, 231 million firearms made up the civilian gun stock in 1994, including 81 million handguns, 82 million rifles, and 68 million shotguns. Consequently, SAWs constituted less than 1% of the civilian gun stock. At the same time, according to one recent study, there were 25 million firearms capable of accepting large capacity ammunition feeders, or roughly 11% of the civilian gun stock. Opponents of the ban argue that SAWs are rarely used in crime—no more than 2%. Compared to the relatively small SAW percentage of the total gun stock, however, proponents of the ban have countered that SAWs are disproportionately used in crime—particularly in murders involving multiple shots fired, multiple victims, multiple wounds per victim, and police officers as victims. Some supporters of the ban have cited ATF firearm trace data as evidence that the ban ought to be extended or made permanent, or perhaps expanded to include additional firearms. However, there are several limitations for the firearm trace data that have been noted by researchers. While the number of traces have nearly tripled from CYs 1995-2002, questions remain about the consistent and unbiased collection of more recent firearm trace data, despite ATF efforts to promote comprehensive crime gun tracing in several localities. Consequently, firearm trace data in the aggregate may still not be representative of the types of firearms nationally recovered by police and, hence, may not be representative of guns used in crime. Different SAW ban supporters have examined and interpreted SAW-related firearm trace data differently, while ban opponents underscore the limitations of firearm trace data. The ATF National Tracing Center (NTC) supports federal, state, and local law enforcement agencies by tracing the chain of commerce for selected firearms (by make and model) recovered by law enforcement agencies that are often, but not always, crime guns. The ATF defines "crime guns" as firearms seized from ineligible persons, used in crimes, or suspected to have been used in crimes. The NTC has been described as an operational system designed to aid in ongoing investigations, rather than a system designed to capture comprehensive "crime gun" statistics. The ATF has promoted and expanded crime gun tracing as part of a wider strategy to stem illegal firearms trafficking—particularly in localities that participate in the Youth Crime Gun Interdiction Initiative (YCGII). As reported by CRS in 1992, however, "most firearms that are traced have not been used to commit violent crimes, and most firearms used to commit violent crimes are not traced." Due to several factors, moreover, including policy changes at the state and local level, there may be significant variation over time and from jurisdiction-to-jurisdiction as to the "when, why, and how" a firearm is recovered and selected to be traced. In addition, law enforcement officers may be reluctant to request traces for firearms that would be difficult to trace because of missing identifying information, such as, the firearm's manufacturer and serial number. Therefore, newer guns for which such information may be more readily available are more likely to be traced than older guns. In addition, law enforcement agencies often conduct studies focused on specific categories of offenders and/or types of firearms in certain geographical areas. Consequently, the data may be biased, as (1) older firearms may be under-represented in the trace data, because of missing information; and (2) firearms of special interest to law enforcement may be over-represented. For these reasons, it is not possible to test for statistical significance of possible relationships between firearm traces in general (and SAW traces in particular), and the wider population of firearms available to civilians. As a result, firearm trace data do not provide grounds for a clear statistical conclusion about the effectiveness or ineffectiveness of the SAW ban, and making inferences about certain types of firearms at a national level (by make and model) may not be statistically valid. Nevertheless, firearm trace data illustrate trends of interest, which in some cases are parallel to trends found in crime gun recoveries for certain cities. Firearm trace data for FY1995-2002, as presented in Table 1 , were acquired from the Department of Justice and released by Senators Dianne Feinstein and Charles Schumer. In their press release, the Senators called for a renewal of the ban and offered up the declining shares of firearm traces due to SAWs as evidence of the ban's effectiveness. Table 1 shows that the ATF traced over 26,000 SAWs for FY1995-2002. While SAWs as a percent of total firearm traces decreased by about two-thirds (66%) over these years, SAW traces for these years averaged 3,278, and ranged between a low of 2,845 and a high of 3,985. With some fluctuation, total firearm traces nearly tripled over the same years from nearly 80,000 to almost 240,000 traces. Identical data were included in an ATF white paper. In the paper, ATF underscored that traced assault weapons were precisely identified by make and model as specified in the SAW ban, and as traced since enactment of the ban. However, no attempt was made to determine when the firearm was manufactured or imported. In some cases, SAW traces may have involved firearms that were illegally manufactured, configured, or imported following the ban. In addition, according to the ATF white paper, the NTC does not include fields to identify the various characteristics (barrel shroud, bayonet lug, pistol grip, etc.) that comprise a SAW, as defined in the law. Both the Brady Center to Prevent Gun Violence (Brady Center) and the Violence Policy Center (VPC) have released separate studies of total firearm and SAW traces for FY1990-2001. The underlying firearm trace data used by both organizations were prepared for the Brady Center by a private consulting company, Crime Gun Solutions LLC. The Brady Center found that the steady decrease in the SAW percentage of total firearm traces suggested that the ban had made these firearms less available for criminal use. The Brady Center concluded further that the 1994 Act "has contributed to a substantial reduction in the use of assault weapons (SAWs) in crime, despite the [firearms] industry's efforts to evade the ban." The VPC expanded upon the Brady's Center's data presentation and provided an alternative interpretation of these data in a follow-up report. The VPC noted that, since the ban's enactment, ATF firearm traces had tripled, and the SAW percentage of total firearm traces had correspondingly decreased. The VPC concluded that firearms targeted by the 1994 Act continued to be manufactured, are readily available, and are being used in crime. The data first published by the Brady Center are presented in Table 2 , which shows that for FY1990-1994, assault weapons made up 4.88% of total traced firearms. While the Brady Center reported this percentage to be 4.82%, this difference may be the result of rounding. Table 2 also shows that for FY1995-2001, banned assault weapons comprised 1.61% of traced firearms. The Brady Center calculated the percent change in the SAW firearm trace share by subtracting 1.61% from 4.82% and dividing by 4.82%, which yields a 66.7 (or two-thirds) decrease in the SAW share of the total traced firearms for FY1990-1994, as compared to FY1995-2001. Depending upon how the data are presented, different interpretations may be made as to the extent to which the number of SAW traces is decreasing. For example, based on the firearm trace data presented in Table 2 above, the Brady Center "concluded that the SAW ban has contributed to a substantial reduction in the use of assault weapons in crime..." For FY1990-1994, the annual average number of SAW traces was 2,842 (or 14,209/5), and for FY1995-2001, the annual average was 2,811 (or 19,679/7), only 31 fewer traces on average annually for the five years before the ban compared to the seven years after the ban. While SAW traces as a share of total firearms decreased from FY1995 through FY2001, the annual average number of SAW traces declined by less than 10% after the ban. This may indicate that the decline in the SAW share of total traces is due to a significant increase in total traces, rather than a decrease in SAW traces. The VPC maintains that the firearm trace data, for a variety of reasons, are not an adequate measure of a reduction in SAW-related crime. To reinforce this point, the VPC has pointed to the "time-to-crime" phenomenon. Time-to-crime is the amount of time from the date of the firearm's first retail purchase to the date it was recovered by law enforcement. Analysis of ATF trace data for CY2000, as part of the Youth Crime Gun Interdiction Initiative (YCGII), showed that about a third of traced firearms for that year were traced within three years of their retail purchase. Nearly three-quarters of traced firearms were traced within 10 years of their first retail purchase. Hence, the likelihood that a firearm will be traced may diminish over time. As the SAW ban was expected to decrease, or at least hold constant, the population of legally available SAWs for FY1995-2004, the VPC contends that the annual number of SAW traces would have decreased over the decade, if they followed the general "time-to-crime" trend of other traced crime guns and there was a reduction in the criminal use of these firearms. As noted earlier, since the ban went into effect, many firearm manufacturers have modified the design of firearms to either evade or comply with the ban, depending upon one's point of view. It is not uncommon today to hear references to pre-ban and post-ban assault weapons (the latter having been modified). Post-ban modified firearms that are similar to SAWs are often referred to as "copycats" ("ccs") by organizations seeking greater regulation of firearms like the VPC and Brady Center. Firearm manufacturers often refer to such firearms as having been "sporterized." In their reports, both the Brady Center and the VPC included data on traces of certain CC firearms. Some of these CC firearms include the AB-10 Pistols, Bushmaster Rifles, and DPMS Rifles. The Brady Center study included estimates of the number of traced CC firearms. Table 3 shows that the number of traced CC firearms increased with little fluctuation from 96 in FY1990 to about 3,400 in FY2001. The annual average number of SAW and CC traces prior to the ban is 3,326, and the annual average after the ban is 5,442, or an increase of 63.67%. However, this increase in the share of SAW/CC traces is significantly less than the 200% increase in total firearm traces. Table 3 also shows that SAWs and CCS combined accounted for 5.72% of traced firearms from FY1990-FY1994, and accounted for 3.11% of traced firearms from FY1995-FY2001. The percent change the SAW/CC share of total firearm traces for FY1990-FY1994 compared to FY1995-FY2001 reflects a 45.63% decrease in the SAW/CC share of total firearm traces. While lower than the 66% decrease observed for SAWs alone, the Brady Center concluded that the 45.63% decrease in the SAW/CC share of total firearm traces for the years before and after the ban was evidence that criminals had substituted CCS for SAWs, but this substitution effect was far from complete. In addition to copy cat/sporterized firearms, the Brady Center, the VPC, and other ban supporters have advocated that other "military-style" firearms be banned. Other selected firearms include the SKS, M-1 Carbine, the Roger Mini-14, and the Hi-Point Carbine. The VPC included trace data in their report on these firearms for CYS 1995-2000 in their report as well. The data on selected other firearms, along with data on other categories of firearm traces, are presented in Table 4 . Table 4 shows that from FY1995-1999, firearm traces for selected other firearms increased from nearly 1,800 to over 3,400, and then decreased in FY2000 to about 3,200. From FY1995-FY2000, total firearm traces increased by 162%. For the same years, the number of SAW traces increased by 11%, CC traces increased by 164%, and selected other firearms traces increased by 80%. The subtotal of SAW, CC, and selected other firearm traces combined increased from about 5,500 to 9,202—an increase of 68%. Hence, the subtotal of SAW, CC, and selected other firearm traces combined increased at about two-fifths the rate of total firearms traces resulting in a decline in the share of traces attributed to these types of firearms. While the Brady Center did not present other firearms data for any of the years FY1990-FY2001, the Center asserted that the percent decrease for SAW/CC/other firearm percentages of total firearm traces for FY1990-FY1994 (7.2%) compared to FY1995-FY2001(4.5%) was 37.5%. The Brady Center did not examine or make conclusions about the possible substitution effects of selected other firearms. In July 2004, an updated impact study was completed for the NIJ. Among other things, the study stated that arguably the intent of the 1994 Act was "to reduce gunshot victimizations by limiting the national stock of semiautomatic firearms with large ammunition capacities—which enable shooters to discharge many shots rapidly—and other features conducive to criminal uses." While this report was commissioned by NIJ, it has not been published by the Department of Justice, and does not reflect the position or policies of the department. Nonetheless, this study remains the most detailed assessment to date of the 1994 Act, and the effects it might have had on firearms-related crime. Based on previous research by others, the study reported that SAWs accounted for between 2% and 8% of firearms recovered by police, and accounted for no greater than 13% of crime guns used in the much rarer incidents of police murders and mass shootings. The study attributed the relative rarity of SAW use in crime to several factors: (1) many SAWs are rifles, and rifles are used less often than handguns in crime; (2) SAWs, whether handguns or long guns, tend to be more difficult to conceal than other firearms; (3) foreign SAWs were banned from importation in 1989; and (4) SAWs are more expensive than other firearms. The study's researchers found that "due to instrumentation problems inherent in tracing data, statistical tests are [were] not presented." In other words, data limitations precluded testing for statistical significance of possible relationships between firearm traces in general, and SAW traces in particular, and the wider population of firearms that are available to civilians. See Table 5 for ATF firearm trace data presented in the study. Nevertheless, the study found that the firearm trace data suggested that the use of SAWs in crime had declined since the ban's enactment. The study found that SAWs accounted for 5.4% of ATF firearm traces in 1992-1993 as compared to 1.6% in 2001-2002, a decline of 70%. If the Brady Center's methodology is adopted, and the percent change in the SAW share of total firearm traces for 1991-1994 (4.95%) and 1995-2002 (1.98%) is calculated, the result is a 60% decrease in the SAW share of total firearms traced, which is close to the Brady Center's finding of 66%. The study's researchers examined several databases of guns recovered by police in six localities. The study's researchers found that such firearm recoveries—despite limitations that also precluded testing for statistical significance—provided "the best available indicator of changes over time in the types (and especially the specific makes and models) of guns used in violent crime and possessed and/or carried by criminal and otherwise deviant or high-risk persons." They found reductions in two cities of 17% to 72% in SAW recoveries as a percentage of total firearm recoveries, but other reductions ranged more generally in the other four cities between 32% and 40%. Based on these findings, the study concluded that ATF firearms trace data and local databases on guns recovered by police showed that in various places and times from the late 1990s through 2002, SAWs typically fell by one-third or more as a share of firearms used in crime. Such conclusions, however, were drawn without the use of statistical tests, due to "instrumentation problems inherent in tracing data." Despite the limitations inherent in firearm trace and recovery data, the updated impact study also found that in several locations LCAFDs were used in between 14% and 26% of crimes, and there were indications that any effects that the 1994 ban might have had on reducing firearms-related violent crime were partially offset by an increase in criminal use of semiautomatic firearms equipped with LCAFDs. The study noted that while the act's LCAFD provisions limited the number of these devices that were legally available, there were 25 million of these devices within the United States before the 1994 Act; and, between 1994 and 2000, another 4.8 million LCAFDs were imported for commercial sale, and permits were issued to import an additional 47.2 million. It was also noted that while semiautomatic firearms equipped with LCAFDs accounted for about a quarter of gun crimes (based on crime gun recoveries), it was not clear how frequently shootings that resulted in death or injury were a consequence of the shooter's ability to fire more than ten rounds without reloading. The study concluded that it would be premature to make definitive assessments of the ban's impact on gun crime, as any effect was likely to be small at best—perhaps too small for reliable measurement. Moreover, any reduction in crime was likely offset by an increase in the use of non-banned semiautomatic firearms equipped with LCAFDs. As a consequence, the study's researcher(s) could not "clearly credit the ban with any of the nation's recent drop in gun violence." The study's researcher(s) recommended additional studies to develop better data on SAWs and LCAFDs using a variety of research methods that would include, among other things, more incident-based studies that contrast the dynamics and outcomes of attacks with different types of guns and magazines. Further examination of the data in Table 5 reveals additional trends regarding SAW and total firearm traces related to violent crime. First, violent crime firearm traces did not increase nearly as steeply as total firearm traces did for either the pre- or post-ban periods (see Figure 1 below). A similar trend could be seen for SAW violent crime traces as compared to SAW traces in general (see Figure 2 below). SAW violent crime traces, as presented in Table 5 , had an annual average number for the pre-ban period of 413, the same as for the post-ban period. If total firearm traces were a good indicator of violent crime trends, it could be expected that both would rise or fall at similar rates. Firearm trace data may not be a good indicator of firearms-related violent crime trends, because the slightly increasing rate of violent crime traces does not correspond to the decreases in violent crime that have occurred in the past decade. For example as shown in Figure 3 , firearm-related homicides decreased by 41% from 1993 (17,062) through 1999 (10,135), and leveled out in 2000 (10,182) and 2001 (10,132), before ticking up slightly in 2002 (10,802). As shown in Figure 4 , similar trends are reflected in firearm-related robberies and aggravated assaults. Consequently, when actual violent crime trends (in Figures 3 and 4) are compared with violent crime firearm tracing trends for both total firearms and SAWs (in Figures 1 and 2 ), it shows that the trends are divergent. It could be argued that these divergent trends are evidence that firearm traces for violent crimes (for either total firearms or SAWs) do not reflect actual criminal use of firearms, but rather they reflect increased reporting of recovered crime guns and ATF firearm tracing. The Federal Bureau of Investigation (FBI) reports annually on the number of law enforcement officers killed and assaulted in the line of duty. From CY1993 through CY2002, 708 law enforcement officers were feloniously killed, including 72 in the 9/11 terrorist attacks, 591 with firearms, and 45 by other means. While most SAWs are rifles, handguns were used in 75% of the firearm-related officer killings. While the FBI does not determine whether the firearms used in the officer killings were SAWs, of the 591 firearm-related killings, 65 (11%) involved rifles chambered to use one of the two most common SAW rifle calibers of ammunition, 7.62x39 mm and .223 Remington, though it should be noted that both calibers are used in rifles that are not semiautomatic, as well as in SAWs and other semiautomatics. The VPC has reviewed unpublished FBI data and conducted additional research into the circumstances surrounding firearms-related officer killings for CY1998 through CY2001. While unverified by the FBI, their research indicates: that at least 41 of the 211 law enforcement officers slain in the line of duty between January 1, 1998, and December 31, 2001, were killed with assault weapons. Using these figures, one in five law enforcement officers slain in the line of duty was killed with an assault weapon. There are two things about the VPC's interpretation of these data that should be noted. First, excluding the 72 officers killed in the 9/11 terrorist attacks, there were 224 officers feloniously killed in the 1998-2001 period, of which 211 officers were killed with firearms. Second, 20 of the 41 firearms that the VPC counted as "assault weapons" may not meet the statutory SAW definition. For example, the VPC counted the M-1 Carbine, the Mini-14, the SKS, and the MAK90 as assault weapons, but none of these rifles was banned by the 1994 Act. When such weapons are discounted, it lowers the number to 20 out of 211 (or 224) officers killed with weapons that may be SAWs, or one in 11. In addition, FBI incident summaries on the officer killings suggest that only in a handful of the killings did the criminals fire more than 10 rounds of ammunition, the number of rounds to which the ban limits magazines made since the ban took effect. Furthermore, several other firearms the VPC counted as SAWs, may or may not have been SAWS, as it is unclear whether these weapons were actually pre-ban SAWs, or versions of these weapons that were manufactured and transferred legally after the ban (copycats/legal substitutes). Nevertheless, Some would likely argue that even if these firearms were not strictly SAWs by definition, they ought to be banned. Opponents of the ban have questioned the reliability of such data. Bills have been introduced in the 108 th Congress to extend or make permanent the ban on SAWs and large capacity ammunition feeders. Other bills would modify the definition of "semiautomatic assault weapon" to cover a greater number of firearms by reducing the number of features that would constitute such firearms, and expand the list of certain makes and models of firearms that are statutorily enumerated as banned. S. 1034 , as introduced by Senator Dianne Feinstein, would make the ban permanent, as would H.R. 2038 and S. 1431 , as introduced by Representative Carolyn McCarthy and Senator Frank Lautenberg, respectively. The latter two bills would modify the definition and expand the list of banned weapons. Senator Feinstein has also introduced S. 2190 and S. 2498 that would extend the ban for 10 years. On March 2, 2004, the Senate passed an amendment to S. 1805 , the gun industry liability bill, that would have extended the ban for 10 years, but did not pass the bill. The expiration of the SAW-LCAFD ban has been, and is likely to remain, controversial. A key consideration for Congress is whether violent gun crimes, particularly crimes involving multiple gunshot victims and gunshot wounds per victim, were reduced by the ban. As in 1994, an underlying question for Congress is whether SAWs are more dangerous than other semiautomatic firearms and, if so, should the ban be extended or made permanent, and possibly expanded to include other "military style" firearms. As noted in the report, however, there is a lack of definitive data on SAWs and LCAFDs. There are steps that could be taken to improve such data. For example, report forms issued to state and local law enforcement by the FBI for purposes of compiling the annual report on Law Enforcement Officers Killed and Assaulted could be modified to capture additional information about incidents in which firearms are used. In addition, as part of the National Incident Based Reporting System (NIBRS), which is the basis for uniform national crime reporting, the FBI could modify its data collection and submission requirements for firearm-related homicides—particularly in regard to those incidents that involve multiple shots, multiple victims, and multiple gunshot wounds per victim. In regard to firearm traces, it may be possible to revamp the ATF's firearm tracing system to improve the quality of data. For example, besides modifying data submission procedures, controlled firearm trace surveys could be conducted in certain geographic areas to determine whether SAWs, or other firearms, are the guns-of-choice for youth gangs and drug traffickers. Similar surveys are already underway as part of the Youth Crime Gun Interdiction Initiative and have yielded useful data on crime guns to assist local law enforcement agencies in formulating city-wide or regional firearms-related violence reduction strategies. In conclusion, improved incident-based reporting and firearm trace data could provide useful insights into the lethality and criminal use of SAWs and other military-style firearms, as well as other crime guns. In the interim, until more definitive data are available, Congress faces exercise of its collective value judgement on the lethality and relative dangers posed to society by these firearms versus the diminution of the freedom to bear arms as set out in the Constitution. | The 10-year ban on the manufacture, transfer or possession of "semiautomatic assault weapons" (SAWs) and "large capacity ammunition feeding devices" (LCAFDs) expired on September 13, 2004. In statute, "SAWs" were defined in two ways. First, certain firearms were defined as SAWs by make and model. Second, other firearms were defined as SAWs, if they included specified features. For example, a rifle was defined as a SAW if it was able to accept a detachable magazine and included at least two of the following features: (1) a folding/telescoping stock; (2) a protruding pistol grip; (3) a bayonet mount; (4) a muzzle flash suppressor or threaded barrel capable of accepting such a device; or (5) a grenade launcher. There were similar definitions for pistols and shotguns. Bills were introduced to extend the ban (S. 2190, S. 2498), make it permanent (S. 1034), or expand it to include other "military style" firearms (H.R. 2038/S. 1431). A key consideration for Congress is whether violent gun crimes, particularly crimes involving multiple gunshot victims and gunshot wounds per victim, were reduced by the ban. Proponents of the ban maintain that firearm trace data strongly suggest that the use of SAWs in crime had declined since the ban took effect. Opponents of the ban contend that firearm trace data are unreliable indicators of criminal gun use based on statements by federal agencies and leading researchers. Proponents also cite data on law enforcement officers killed with firearms, which suggest that SAWs and other similar firearms have been used to kill a significant number of law enforcement officers. Opponents of the ban note that it is not possible to determine precisely whether these firearms were SAWs, nor is it known to what extent these firearms contributed to the ability of the criminals to outgun the police. Proponents of the ban argue that assault weapons should be prohibited, because they were designed for military purposes; are firearms of choice for criminals; and are not suitable for hunting, competitive shooting, or self-defense. They assert that these weapons include all the "military features" that increase capacity and ease of firing. They underscore that the impetus for the ban was several mass murders committed with SAWs, and that these firearms are disproportionately—given their small numbers—used in crimes involving multiple shots fired, multiple victims, multiple gunshot wounds per victim, and police officers as victims. They note that, despite several legal challenges, the ban was upheld as constitutional by federal courts. Opponents of the ban argue that SAWs were not designed for or used by military forces and that large numbers of law abiding gun owners use SAWs for self-defense, marksmanship, and hunting. They contend that SAWs are functionally no different from other semiautomatic firearms in that they fire only one round per pull of the trigger and that the statutorily defined features of a SAW were largely cosmetic. They also cite federal, state, and local data sources that suggest that SAWs have been used in a small fraction of violent crimes before and after the ban. They view the ban as part of a progressive intrusion on the right of citizens to own firearms. As noted above, the ban expired on September 13, 2004. This report will not be updated. |
The individual states have been the primary regulators of insurance in this country for the past 150 years. The 1945 McCarran-Ferguson Act specifically authorized the states' role, and Congress has recognized state primacy in insurance regulation in more recent laws shaping the financial regulatory system, such as 1999's Gramm-Leach-Bliley Act (GLBA) and 2010's Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Although Congress may have generally reaffirmed the state-based system in such laws, congressional interest in the operation of the insurance regulatory system has continued. Much of the congressional focus on the insurance regulatory system since 1999 has been on the efficiency of the state-based system. Organizations such as the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) create model laws and undertake other steps to harmonize insurance regulation and laws across the country. To be legally binding, however, any models suggested by the NAIC or NCOIL must first be adopted in a state. The states may amend models to fit local circumstances or completely reject suggestions from outside groups. Various federal proposals have been advanced to change the workings of the state-based regulatory system, ranging from creation of a broad federal charter that might replace much of the state-based system to narrower concepts using federal powers to preempt some state laws while leaving the state-based regulatory system largely in place. In the 113 th Congress, issues around licensing for insurance agents and brokers (known generally as insurance producers ) came to the fore in the form of legislation—the National Association of Registered Agents and Brokers Act, passed in different forms by both the Senate and the House. This legislation, which would mandate the creation of a National Association of Registered Agents and Brokers (NARAB), is generally referred to as "NARAB II" legislation. The 114 th Congress passed identical versions of H.R. 26 , which included NARAB II provisions as Title II. The President signed the bill, now P.L. 114-1 , on January 12, 2015. Licensing of insurance producers has long been an integral part of the insurance regulatory system. Individual states typically require insurance producers operating within their borders to obtain a license from that state, with different licenses often required for different lines of insurance. Such licensure provides a mechanism for insurance regulators to enforce standards of conduct, particularly with regard to consumer protections, as well as a revenue source to help defray the cost of the insurance regulatory system. Aspects of insurance producer licensing include specific education or knowledge requirements, such as passage of a written exam prior to licensing and continuing education afterward, and, in some states, criminal background checks. The NAIC has adopted model laws regarding licensure and a model insurance producer license form, but individual states are free to modify such models, or not adopt them at all, resulting in variability in licensing requirements across the country. The number of insurance producers potentially affected by the variability of state licensing laws appears relatively large; in one survey, 83% of producers reported having licenses in at least 2 and up to 10 states. Larger insurance agencies tend to hold a greater number of licenses, with 47% of the firms of more than 500 financial advisors having licenses in 21 or more states. Insurance producers that operate in multiple states have long sought increased uniformity and reciprocity across states to reduce their costs resulting from the multiplicity of license requirements. Insurance producers report, for example, that, on average, 3% of agency operating expenses are spent on "licensing compliance efforts," with higher figures (4.3%) at the smallest agencies. Although insurance producers consider the multiplicity of licenses to be a burden, others consider the requirements for local licenses and knowledge of specific local risks or legal requirements to be important consumer protections by others. One consumer representative has argued, for example, that "[property and casualty] insurance varies too much state to state as respects law and risk to not maintain local control of licensure." GLBA attempted to address the multiplicity of different requirements among states for insurance producer licensing. Although many states satisfied the GLBA statutory requirements for reciprocity by 2002, insurance producers continued to identify inefficiencies and costs of the state licensing system in the years following. In 2008 testimony before a House subcommittee, for example, an insurance agent representative indicated that states continued to "impose additional conditions and requirements" on nonresident agents despite the reciprocity called for in law. In 2009, the Government Accountability Office (GAO) cited issues regarding fingerprinting and background checks as particular barriers to uniformity or reciprocity in producer licensing and as potentially creating uneven insurance consumer protection in states in which full-background checks were not able to be performed. GAO also determined that differences in licensing requirements and insurance line definitions could potentially be creating inefficiencies that "could result in higher costs for insurers, which in turn could be passed on to consumer[s]." In addition to concerns about the substance of the reciprocity in place, reciprocity laws have not been adopted by every state. The NAIC ultimately certified 47 states as reciprocal, but the 3 states not certified—California, Florida, and Washington—together represented nearly 20% of the nation's population. In addition to the costs that might result from the specific aspects of the insurance licensing system, any professional licensing regime acts as a barrier to entry for those who might be interested in providing services that require a license. Economic theory suggests such barriers increase consumer costs to some degree and have the potential to be used as a protectionist measure to prevent competition, allowing license holders to extract economic rents from consumers. Whether the public benefits resulting from licensure outweigh the costs is determined by policy makers on a case-by-case basis. Some form of licensure for those in the financial services industry has been generally accepted and is required in federal law for people involved in securities transactions with the public, for example. H.R. 26 in the 114 th Congress was identical aside from technical corrections to the amended version of S. 2244 that passed the House in the 113 th Congress. Thus, it included NARAB II provisions in Title II, but did not include the Section 335 sunset language that had been included in the Senate-passed version of S. 2244 . The House and Senate passed H.R. 26 on January 7, 2015, and January 8, 2015, respectively. The President signed the bill, now P.L. 114-1 , on January 12, 2015. P.L. 114-1 , Title II creates a National Association of Registered Agents and Brokers. Key features of this association include the following: The association shall be a private, nonprofit corporation and is specifically forbidden from receiving federal funds. To gain membership, insurance producers are required to be licensed as an insurance producer in their home state, pass a criminal background check, and meet other criteria determined by the association, which shall not be "less protective of the public" than that contained in the NAIC Producer Licensing Model Act as of January 12, 2015. NARAB members will be able to operate in any other state subject only to payment of the licensing fee in that state rather than having to obtain a separate license in the additional states. Members will still be subject to each state's consumer protection and market conduct regulation, but individual state laws that treat out-of-state insurance producers differently from in-state producers are preempted. The association will be overseen by a board of eight appointees who are current or former state insurance commissioners and five appointees with demonstrated expertise in different areas of insurance. Appointments are to be made by the President with advice and consent by the Senate. The President can dissolve the board as a whole or suspend the implementation of any rule or action taken by the association. The association is to submit copies of the NARAB bylaws, standards, and an annual report, to the President through the Department of the Treasury and to the States, as well as to make these publically available on the NARAB website. S. 534 , the National Association of Registered Agents and Brokers Reform Act of 2013, was introduced by Senator Jon Tester on March 13, 2013, and referred to the Senate Committee on Banking, Housing, and Urban Affairs. The committee's Subcommittee on Securities, Insurance, and Investment held a hearing on the bill on March 19, 2013, and the full committee marked up S. 534 and ordered the amended bill be favorably reported on June 6, 2013. S. 534 as introduced would have established a NARAB. Key features of this association included the following: The association would have been a private, nonprofit corporation. To gain membership, insurance producers would have been required to be licensed as an insurance producer in their home state, pass a criminal background check, and meet other criteria determined by the association, which should not be "less protective of the public than that contained in the NAIC Producer Licensing Model Act." NARAB members would have been able to operate in any other state subject only to payment of the licensing fee in that state rather than having to obtain a separate license in the additional states, as is often the case. Members would still have been subject to each state's consumer protection and market conduct regulation, but individual state laws that treat out-of-state insurance producers differently from in-state producers would have been preempted. The association would have been overseen by a board of eight appointees who are current or former state insurance commissioners and five appointees representing the insurance industry. Appointments would have been made by the President with advice and consent by the Senate. The President could have dissolved the board as a whole or suspend the implementation of any rule or action taken by the association. The association would have submitted annual reports to the President and the NAIC. The Senate Committee on Banking, Housing, and Urban Affairs marked up S. 534 on June 6, 2013. The committee began with an amendment in the nature of a substitute offered by Senators Jon Tester and Mike Johanns. Although largely similar to the original legislation, this amendment made changes to the bill, including adding the Department of the Treasury as a conduit of information from NARAB to the President; requiring that copies of the NARAB bylaws, standards, and annual report be publically available on the NARAB website; and stipulating that the annual report be made to the President and the "States (including the State insurance regulators)" rather than the President and the NAIC (the NAIC was also removed from some, but not all, of the other reporting requirements in the bill). In addition to the substitute, two amendments were adopted by voice vote in the markup. These amendments changed the following: The board of directors would have had five appointees with "demonstrated expertise and experience" in various parts of the insurance industry rather than being "representatives of" various parts of the industry following an amendment by Senator Elizabeth Warren. The NARAB organization would have been specifically forbidden from receiving federal funds following an amendment by Senator Tom Coburn. Another amendment by Senator Coburn to provide states the ability to opt out of participation in, and the effect of, NARAB was not adopted on a vote of 18-4. The amended version of S. 534 was then ordered to be favorably reported by voice vote, and the bill was reported on July 29, 2013 ( S.Rept. 113-82 ). Representative Randy Neugebauer introduced two bills identical to S. 534 : H.R. 1064 on March 12, 2013, and H.R. 1155 on March 14, 2014. Both were referred to the House Committee on Financial Services, with H.R. 1155 being used as the legislative vehicle going forward. On September 10, 2013, Representative Neugebauer made a motion to suspend the rules and pass an amended version of H.R. 1155 . The language of the amended version of H.R. 1155 closely followed the language of S. 534 as reported by the Senate Committee on Banking, Housing, and Urban Affairs, including the amendments by Senators Warren and Coburn that were adopted in the committee markup. The two bills differed slightly in the language relating to background checks, with the House bill requiring that fingerprints be submitted to the Federal Bureau of Investigation in the course of the search of criminal history records whereas the Senate bill does not specifically mention fingerprints. In addition, the penalties for improper disclosure of background check information in the House bill were set at $50,000 per violation compared with the possibility of monetary fine plus two years imprisonment under the Senate bill. H.R. 1155 as amended passed the House of Representatives on a vote of 397-6. S. 1926 was introduced by Senator Robert Menendez on January 14, 2014. The legislation had two titles. Title I, the Homeowner Flood Insurance Affordability Act of 2014, would have delayed the implementation of certain aspects of the Biggert-Waters Flood Insurance Reform Act of 2012. Title II of S. 1926 contains language identical to S. 534 as reported by the Senate Committee on Banking, Housing, and Urban Affairs except for minor technical changes. The floor consideration of S. 1926 was focused on Title I, with several amendments to the flood insurance provisions adopted but no changes made to Title II. Senator Coburn, as he did in committee consideration, offered an amendment ( S.Amdt. 2697 ) providing states the ability to opt out of NARAB. The full Senate rejected this amendment by a vote of 24-75. S. 1926 as amended passed the Senate by a vote of 67-32 on January 30, 2014. On June 19, 2014, as part of a markup of H.R. 4871 , which would extend and amend the Terrorism Risk Insurance Act, Representative Neugebauer offered an amendment consisting of the text of H.R. 1155 as passed by the House. This amendment was accepted on a voice vote, and the overall bill was ordered to be favorably reported to the full House by a vote of 32-27 on June 20, 2014. The bill was reported ( H.Rept. 113-523 ) on July 16, 2016. On July 17, 2014, as part of floor consideration of S. 2244 , a bill to extend the Terrorism Risk Insurance Act, Senator Tester offered S.Amdt. 3552 . This amendment added a second title to the bill containing the language of H.R. 1155 as passed by the House with one additional section. This new section, Section 335, provided that the NARAB II provisions would terminate two years after the date on which the NARAB association approves its first member. S.Amdt. 3552 was adopted by voice vote, and S. 2244 as amended passed the Senate by a vote of 93-4. On December 10, 2014, the House considered S. 2244 with an amendment in the nature of a substitute. This substitute amendment included a second title containing NARAB II provisions but did not include the two-year sunset provision in Section 335 of the Senate-passed bill. The substitute amendment included numerous changes to Title I concerning the Terrorism Risk Insurance Act and added a Title III, the Business Risk Mitigation and Price Stabilization Act of 2014. Title III would amend statutory provisions originating in the Dodd-Frank Act relating to derivatives and margin requirements for end users. S. 2244 as amended passed the House by a vote of 417-7. In the 113 th Congress, the Administration expressed support, with some reservations, for NARAB II legislation. The Federal Insurance Office released a report, How t o Modernize a nd Improve t he System o f Insurance Regulation i n t he United States , in December 2013 and specifically recommended passage of NARAB II legislation, citing the inefficiencies resulting from the lack of uniformity and reciprocity as detrimental to insurance consumers. As the Senate was considering S. 1926 , the Executive Office of the President released at statement of Administration policy (SAP) on the bill. This SAP expressed support for the "policy goals" of Title II of S. 1926 , but the support was tempered by reservations on two fronts. First, the bill's process for criminal background checks was seen as inconsistent with the processes currently used by the Federal Bureau of Investigation (FBI), although the Administration believed the bill could be made consistent with these FBI processes. Secondly, the Administration raised constitutional concerns regarding the bill's requirement that the President appoint state insurance commissioners as eight of the 13 members of the NARAB board and requested an amendment to broaden the size of the appointment pool. Legislation to mandate the creation of a NARAB organization, similar to P.L. 114-1 , Title II, was first introduced into the House of Representatives in the 110 th Congress ( H.R. 5611 ), with similar legislation introduced in the 111 th Congress ( H.R. 2554 ). The House passed these bills in the respective Congresses by voice vote, and the legislation was referred to committee when received by the Senate. NARAB II legislation was introduced in the 112 th Congress ( H.R. 1112 and S. 2342 ), but, unlike in the previous Congresses, the House did not bring NARAB II legislation to the floor in the 112 th Congress. The general outlines of the various NARAB II bills have been similar. The bills would amend the NARAB sections to create a NARAB organization regardless of state actions on reciprocity and uniformity. NARAB II legislation would create an organization similar to the one originally envisioned in GLBA. It would be a nonprofit, private body whose members would be required to be state-licensed insurance producers but could operate across states without having licenses from the individual states. The specifics of the NARAB II bills have, however, differed to some degree, particularly in the makeup of the board of directors and how the board would be appointed. The initial NARAB II legislation ( H.R. 5611 , 110 th Congress) included a nine-person board of directors, four to be appointed by the NAIC and five to be appointed by the insurance industry. H.R. 2554 (111 th Congress) and H.R. 1112 (112 th Congress) changed this makeup to an 11-person board (with 6 insurance commissioners and 5 insurance industry representatives) to be appointed by the President with Senate confirmation. S. 2342 (112 th Congress) and the current legislation again changed the NARAB board to be comprised of 13 people (8 insurance commissioners and 5 insurance industry representatives) who are presidentially appointed and Senate confirmed. In addition, H.R. 5611 required a report by the NARAB association to the President, Congress, and the NAIC, whereas subsequent legislation required the report be made solely to the President and the NAIC. Legislative provisions creating a NARAB appeared as part of broad financial regulatory reform legislation in the 105 th Congress and the 106 th Congress, ultimately becoming law as part of GLBA in the 106 th Congress. GLBA sought to address insurance producer complaints about the variation in state licensing requirements through a sort of provisional federal preemption of state laws. The law called for the creation of a private, nonprofit licensing body, the NARAB, whose insurance producer members would have been authorized to operate across state lines without individual licenses from every state. Membership in NARAB would have been open only to people already holding a state insurance producer license and who fulfilled other criteria. Although established by federal authority, the NARAB to be created by the provisions in GLBA would have been entwined in the system of state regulation. The NAIC would have appointed the seven members of the NARAB board and had other oversight authorities. The NARAB I language in GLBA also offered the states the opportunity to avoid creation of the NARAB organization if a majority of them created among themselves systems of either uniformity or reciprocity in insurance producer licensing within a three-year window after passage of GLBA. The NAIC was given the authority to determine whether the states met this GLBA standard, with the possibility of federal judicial review of the determination. The individual states and the NAIC reacted relatively quickly to this opportunity with the promulgation of an NAIC model law that would provide for reciprocity. A sufficient number of states adopted laws providing for insurance producer licensing reciprocity that the NAIC determined the GLBA standards to avoid creation of the NARAB organization were met. As a result, the NARAB organization was not created. The first legislation specifically providing for the creation of a NARAB that the Congressional Research Service has been able to identify was introduced in the 102 nd Congress (Title IV of H.R. 4900 ). The bill was reintroduced in the 103 rd Congress and subcommittee hearings were held that addressed NARAB, but the bill was not acted on further. The original NARAB provisions were part of legislation that would have created a federal commission for solvency oversight of insurers. The NARAB created by this legislation would have been similar to subsequent versions in that it would have been a nonprofit association whose members would have been state-licensed insurance producers, but the preemption of state law would have been narrower than in subsequent versions. The original version of NARAB would not have permitted its members to operate with a single state license but instead would have operated to enforce uniformity though a central clearinghouse and a uniform producer application. The board of directors would have been elected by the membership, and the Federal Solvency Commission to be created by the bill would have had oversight authority over this version of NARAB. | The individual states have been the primary regulators of insurance in this country for the past 150 years. Congress specifically authorized the states' role in the 1945 McCarran-Ferguson Act (15 U.S.C. §§1011-1015), and state primacy in insurance regulation has been recognized in more recent laws shaping the financial regulatory system, such as the 1999 Gramm-Leach-Bliley Act (GLBA; P.L. 106-102) and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203). The system of multiple state regulators, however, has faced criticism over the years, with frequent focus on its efficiency. One particular aspect of regulation that has been criticized by some as overly burdensome and inefficient is the licensure of insurance agents and brokers, known collectively as insurance producers. Every state requires specific licenses, sometimes with differing criteria, and insurance producers have identified the need to have multiple licenses as a significant expense. Organizations such as the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) create model laws and undertake other steps to harmonize insurance regulation and laws across the country, including the NAIC's promulgation of models for insurance producer licensing. The individual states, however, are sovereign entities, and any models suggested by the NAIC or NCOIL must first be enacted by state legislatures. The state authorities may amend models or completely reject suggestions from outside groups. Often this is done with the argument that laws and regulations need to be adapted to particular local circumstances or risks, such as hurricane risks along coastal areas. Federal proposals addressing multiple state insurance producer licensing requirements through the creation of a National Association of Registered Agents and Brokers (NARAB) appeared as far back as the 102nd Congress, and a version of NARAB was included in GLBA. These GLBA provisions, known generally as "NARAB I," were conditional and would not come into effect if a majority of states passed laws providing for uniformity or reciprocity in insurance producer licensing. Although a sufficient number of states met the GLBA requirements and thereby prevented the creation of NARAB, insurance producers continued to identify issues in the state licensing system. As a consequence, "NARAB II" legislation, mandating the creation of a NARAB organization, has been introduced in every Congress since the 110th. It was passed by the House in the 110th and 111th Congresses. In the 113th Congress, the National Association of Registered Agents and Brokers Act was introduced in both the Senate and the House and similar provisions were included in bills addressing flood insurance and terrorism insurance. Legislation including NARAB II provisions passed both the House and the Senate, but because they differed in some respects, no bill was sent to the President. In the 114th Congress, both the House and the Senate passed NARAB II provisions included as Title II of H.R. 26, which became P.L. 114-1. Under P.L. 114-1, membership in the NARAB organization will permit insurance producers to operate in multiple states without obtaining specific licenses from these states. To become a NARAB member, an insurance producer will be required to have a license from at least one state, pass a criminal background check, and meet other requirements. The law requires that these additional requirements be not "less protective to the public" than the NAIC model law on insurance producer licensing. The association is to be governed by a 13-member board made up of 8 current or former state insurance commissioners and 5 insurance industry experts. The President is to appoint the board, with advice and consent of the Senate, and retain the ability to remove the board and override the NARAB organization's rules or actions. |
Many diplomatic and military practitioners as well as theorists have argued that successful execution of a military operation depends on how well specific actions are matched to strategic intent. It has been argued that the imposition of any no-fly zone, a particular form of military operation, should begin with a clear articulation of strategic-level goals. For any given situation, such "grand strategy" might include, in this order: a clear statement of the U.S. national interests at stake; a vision of the political endstate—the strategic-level outcomes—that would help secure those interests; a clear articulation of the major steps—the ways and means—including diplomatic, political, and economic as well as military, to be employed in order to accomplish the desired endstate, including the objectives each is designed to achieve; and a consideration of the nature and extent of political "risk" in the proposed approach—including the potential impact of proposed actions on the civilian population in the targeted country, on the region, on broader international partnerships, and on perceptions of the U.S. government both at home and abroad. The military strategy designed to support the grand strategy, it has been suggested, might be based on these considerations: the operational-level military objectives that need to be achieved, to support the overall grand strategy, and the extent to which a no-fly zone—as one set of ways and means—helps achieve those objectives. Recent operational experiences suggest that the establishment of a no-fly zone, in itself, is unlikely to achieve the full set of military objectives, such as protecting a civilian population, let alone the grand strategic objectives, such as restoring or removing a regime. In key recent "no-fly zone" cases, observers suggest that the strategic planning process may have emphasized "mid-range" operational-level concerns at the expense of higher-level strategic concerns. In Operation Odyssey Dawn, Operation Northern Watch, Operation Southern Watch, and Operation Deny Flight, the match between the application of one military approach—the no-fly zone—and broad strategic goals, many assess was at best incomplete. Operation Odyssey Dawn, a coalition operation conducted during early 2011 over Libya, was put in place to enforce United Nations Security Council Resolution 1973, which authorized force to protect civilians in Libya. Facing a popular uprising, the Libyan government under Muammar al Qadhafi had responded with attacks against population centers with armor, artillery, and air strikes. Going beyond a pure no-fly zone, Operation Odyssey Dawn prevented Libyan air forces from operating against civilians, while including attacks against pro-Qadhafi ground forces that were perceived to be threatening civilian populations. Although Odyssey Dawn included establishment and enforcement of a no-fly zone, it also included strike operations against Libyan government forces perceived to be attacking civilian populations, and the command and control and logistics networks supporting those forces. More information on Operation Odyssey Dawn can be found in CRS Report R41725, Operation Odyssey Dawn (Libya): Background and Issues for Congress . Operation Northern Watch (ONW), a combined operation involving U.S., UK, and French forces conducted from 1991 to 2003, was designed to enforce a no-fly zone in northern Iraq, north of the 36 th parallel, in order to prevent Iraqi repression of the concentrated ethnic Kurdish population living in that part of the country. The Iraqi government led by Saddam Hussein had already made use of Iraqi airspace to attack Iraqi Kurds in Halabja with chemical weapons in 1988. Acts of repression after the conclusion of the early 1991 Gulf War had displaced many Iraqi Kurds. The immediate aim of ONW was to protect the population from further attacks by the Iraqi military, and it is generally considered that ONW largely achieved this operational objective. At the strategic level, ONW took place against the backdrop of international pressure on the Iraqi government to comply with an international weapons inspection regime, in accordance with U.N. Security Council resolutions. Missing from ONW, in any explicit way, was a vision of political endstate, or a stated theory of the case linking the no-fly zone to that endstate. Similarly, Operation Southern Watch (OSW), a U.S.-led coalition operation, was designed to protect the Shi'a Arab population of southern Iraq from repression and retaliation by Iraqi government forces in the wake of the Gulf War. The Iraqi government had made use of its own airspace to conduct bombing and strafing runs targeting Shiite citizens. In terms of immediate operational objectives, OSW is generally considered not to have prevented Iraqi government repression of its southern population. At the strategic level, while some U.S. officials had reportedly considered, at one time, that in the wake of the Gulf War southern Iraqi Shiites might rise up to demand the ouster of Saddam's regime, OSW does not appear to have been guided by any explicit vision of political endstate. Operation Deny Flight (ODF) was a NATO operation that banned all flights—with some exceptions—in the airspace of Bosnia and Herzegovina from April 1993 to December 1995. The military objectives included denying the use of that airspace to Bosnian Serb aircraft, in order to protect the population and facilitate the delivery of humanitarian assistance. Observers have debated the ODF's degree of success in this regard—while humanitarian work by international relief organizations was protected to some extent, Bosnian Serb aircraft periodically defied the flight ban to stage attacks, while on the ground, for example, Bosnian Serb forces overran the U.N. safe haven in Srebrenica, in 1995, killing thousands. At the strategic level, ODF may have come closer than the no-fly zone operations in Iraq to linkage with strategic objectives. In the preamble of the 1992 U.N. Security Council resolution authorizing ODF's precursor, a no-fly zone banning military aircraft, the Council "consider[ed] that the establishment of a ban on military flights in the airspace of Bosnia and Herzegovina constitutes an essential element for the safety of the delivery of humanitarian assistance and a decisive step for the cessation of hostilities in Bosnia and Herzegovina." Some experts believe that the Bosnian no-fly zone contributed directly to the ultimate cessation of hostilities; others suggest that its contribution is difficult to separate from the roles of close air support and the ground presence of U.N. troops. There is little evidence to suggest that a clear and specific vision of the political endstate that might follow a cessation of hostilities informed the creation of the no-fly zone. Practitioners and observers have debated what constitutes international "authorization" for the establishment of a no-fly zone. Given the paucity of relevant precedents, and the dissimilarities among them, there may not exist a single, clear, agreed model. Authorization may be not only a question of approval or disapproval. It may also include parameters for the execution of the mission, and conditions under which the authorization for the no-fly zone operation will be considered discontinued. It may not be necessary to achieve all of the broad objectives of grand strategy before discontinuing the no-fly zone—the no-fly zone operation may be designed to catalyze overall progress toward those objectives. In turn, the concept of authorization is typically considered to be linked to the ideas of both "legality" and "legitimacy"—the three concepts overlap but are all distinct. The precise meaning of each of the terms is still debated. The legality of a no-fly zone operation may depend, at a minimum, on both authorization for the operation and the extent to which the manner of execution of the operation comports with relevant international law. The Charter of the United Nations, in Article 2(4), prohibits the "threat or use of force against the territorial integrity or political independence" of a member state under most circumstances, and many practitioners and observers have wondered whether the establishment of a no-fly zone would constitute a violation of this prohibition. In practice, the answer may depend on the circumstances—and in some cases there may be no general agreement about what the empirical circumstances indicate. There are at least three sets of circumstances that do—or may—constitute exceptions to this prohibition. The first basis for an exception is U.N. Security Council authorization based on the powers granted to the Council by Chapter VII of the U.N. Charter to respond to threats to international peace and security. That Chapter authorizes the Security Council to "determine the existence of any threat to the peace, breach of the peace, or act of aggression" and to "make recommendations, or decide what measures shall be taken ... to maintain or restore international peace and security." Express authorization from the Security Council provides the clearest legal basis for imposing a no-fly zone. The second basis for an exception is self-defense. Article 51 of the Charter explicitly recognizes the right of self-defense as an exception to the prohibition. The Article states, "Nothing in the present Charter shall impair the inherent right of individual or collective self-defense if an armed attack occurs against a Member of the United Nations." Some theorists and practitioners consider that there also exists a customary doctrine of self-defense outside of the U.N. Charter that permits military action to prevent a grave threat to regional peace and stability, even if that threat seems to be contained within the borders of a state. According to this view, armed intervention within a state is not a prohibited "use of force" so long as it is not aimed at taking a state's territory or subjecting its people to political control (a narrow reading of "use of force against the territorial integrity or political independence of any State"), and is not otherwise inconsistent with the intent of the U.N. Charter. If this reading is correct, then customary measures of self-help involving the use of force but falling short of war—reprisals, embargoes, boycotts, temporary occupations of foreign territory, pacific blockades, and similar measures—are not precluded by the U.N. Charter, but are acceptable means of customary self-defense preserved by Article 51. Others contend, however, that the Article 51 limitation supersedes what had been customary international law in these matters, and that the established practice of use of force by states in response to provocations other than armed attacks does not establish valid precedent, but rather, violates the Charter. Third, some have argued that emerging international human rights law provides that states are no longer free to treat their people as they see fit under the guise of sovereignty, but are instead obligated to respect their people's fundamental human rights. When a government engages in widespread abuse of the human rights of its own people, it has been asserted, that government loses a measure of its sovereignty. Other states, the argument continues, have the right or even the responsibility to intervene in order to put a stop to crimes against humanity, as an extension of the customary right of self-defense or the defense of others. This emerging doctrine of humanitarian intervention—sometimes described as the "responsibility to protect"—is not yet fully developed in international law, and there is no consensus about its application, including whether it constitutes an exception to the prohibition on the "threat or use of force." Some believe that only the U.N. Security Council has the authority to invoke this doctrine. The question of international authorization has direct implications, in turn, for the state in which a no-fly zone is imposed. If a no-fly zone is imposed against a state that has not carried out an armed attack against another state, in the absence of U.N. authorization based on Chapter VII of the U.N. Charter, and depending on the form the no-fly zone operation takes, that state might be entitled to consider the imposition of the no-fly zone itself an "armed attack." Even if the no-fly zone operations in a given state do not constitute an "armed attack"—which in itself may be a subjective judgment—that state, and other members of the international community, might consider them a violation of the prohibition of the "threat or use of force," as well as of the customary duty of non-intervention in the affairs of other sovereign states. The state targeted by the no-fly zone might, on that basis, choose to respond with military force or to seek assistance from its allies or partners to assist in its self-defense. While the legitimacy of any no-fly zone operation may draw on both authorization and legality, legitimacy is by definition a subjective question of perception—by the people of the host nation, by the U.S. population, and by other members of the international community. Issues to consider may include how the nature and extent of international authorization is likely to shape the perceived legitimacy of the no-fly zone operation; how the conduct of the operation is likely to shape that perceived legitimacy; the extent to which that perception of legitimacy, in turn, is likely to shape the support of members of the international community for the effort—ranging from political support, to the provision of basing, access, and overflight privileges, to full participation; and the extent to which perceived legitimacy is likely to affect the international community's broader perceptions of, and support for, other concurrent or future U.S. initiatives. The most germane recent no-fly zone cases do not establish a clear model for securing international authorization—they differ from one another, and in some instances they have spurred debate rather than consensus about what constitutes appropriate authorization. Both Operation Northern Watch (ONW) and Operation Southern Watch (OSW) were established in the wake of the early 1991 Gulf War in order to protect civilian populations of Iraq—ethnic Kurds living in northern Iraq, and Shi'a Arabs living in southern Iraq, respectively—from repression by the Iraqi government and its forces. In April 1991, in U.N. Security Council Resolution 688 (1991), the Council "condemn[ed] the repression of the Iraqi civilian population ... the consequences of which threaten international peace and security in the region." While that resolution strongly encouraged humanitarian action and urged member states to support it, it made no mention of military action. The previous November, the Council had laid the groundwork for military action in Iraq—the authorization for Gulf War operations—in U.N. Security Council Resolution 678 (1990), which invoked Chapter VII of the U.N. Charter. The resolution demanded that Iraq comply with previous resolutions, gave Iraq "one final opportunity" to do so, and—failing Iraqi compliance—"authorize[d] Member States ... to use all necessary means to uphold and implement [past Resolutions] and to restore international peace and security in the area." Experts and practitioners have since hotly debated the applicability of the November 1990 blanket authorization to "use all necessary means" to the two operations that followed the Gulf War proper. Operation Deny Flight, designed to protect the civilian population of Bosnia and Herzegovina, was based on a clear-cut U.N. mandate, although there may be less consensus about the basis for its precursor operation. In October 1992, in U.N. Security Council Resolution 781 (1992), the Council established a "ban on military flights in the airspace of Bosnia and Herzegovina," primarily on humanitarian grounds, to help ensure the safe delivery of humanitarian assistance. Following repeated violations of that ban, in March 1993 the Council invoked Chapter VII of the Charter, extended the ban, and "authorize[d] Member States ... acting nationally or through regional organizations or arrangements, to take ... all necessary measures in the airspace of the Republic of Bosnia and Herzegovina, in the event of further violations, to ensure compliance with the ban on flights." In addition to international authorization, debates have addressed the question of congressional authorization—whether and when there is a need for congressional approval based on the War Powers Resolution for a proposed no-fly zone. The question of whether and how congressional authorization is sought for a proposed operation could have an impact on congressional support—including policy, funding, and outreach to the American people—for the operation. On November 7, 1973, Congress passed the War Powers Resolution, P.L. 93-148 , over the veto of President Nixon. The War Powers Resolution (WPR) states that the President's powers as Commander in Chief to introduce U.S. forces into hostilities or imminent hostilities can only be exercised pursuant to (1) a declaration of war; (2) specific statutory authorization; or (3) a national emergency created by an attack on the United States or its forces. It requires the President in every possible instance to consult with Congress before introducing American Armed Forces into hostilities or imminent hostilities unless there has been a declaration of war or other specific congressional authorization. It also requires the President to report to Congress any introduction of forces into hostilities or imminent hostilities, Section 4(a)(1); into foreign territory while equipped for combat, Section 4(a)(2); or in numbers which substantially enlarge U.S. forces equipped for combat already in a foreign nation, Section 4(a)(3). Once a report is submitted "or required to be submitted" under Section 4(a)(1), Congress must authorize the use of force within 60 to 90 days or the forces must be withdrawn. Since the War Powers Resolution's enactment in 1973, every President has taken the position that this statute is an unconstitutional infringement by Congress on the President's authority as Commander in Chief. The courts have not directly addressed this question, even though lawsuits have been filed relating to the War Powers Resolution and its constitutionality. Some recent operations—in particular U.S. participation in North Atlantic Treaty Organization (NATO) military operations in Kosovo, and in U.N.-authorized operations in Bosnia and Herzegovina, in the 1990s—have raised questions concerning whether NATO operations and/or U.N.-authorized operations are exempt from the requirements of the War Powers Resolution. Regarding NATO operations, Article 11 of the North Atlantic Treaty states that its provisions are to be carried out by the parties "in accordance with their respective constitutional processes," implying that NATO Treaty commitments do not override U.S. constitutional provisions regarding the role of Congress in determining the extent of U.S. participation in NATO missions. Section 8(a) of the War Powers Resolution states specifically that authority to introduce U.S. forces into hostilities is not to be inferred from any treaty, ratified before or after 1973, unless implementing legislation specifically authorizes such introduction and says it is intended to constitute an authorization within the meaning of the War Powers Resolution. Regarding U.N.-authorized operations, for "Chapter VII" operations, undertaken in accordance with Articles 42 and 43 of the U.N. Charter, Section 6 of the U.N. Participation Act, P.L. 79-264, as amended, authorizes the President to negotiate special agreements with the U.N. Security Council, subject to the approval of Congress, providing for the numbers and types of armed forces and facilities to be made available to the Security Council. Once the agreements have been concluded, the law states, further congressional authorization is not necessary. To date, no such agreements have been concluded. Given these provisions of U.S. law, and the history of disagreements between the President and Congress over presidential authority to introduce U.S. military personnel into hostilities in the absence of prior congressional authorization for such actions, it seems likely that a presidential effort to establish a "no-fly zone" on his own authority would be controversial. Controversy would be all the more likely if the President were to undertake action "pre-emptively" or in the absence of a direct military threat to the United States. Since the War Powers Resolution gives the President the authority to launch U.S. military actions prior to receiving an authorization from Congress for 60-90 days, it is possible that the President could direct U.S. Armed Forces to take or support military actions in accordance with U.N. Security Council Resolutions, or in support of NATO operations, and then seek statutory authority for such actions from Congress. No-fly zone operations can conceivably take a number of different forms, and can themselves vary a great deal over time. Key considerations include, but are not limited to, the following factors. The sophistication of air defenses varies widely around the world, from individual, poorly coordinated anti-aircraft guns to integrated air defense networks coupled with high-performance surface-to-air missile systems and modern fighter aircraft. The characteristics of a given air defense system will indicate whether establishing a no-fly zone requires that the defenses be destroyed, suppressed (by jamming, network attack, or other means), or merely bypassed. It will also dictate in part the tactics required for the initial suppression of enemy air defenses—for example, whether it can best be done by manned aircraft, standoff weapons such as cruise missiles, and/or remotely-piloted aircraft (also known as unmanned aerial vehicles or "UAVs"). The size of the air component to be suppressed—not only the number of aircraft, but also bases—also informs the capabilities that the U.S. and partner forces would have to bring to bear. The quality of the air assets—particularly the quality and training of fighter forces, and the effectiveness of their command and control system—affects the amount of defensive assets that would have to be included in the no-fly zone force package, as well as the balance of efforts dedicated to offensive action against the enemy, and to defensive action to enhance the survival of "friendly" forces. The geographical boundaries of a no-fly zone help define both the relevant assets and the level of suppression of enemy air defenses (SEAD) required. For example, a no-fly zone focused on coastal areas could allow "friendly" naval air assets to engage more readily, and may not require the same level of SEAD as a no-fly zone that requires tactical aircraft (and especially supporting assets like tankers) to penetrate deeply into the defended airspace. Similarly, a no-fly zone that denies flight only over major urban areas, for example, reduces the resource requirements for the no-fly zone compared to denial of air activity over a whole country, as in Bosnia and Herzegovina; or major areas of a country, as in northern and southern Iraq. The proximity of allied and partner states can affect the availability of basing for land-based tactical aircraft and UAVs—the negotiation of new agreements regarding basing, access, and overflight, if required, can take time. The proximity of oceans, in turn, can provide navigable waters for carrier-based aircraft and/or cruise missile-equipped ships. Plans for resourcing a no-fly zone may be shaped by concurrent or potential competing demands, in particular for "high-demand, low-density" assets such as intelligence, surveillance, and reconnaissance (ISR). For example, U.S. ISR assets supporting the war effort in Afghanistan have been increased substantially, in part by drawing some assets away from Iraq; but the demand continues to grow. The participation of allies and partners can reduce the demands on U.S. forces for some capabilities—for example, strike—but depending on the scenario, the capabilities of partners in areas such as surveillance, and command and control, may not be sufficiently robust to provide equivalent effectiveness. Strategists generally argue that an understanding of the adversary's strategy and likely tactics should help inform the operational-level objectives of a no-fly zone operation. That understanding may be based in part on precedent—for example, the Iraqi government's use of chemical weapons against its own northern Kurdish population in 1988, and its use of fixed-wing and rotary-wing aircraft to strafe the population in southern Iraq after the Gulf War. That understanding may also be informed by current intelligence based on input from a variety of possible platforms and assets. If the adversary uses a large fixed-wing transport fleet to move troops around the country, or if it has a large concentration of fighter aircraft near a border with an ally or partner in the region and a track record of some hostility with that state, these factors may shape the priorities of the no-fly zone operations. Operational planning for a no-fly zone is likely to consider the adversary's most likely and most dangerous responses to the operation. Expectations—and intelligence—concerning possible adversary responses may shape the planned conduct of the operation, including the scope and scale of capabilities brought to bear. If denying the adversary's fixed-wing operations is sufficient to achieve the desired operational- and strategic-level effects, "air caps" can be maintained over the adversary's air bases, or standoff weapons can be used to render runways unusable, with minimal risk of civilian casualties or other loss. Minimizing the force used—for example, choosing not to destroy aircraft on the ground, hangars, or other support facilities—may allow a more rapid return to operation after the conclusion of the no-fly zone effort; this may be an important consideration, depending on the desired overall political endstate. If, on the other hand, the operational-level goals include denying adversary rotary-wing operations, a more significant no-fly zone operation would be necessary. Interdicting physical facilities—hangars, runways, ramp areas—has a much more limited effect on rotary-wing operations. Because helicopters are not tied to large bases, they are harder to locate when on the ground, requiring more assets to detect them and to monitor potential changes of location. Helicopters are also harder to detect than fixed-wing aircraft when airborne, particularly if the operators are skilled in using nap-of-the-earth flight and other techniques to minimize visibility to radar. Destruction of rotary-wing assets in the air would typically require getting within closer range of the targets than for fixed-wing platforms. Helicopters are harder to hit as well as to detect. In a scenario requiring suppression of rotary-wing activity, merely suppressing coastal or local air defenses would not be sufficient; since the helicopters could be almost anywhere in the adversary's territory, access to the adversary's full airspace would be necessary. Those imposing a no-fly zone operation may choose to limit it formally in scope, in the area of operation, in allowable weapons and tactics, or in other ways, in order to avoid civilian casualties or other loss, to incentivize defections by adversary forces, to restrict actions likely to alienate partners, or for other strategic considerations. The costs of establishing and maintaining a no-fly zone are likely to vary widely based on several key parameters: the specific military tasks that a given no-fly zone operation calls for. For example, initial costs might be relatively high if, as a first step, it were necessary to destroy the adversary's air defenses. A particularly robust surface-to-air capability, including a large number of discrete SAM sites, might prove relatively costly to suppress. the geography of the adversary's country—the surface area and type of terrain over which U.S. and partner forces would have to operate. A large surface area, as in ONW and OSW in Iraq, or mountainous terrain, as in ODF in Bosnia and Herzegovina, could both add cost, depending on the concept of operations for enforcing the no-fly zone. the duration of the no-fly zone. the extent to which the United States is joined by international partners in the effort. the extent of "mission creep"—how, if at all, the operation expands to include a broader array of activities designed to achieve the same military, and strategic, objectives. As a rough guide to the range of possible costs, Table 1 shows the costs to the U.S. government of U.S. participation in a variety of air operations in the 1990s. Of these, Operation Noble Anvil, the air war in Yugoslavia designed to address conflict in Kosovo, was the most intense. It involved initially limited and later extensive attacks to degrade air defenses throughout the Federal Republic of Yugoslavia, including all of Serbia. Those were followed by escalating air attacks initially focused on the military infrastructure and later on strategic targets. The operation lasted for two and a half months, from March 24 through June 10, 1999. The operation—including the no-fly zone and extensive additional activities—cost a total of $1.8 billion. Toward the other end of the spectrum are costs of the two no-fly zone coalition operations in Iraq. The costs to the U.S. government of Operation Southern Watch averaged somewhat more than $700 million per year, although the amounts varied substantially from year to year. The OSW mission involved constant patrols over a relatively large geographic area, punctuated by occasional strikes against Iraqi air defense sites. It imposed a considerable burden on U.S. Air Force units, mainly because of the long duration of the operation—from 1992 to 2003. CRS Report RL31133, Declarations of War and Authorizations for the Use of Military Force: Historical Background and Legal Implications , by [author name scrubbed] and [author name scrubbed]. CRS Report RS20775, Congressional Use of Funding Cutoffs Since 1970 Involving U.S. Military Forces and Overseas Deployments , by [author name scrubbed]. CRS Report RS21311, U.S. Use of Preemptive Military Force , by [author name scrubbed]. CRS Report R41725, Operation Odyssey Dawn (Libya): Background and Issues for Congress , coordinated by [author name scrubbed] | In conflicts in Kosovo, Iraq, and Libya, the United States has taken part in establishing and maintaining no-fly zones. As no-fly zones represent a significant commitment of U.S. forces, and may prove a precursor to other military actions, Congress may wish to consider issues surrounding the strategy, international authorization, congressional authorization, operations, and costs of establishing and maintaining no-fly zones. The military strategy designed to support U.S. grand strategy, it has been suggested, might be based on these considerations: the operational-level military objectives that need to be achieved, to support the overall grand strategy; and the extent to which a no-fly zone—as one set of ways and means—helps achieve those objectives. Practitioners and observers have debated what constitutes international "authorization" for the establishment of a no-fly zone. Given the paucity of relevant precedents, and the dissimilarities among them, there may not exist a single, clear, agreed model. The concept of authorization is typically considered to be linked to the ideas of both "legality" and "legitimacy"—the three concepts overlap but are all distinct. The precise meaning of each of the terms is still debated. Express authorization from the U.N. Security Council provides the clearest legal basis for imposing a no-fly zone. In addition to international authorization, debates have addressed the question of congressional authorization—whether and when there is a need for congressional approval based on the War Powers Resolution for a proposed no-fly zone. The question of whether and how congressional authorization is sought for a proposed operation could have an impact on congressional support—including policy, funding, and outreach to the American people—for the operation. Since the War Powers Resolution gives the President the authority to launch U.S. military actions prior to receiving an authorization from Congress for 60-90 days, it is possible that the President could direct U.S. Armed Forces to take or support military actions in accordance with U.N. Security Council resolutions, or in support of NATO operations, and then seek statutory authority for such actions from Congress. No-fly zone operations can conceivably take a number of different forms, and can themselves vary a great deal over time. Key considerations include, but are not limited to, the following factors: the nature, density, quantity, and quality of adversary air assets; geography; the availability of "friendly" assets; the adversary's military capabilities and responses; the U.S. military's concept of operations; and the rules of engagement. The costs of establishing and maintaining a no-fly zone are likely to vary widely based on several key parameters. They could be the specific military tasks that a given no-fly zone operation calls for, the geography of the adversary's country, the duration of the no-fly zone, the extent to which the United States is joined by international partners in the effort, and the extent of "mission creep"—how, if at all, the operation expands to include a broader array of activities designed to achieve the same military, and strategic, objectives. |
Inflation, the general rise in the prices of goods and services, is important to policymakers for several reasons. First, rising inflation is unpopular with the public, in part because some households are more adversely affected by inflation than others. Second, high or rising inflation can reduce productivity by distorting price signals, so that it is hard for businesses to tell if prices are changing in relative terms, and by individuals wasting resources in order to maintain the purchasing power of their wealth. Finally, inflation plays a key role in macroeonomic stabilization policy. Changes in inflation often indicate changes in the business cycle—rising inflation is often a sign that the economy is overheating and falling inflation is a sign that the economy is sluggish. The Federal Reserve (Fed) is mandated to keep inflation low and stable, and alters interest rates in order to do so. In recent years, the Fed has focused attention on the core rate of inflation, a measure of inflation that excludes food and energy prices, in explanations of its policy decisions. For example, in July 2007, the third sentence of the 10-sentence Federal Open Market Committee statement summarizing the committee's policy decision read, "Readings on core inflation have improved modestly in recent months." In Fed Chairman Ben Bernanke's July 2007 testimony to Congress, he stated that "Food and energy prices tend to be quite volatile, so that, looking forward, core inflation...may be a better gauge than overall inflation of underlying inflation trends." When core inflation approached 3% in 2006, Chairman Bernanke said that it had "reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability...." This report defines core inflation, reviews recent trends, and analyzes the advantages and drawbacks of using core inflation. No official measure of "inflation" exists. Inflation is measured as the percent change in a price index. Several indices track price changes, with each data series measuring something different. The most commonly cited measure of inflation is the percent change in the consumer price index (CPI) . This index measures the price of a basket of consumer goods and services that is representative of overall consumer purchases in urban areas. When food and energy prices are omitted from the CPI, the remaining basket is commonly referred to as the core CPI . The overall measure of CPI, which includes food and energy, is often referred to as the headline CPI . Another common measure of inflation is the percent change in the GDP (gross domestic product) price deflator , which is used to transform nominal GDP into real GDP. Since the GDP deflator is based on the prices of all goods and services in the economy, it is a broader measure of inflation than the CPI. A subset of the GDP deflator that is conceptually similar to the CPI, but includes more items and areas, is the personal consumption expenditures (PCE) price deflator ; for technical reasons, the Fed sometimes prefers this measure to the CPI in their analyses. Core measures of the GDP and PCE deflators are also available. Conceptually, core inflation could be any measure of inflation that attempts to strip out price volatility, but the most common definition of core strips out only two particularly volatile categories of goods, food and energy. The four most volatile items in the CPI are all food or energy products. The standard deviation of energy prices is estimated to be 12 times higher than overall inflation. Omitting food and energy prices from the CPI is not a trivial modification—food and beverages accounted for 15% of the headline CPI basket, and energy accounted for an additional 9% in 2006. While excluding food from core inflation has become conventional, it may no longer be warranted. The volatility of food has decreased significantly since the 1970s. Until 2007, the recent divergence between headline and core inflation was driven by energy prices. In 2007, food prices rose rapidly—it is too soon to tell whether this development marks a renewed period of persistent volatility. If food prices are no longer volatile, then policymakers may be losing useful information by omitting them. In recent years, headline inflation has typically outpaced core inflation, as seen in Figure 1 , because of the rapid rise in energy prices. In 2007, headline inflation was also driven up by a 3.9% increase in food prices. The difference between core and headline has not always been trivial—from 2003 to 2006, core inflation was 0.9 percentage points lower than headline. Considering that the Fed judges 2% inflation to be on the low side and 3% inflation on the high side, the definition used in these years would have arguably strongly colored their policy stance. The difference between core and headline inflation over this period was overwhelmingly the result of energy prices, which rose by an average of 12.8% a year as measured by the CPI. When comparing purchasing power over two time periods, headline inflation is the relevant measure. Comparisons over time of wages, wealth, rates of return, government transfers such as Social Security payments, and so on should all use a headline measure of inflation, because all of these concepts depend on a broad measure of inflation. For example, adjusting household income by core inflation would not be useful since food and energy consumption account for about one-quarter of average household expenditures. Similarly, government programs and parts of the tax code that are adjusted for inflation are based on headline inflation. Economic growth is also calculated by first adjusting GDP by headline inflation. Core inflation is used by policymakers for the reason offered by Chairman Bernanke in the introduction—policymakers are most concerned about the future path of inflation, and current core inflation data may give better information than current headline data about future headline inflation. Headline inflation often does not have good predictive power over short-time periods because food and energy prices are so volatile. For example, the monthly headline inflation rate varied between -6.3% and 7.5% in 2006 at annualized rates, whereas the core rate varied between 1.2% and 3.6%. Policymakers are concerned with future inflation because of lags between a change in policy and its effect on the economy. In essence, it is already too late for policy to influence current inflation, a policy change today can only affect future inflation. Theoretically, short-term changes in inflation can be caused by the supply-side or demand-side of the economy. When rising inflation is demand-driven, it means that spending is growing too quickly in the overall economy, and production cannot keep pace. This phenomenon is captured in the famous saying "too much money chasing too few goods." The Fed's task is to counteract this by raising interest rates in order to reduce the growth rate of interest-sensitive spending. Likewise, if spending is rising too slowly, inflation will fall, which the Fed can counteract by reducing interest rates. In the short run, the overall inflation rate can also be affected by sharp price changes of individual goods caused by supply shocks. For example, bad weather can drive up food prices or a reduction in the oil supply can drive up energy prices. Since these supply shocks are temporary, they should not have any lasting effect on inflation (holding aggregate spending constant), in which case they can be ignored by policymakers. In the long run, price shocks on the supply side should cancel each other out (since, across all goods, there will be an equal number of positive and negative surprises), and average inflation should be completely demand driven. Ideally, policymakers would like to be able to identify whether any change in inflation was demand-driven or supply-driven. Unfortunately, there is no straightforward way to do this, so they have commonly used core inflation as a proxy for demand-driven inflation, reasoning that food and energy are two sectors of the economy that are most susceptible to supply shocks. Furthermore, policymakers are particularly concerned with inflationary expectations, and a rising core rate may be a better sign than rising headline that inflationary expectations have risen. Relying on core inflation for policymaking has its drawbacks, however. There is no inherent reason that changes in food and energy prices cannot be caused by changes in aggregate demand. For example, rapid spending growth could push up energy prices if supply does not rise in response. In fact, an argument has been made that a change in aggregate demand would first show up in price changes of goods that have flexible pricing, such as commodities that are traded on financial markets where prices change continually to clear the market. Both energy and basic foodstuffs are traded on financial markets, although the CPI measures final food and energy products, not basic commodities. Furthermore, a rise in the price of any one good need not lead to a change in inflation if the prices of other goods fall to offset it. Technically, if a rise in one price leads to a rise in overall inflation, it must be because of some accommodation on the Fed's part (because it did not raise interest rates enough to induce other prices to fall). Most economists believe that some accommodation to relative price changes is desirable because it reduces the volatility of economic growth, whereas zero accommodation could lead to needless disruptions in economic activity. For example, Fed Governor Frederic Mishkin used the Fed's macro model of the U.S. economy to show that when the Fed reacts to changes in headline inflation instead of core inflation, future inflation will be slightly less volatile, but unemployment will be significantly more volatile. But if the Fed accommodates a rise in the price of one good too much, then the price of all goods could start rising. In other words, a rise in headline inflation could feed through to higher core inflation. This scenario occurred in the 1970s where rising energy prices resulted in a rise in total inflation. In scenarios like this one, a focus on core inflation could forestall a needed policy change until it is too late. Indeed, a case can be made today that more of a focus on headline inflation would have avoided the persistent upward trend in core inflation that has occurred from 2003 to 2007 and brought core inflation above the Fed's self-defined "comfort zone." The weakness with the focus on core inflation is that when energy prices rise continually for a period of several years, they no longer represent random price fluctuations that offer no useful information about future inflation. As a result, too much monetary policy accommodation may have taken place recently, causing the economy to overheat. Future events will reveal if this is the case, or if the rise in core inflation can be painlessly reversed without a recession. In the end, the question of what measure of inflation is best for policymaking is an empirical one. One study found that "no core measure does an outstanding job forecasting [headline] CPI inflation...we find no strong evidence to suggest that a selected core measure will be able to retain its usefulness as a tool to forecast inflation for any given period..." Another study did not find a statistically significant relationship between core inflation and future headline inflation, although the relationship becomes significant when limited to a more recent time period. Two other studies found that headline inflation is a better predictor of future headline inflation than core inflation. An explanation for this finding is that during the past 10 years, changes in core inflation have tended to lag behind changes in headline inflation as illustrated in Figure 1 . One study found that a core measure that excludes only energy was a better predictor of future inflation from 1983 to 2001 than a measure excluding food and energy. In fact, that study found food prices to be a better predictor of future inflation than any other measure, including core inflation. Some studies suggest that there may be more sophisticated measurements that are better gauges of underlying inflationary pressures than the standard definition of core inflation. Core inflation has the advantage from a policy perspective, however, of being transparent, whereas the more sophisticated measurements could be hard for the public to understand and open to accusations of data mining or manipulation. While this advantage may make core inflation a useful tool for communicating Fed policy to the public, the empirical evidence suggests it to be, by itself, an inadequate tool for policymaking. | Inflation measures the rate of change in all prices. Maintaining low and stable inflation is one of the primary goals of macroeconomic policy. But how should inflation be measured? Policymakers, particularly at the Federal Reserve, often refer to core inflation in their policy decisions. Core inflation is commonly defined as a measure of inflation that omits changes in food and energy prices. Some policymakers prefer to use core inflation to predict future overall inflation because food and energy price volatility makes it difficult to discern trends from the overall inflation rate. A drawback of an over-reliance on core inflation, however, is that an extended period of rapidly rising food or energy prices could cause all other prices to accelerate. A focus on core may cause policymakers to fail to react to such a rise in inflation until it is too late. This scenario may have occurred recently. Many economists are concerned that rapid increases in food and energy prices are now pushing overall inflation to uncomfortably high levels. Furthermore, several studies have failed to find core inflation to be a good forecaster of future inflation, casting doubt on the very rationale for relying on it. |
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